Ontario Court of Appeal Rules on Employer’s Manner of Dismissal – Duty of Good Faith and Fair Dealing

Written by on June 5, 2019 in Employment Law Blog, Focus on Canadian Cases
Contracts and Agreements

In Ruston v. Keddco MFG. (2011) Ltd. Ontario’s highest court recently upheld a substantial damages and costs award against an employer that breached its “duty of good faith and fair dealing in the manner of dismissal.”

Scott Ruston was hired by Keddco as a sales representative in 2004 and was promoted quickly through the employer’s organization. When Keddco was acquired by Canerector Inc. in 2011, he became President of Keddco and was referred to as a Division Manager of Canerector.

In June 2015, Ruston’s employment was terminated. He was told that he was being dismissed for cause and that he had committed fraud. No details were provided to him. When he indicated that he would be hiring a lawyer, his employer advised him that, if he did, a counterclaim would be commenced against him and it would be “very expensive.”

Shortly thereafter, Ruston commenced a claim against Keddco, seeking damages for wrongful dismissal. Making good on its threat, Keddco responded with a counterclaim, alleging cause and claiming damages of $1.7 million for unjust enrichment, breach of fiduciary duty and fraud, as well as $50,000 in punitive damages.

Ruston was fifty-four at the time of his termination. Apart from one brief period of employment, Ruston, who has a grade twelve education, has been unable to find re-employment.

After an eleven-day trial, the trial judge found that Keddco had failed to prove cause or any of its other allegations against Ruston. She also found that its counterclaim was an intimidation tactic and that it had breached its obligation of good faith and fair dealing in the manner of Ruston’s dismissal. The trial judge dismissed Keddco’s counterclaim and awarded Ruston damages in lieu of notice based on a nineteen-month notice period, including bonus and benefits, totalling approximately $479,000, punitive damages in the amount of $100,000, and aggravated damages in the amount of $25,000. In a subsequent costs decision, substantial indemnity costs in the amount of $546,684.73 were awarded.

The Court of Appeal dismissed Keddco’s appeal, including its motion for leave to appeal the trial judge’s costs award.

The court deferred to the trial judge’s “careful and cogent reasons” for her decision that a nineteen-month notice period was appropriate. Ruston had only eleven years of service with his employer, but other factors justified the lengthy notice period, including his age and level of education, and the serious nature of the allegations made against him.

With respect to the aggravated and punitive damages award, the Court of Appeal found that the evidentiary record provided ample support for the trial judge’s conclusion that Keddco had breached its duty of good faith and fair dealing in the manner of dismissal by threatening Ruston not to make a claim and then commencing a counterclaim that was intended to, and did cause him stress.

The court rejected Keddco’s argument that the same underlying conduct could not give rise to both aggravated and punitive damages, emphasizing the principle that aggravated damages aim to compensate a plaintiff for heightened damages caused by the breach of the employer’s duty of good faith and fair dealing in the manner of dismissal, while punitive damages seek to punish and denunciate inappropriate or unfair conduct.

The court also declined to interfere with the costs award. Despite recognizing that the award was “unusually high,” the court upheld the trial judge’s determination that the figure was fair and reasonable in the circumstances.

Key Takeaways

This decision serves as an important reminder for employers across Canada that the failure to act fairly and in good faith throughout the termination process can result in significant financial liability and reputational harm. An employer may be liable for aggravated damages and punitive damages if it breaches its duty of good faith and fair dealing in the manner of dismissal.

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