Employer Pays Heavy Fee For Not Acting In Good Faith During Termination feature image

Employer Pays Heavy Fee For Not Acting In Good Faith During Termination

Employers have a right to terminate employees. However, the right is not without limits. While an employee doesn’t need a reason to terminate an employee, a termination must still be done in good faith. The Supreme Court of Canada issued a decision in 1997 outlining how an employer must behave when terminating an employee. This behavior includes acting:

  • candid and forthright;
  • honest, truthful and not misleading;
  • fair and reasonable; and,
  • sensitive.

What happens when these requirements are not observed? As one employer recently found in a decision from the Ontario Superior Court of Justice, the consequences can be severe.

A star employee rises through the ranks

The employee was hired by the employer on September 3, 2002 and quickly rose through the company’s ranks. She had been recruited by the employer while she was serving as President and Global Chief Executive Officer of another company. After agreeing to work under the employer’s President and CEO, she took a job as a District Manager-in-Training. Just over three years later she had received a number of promotions and accolades, landing a position as General Merchandise Manager in 2005. A condition of her being offered this position was the signing of a non-compete agreement (the “NCA”), barring her from working with other mass retailers for two years after her employment ended, regardless of any reason for termination. The NCA stated the employer would pay her for two years should she be terminated, though she would receive no payments if she were to resign.

The employer continued to recognize the employer’s potential, placing her in an accelerated management program, and providing a positive reference for her in her application to join the Leadership Foundation, a division of the International Women’s Forum made up of female leaders in the private and public sectors.

The employee was promoted again in August 2008, this time to the position of Vice-President, General Merchandise with a salary of $272,000 and a maximum compensation range of $474,000-$642,000. In this position, she was responsible for 40% of the employer’s sales and 42% of its profits in Canada. She had 16 people reporting directly to her and another 400 reporting to those 16 people.

Relieved of her responsibilities and eventually terminated

The employee was expecting to eventually become the company’s Chief Merchandising Officer. However, during a meeting with her boss on January 29, 2010, she was informed that she was being relieved of her responsibilities as VP, General Merchandising. Her boss told her he was not sure what the employer was going to do with her, though it was considering moving her to one of the employer’s operations in a different country. At the time, she was under the impression that while there was no role for her in the merchandising department, but that she was still valued and there was a place for her at the company.

Over the next few months the employer explored a number of other opportunities within the employer’s business, including roles in Brazil, Chile, and the United Kingdom. She was also given a new title, Vice President Merchandising-Strategic Initiatives and later, Senior Vice President E-Commerce, but didn’t ever receive a job description for either position. By November of 2010 there had been no progress in the employee finding another position. In fact, after returning from an eight-week course at Harvard, she discovered that the contents of her office had been moved to a different building, cutting her off from direct access to her manager, and that her phone had been disconnected. On November 19, she was informed by the employer that her position was being terminated. She was paid her regular salary for 11.5 months before such payments stopped. The employer also terminated her medical, dental and life insurance benefits without communicating the terminations to her. She was also not paid a $129,047 bonus she was told she would receive at the end of 2011.

The court’s decision

The court ruled the NCA was valid and ordered the employer to pay the employee for two years. The court also ordered payment in lieu of her benefits, for her incentive plan, and for her Executive Retirement Plan. These payments amounted to $500,000. However, the court also found the employer’s treatment of the employee breached its duty of good faith. The employer was found to have delayed her termination, either purposefully or through indifference. By keeping her waiting for a job that was never to arrive, the employee was “misleading at best, and dishonest at worst.” The court added the employer’s behavior prior to the employee’s termination was “callous, highhanded, insensitive and reprehensible, deserving of an award for punitive damages.” In summing up the employer’s behavior, and its decision to award the employee $250,000 in punitive damages, the court said “It is not that (the employer) set (the employee) up to fail; it is that (the employer) built her up, only to let her down that much more. That corporate behavior was not just unduly insensitive, it was mean.”

At HMC Lawyers, our exceptional Employment Team understands how difficult it can be to be terminated from a job. We are here to help you understand what your rights are, and to help you reach a resolution if you a victim of wrongful dismissal or mistreatment from an employer. If you’re unsure about what your options are or want to talk, please reach us online or at 1-800-480-3534 today.

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