The loss of a job can be emotionally devastating. However, a dismissed employee is not entitled to receive damages for mental distress, such as depression, that he or she suffers as a result of the dismissal. This is because at the time the employee accepted the employer’s offer of employment both parties understood that the other party had the right to end the employment relationship at any point in the future, subject to the obligation to provide notice to the other party.
However, if the manner in which the employer dismissed the employee was in bad faith and caused the employee to suffer from mental distress, the employee may be eligible for an additional damage award, often called “moral damages” for bad faith dismissal.
To reiterate the distinction: moral damages for bad faith dismissal are only available for mental distress suffered that was reasonably foreseeable as a result of the bad faith manner of dismissal. Moral damages are not available for mental distress caused by the dismissal itself, even if the decision to dismiss the employee was unfair.
Bad faith conduct at the time of dismissal includes situations in which the employer is untruthful, misleading or unduly insensitive. Examples of bad faith conduct 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.
Moral damages for bad faith dismissal are designed to compensate the employee for the harm suffered as a result of the employer’s conduct during the dismissal process. In this regard, moral damages are distinguishable from punitive damages that are designed to punish the employer. However, as with punitive damage awards, the Supreme Court of Canada has 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 in a wrongful dismissal case will award a fixed amount based on the judge’s assessment of the degree of mental distress suffered by the dismissed employee. Since the Supreme Court of Canada’s 2008 decision in Honda Canada Inc. v. Keays1Honda Canada Inc. v. Keays,  2 S.C.R. 362 at para 69. 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 predate 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 can often be 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. 312Evans v. Teamsters Local Union No. 31,  S.C.J. No. 20. the Supreme Court of Canada clarified that an award of moral damages is not subject to the duty to mitigate. Unlike wrongful dismissal damages, it is also not taxable.
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