Mistaken Bad Faith

Mulvihill v. Ottawa (City) – Ontario Court of Appeal – March 25, 2008

Committing a mistake when dismissing an employee, such as terminating the employee while they are on sick leave, does not meet the requirement of bad faith damages.

On March 25, 2008, the Ontario Court of Appeal established in Mulvihill v. Ottawa (City) [2008] O.J. No. 1070 (“Mulvihill”) that an employer does not conduct themselves in a bad faith manner by changing their claim from termination for cause to termination without cause prior to a trial. Similarly, an employer does not act in bad faith by committing a mistake when terminating an employee. Bad faith damages can only be awarded when the employer has acted either unfairly or in a manner of bad faith. Committing a mistake does not meet this requirement.

In Mulvihill, the employee’s supervisors and coworkers were dissatisfied with the employee’s work. Additionally, the employee had an exchange of inappropriate comments with a co-worker over e-mail. The employee filed a complaint in regards to both this situation and her supervisor, resulting in an investigation occurring at the workplace.

The employee did not return to work and justified her absence with a letter from her doctor informing that she was “unable to work for medical reasons.” However, in a meeting with the employer, the employee made comments which lead the employer to believe that the real reason she was absent was due to her dislike of her supervisor. Subsequently, after being informed that her complaint was dismissed without recourse, the employee sent a letter to the employer reiterating her opinion of her supervisor and wished to be relocated. As a result of this letter, the employee was dismissed for both insubordination and because she refused to return to work. Prior to the trial, this claim of termination for cause was dropped by the employer and the employee was given three and a half month’s salary and benefits as notice.

The Trial Judge found that the employee had been wrongfully dismissed and awarded four and a half months notice in addition to what was already given by the employer. This amount was increased by five and a half months due to a finding of bad faith on behalf of the employer for the unwarranted termination of the employee and for making the “mistake” of dismissing the employee while on sick leave. The employer appealed the award of bad faith damages.

In rendering a decision on appeal, the Court found that neither of the two grounds on which the Trial Judge based the award of bad faith was justified. The Court stated, “The mere fact that cause is alleged, but not ultimately proven, does not automatically mean that Wallace damages are to be awarded. So long as an employer has a reasonable basis on which to believe it can dismiss an employee for cause, the employer has the right to take that position without fear that failure to succeed on the point will automatically expose it to a finding of bad faith.” The Court continued by stating that “the [employer] held and acted on an honest, reasonably held belief that [the employee’s] conduct constituted insubordination amounting to just cause for dismissal. In the circumstances, the dismissal for cause cannot serve as a basis on which to make a finding that the City acted in bad faith or unfairly.” Additionally, the Court indicated, “There are numerous reasons why an employer might resile from the position that dismissal was for cause, including a willingness to compromise and to resolve disputes without the necessity of a trial. Employers must be free to abandon a position based on cause without fear that abandonment will automatically lead to liability for Wallace damages.”

In regards to an award of bad faith for terminating the employee while she was on sick leave, the Court stated that, “The mere fact that [the employee] was on sick leave at the time of termination does not necessarily mean the dismissal was conducted in an unfair or bad faith manner. There must be other evidence of bad faith, unfair dealing or –playing hardball’, such as cancellation of accommodation for an employee’s illness as a reprisal for the employee having made a human rights claim”. In Mulvihill, the Court found that there was no such evidence, resulting in the award of bad faith damages being set aside.

Barring an appeal, Mulvihill indicates two important points. First, an employer will not be found to have acted in bad faith simply because they withdrew a claim of cause for termination prior to the beginning of a trial. The reason for which permits the possibility of a decision being reached prior to the heavy and burdensome costs of trial. Secondly, and more importantly, an employer will not have to incur an increase in damages because of a mistake made during the termination process. The Courts do no expect perfection from employers, but they do require that the employer act in a reasonable and good faith manner. Unless there is evidence which indicates otherwise, bad faith damages will not be found because of a mistake.

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