Bad Faith Dismissal: Overview

Termination of employment can be emotionally devastating. However, a dismissed employee is not entitled to receive moral damages for mental distress that he or she may suffer as a result of the dismissal. This is because at the time the employee accepted the offer of employment both parties understood that the other party had the right to terminate the employment relationship at any point in the future, subject to the obligation to provide notice of the termination.

However, if the manner by which the employer dismissed the employee was in bad faith causing the dismissed employee to suffer from mental distress, the employee may be entitled to an award of damages for bad faith dismissal. The award would be in addition to the employee’s entitlement to wrongful dismissal damages. The Supreme Court of Canada in Honda Canada Inc. v Keays1 referred to damages for bad faith dismissal as moral damages.

Phil White is an employment lawyer practicing in Toronto. He can be reached at pwhite@grosman.com or 416.364.9599

Phil White is a Toronto employment lawyer. He can be reached by email at pwhite@prwlaw.ca or by phone at 416.613.1381 or 1.888.350.9204 (toll-free)

To reiterate and emphasise the distinction: moral damages are not available for mental distress caused by the dismissal itself, even if the decision to dismiss the employee was unfair.2 Moral damages are only available for mental distress suffered as a result of the bad faith manner of the dismissal.

Bad faith conduct includes situations in which the employer was untruthful, misleading or unduly insensitive at the time of dismissal. Examples include falsely accusing the employee of misconduct, misleading the employee, deliberately humiliating the employee, attempting to undermine the employee’s future career prospects, or dismissing the employee to deprive the employee of a pension benefit.

The purpose of an award of moral damages for bad faith dismissal is to compensate the employee for the harm suffered as a result of the employer’s conduct during the dismissal process. The employee will be required to led evidence at trial that he or she from mental distress. Medical evidence will increase the likelihood that a court will award moral damages.  

Moral damages are distinguishable from punitive damages that are designed to punish the

An employer's bad faith actions at the time of dismissal that triggers mental distress in the dismissed employee can result in an additional damage award

An employer’s bad faith actions at the time of dismissal that triggers mental distress in the dismissed employee can result in an additional damage award

employer. However, as with punitive damage awards, in Honda the Court recognized that an award of moral damages also acts as a deterrent. Therefore, the courts are reluctant to award both moral and punitive damages and will do so only in exceptional cases, because of the concern that an award of both would represent double recovery for the plaintiff.

A court that awards a dismissed employee moral damages will award a fixed amount based on the court’s assessment of the degree of mental distress suffered by the dismissed employee. Since the Supreme Court of Canada’s 2008 decision in Honda a court will no longer simply extend the employee’s reasonable notice period.

Therefore, when reviewing caselaw, it is important to remember that any decision that predates the 2008 decision in Honda are no longer an accurate reflection of the law in terms of the court’s damage assessment. These older decisions can, however, be relied upon when reviewing examples of bad faith behaviour that may be compensable. Decisions that predate Honda are easily spotted because the court will refer to the award of damages for bad faith dismissal as “Wallace” damages rather than moral damages.

In Evans v. Teamsters Local Union No. 313 the Supreme Court of Canada clarified that an award of moral damages is not subject to the duty to mitigate. Unlike an award of damages for wrongful dismissal, it is not taxable.


  1. Honda Canada Inc. v Keays, 2008 SCC 39;
  2. The exception to this rule is that the decision to terminate an employee’s employment cannot have been the result of a discriminatory decision that would breach the Ontario Human Rights Code.
  3. Evans v Teamsters Local Union No. 31, 2008 SCC 20 at para 32;