Employee Dismissal: What is the Employer’s Duty of Good Faith?

Employee Dismissal: What is the Employer’s Duty of Good Faith?

Losing your job can be a traumatic experience. Alberta employers have a right to dismiss an employee with or without cause. But Canadian common law recognizes the mental distress this can cause an employee, so it defines the employer’s duty of good faith in the manner of employee dismissal.

Calgary Employee Dismissal What is the Employer's Duty of Good FaithThe Supreme Court of Canada recognizes that the employer-employee relationship is one of unbalanced power, and that a person’s employment is “one of the most fundamental aspects in a person’s life, providing the individual with a means of financial support and… is an essential component of his or her sense of identity, self-worth and emotional well-being.”

In this post, we’ll look at how the court seeks to protect a dismissed employee’s well-being with the employer’s duty of good faith.

The Employer’s Duty of Good Faith in the Manner of Dismissal

The general principle of good faith in Canadian courts is that parties to a contract must be honest with each other. If the manner of employee dismissal was in bad faith and caused the employee mental distress, the employee may be eligible for bad faith damages.

In the case of Wallace v United Grain Growers [1997] 3 SCR 701, the Supreme Court of Canada established that losing your job can be traumatic. That’s why the law now demands the employer’s duty of good faith in the manner of dismissal. The intention is to minimize the mental distress caused by employee dismissal.

But what is good faith? Simply, it’s honesty and fairness. According to the Supreme Court, when an employer must dismiss an employee, the employer must:

  • not be misleading;
  • be fair, reasonable, honest, truthful;
  • show sensitivity to the employee; and
  • speak in a manner that is candid and forthright.

This duty exists to protect employees from insensitive treatment when they may be vulnerable. Basically, when an employer dismisses you, they must do so thoughtfully and in a manner that attempts to mitigate the distress caused by the upset of losing your job.

If your employer dismisses you in a way that’s not humiliating and doesn’t damage your reputation, self-worth or self-esteem, they have probably fulfilled their duty of good faith in the manner of dismissal.

What is Bad Faith in the Manner of Dismissal?

Losing your job is always upsetting. This normal emotional distress is not what the courts consider bad faith. The natural mental distress caused by employee dismissal does not make you eligible for bad faith damages.

Bad faith in the manner of dismissal is conduct that’s misleading, untruthful, dishonest, humiliating, or insensitive. Examples of bad faith in the manner of dismissal include:

  • Falsely accusing the employee of inappropriate conduct or poor work performance
  • Dismissing the employee for the purpose of depriving them of their pension benefits or other rights
  • Deliberately humiliating the employee
  • Intentionally undermining the employee’s future career prospects
  • Refusing to provide a letter of termination

Employers’ bad faith in the manner of dismissal is often conduct that negatively affects the employee’s reputation or misrepresents the real reason for the dismissal.

An interesting aspect of bad faith law is that it can include conduct that happened after the employee was dismissed. Examples of post dismissal bad faith conduct include:

  • Dismissing an employee under the reasoning of a shortage of work, then immediately hiring a replacement
  • Failing to adequately communicate with or provide relevant information to an employee’s lawyer
  • Refusing to provide a reference letter when employee’s performance was acceptable
  • Delaying the provision of the employee’s Record of Employment

These are just a small sampling of what bad faith in the manner of dismissal can look like. If you think you were treated unfairly and in bad faith in your dismissal, consult an employment lawyer.

How to Prove Employer Bad Faith

In the courts, an employee must show actual mental distress to prove eligibility for bad faith damages, but medical evidence is not required. What’s essential is proving that the employer acted in bad faith upon dismissal, which caused serious and prolonged mental distress (beyond the normal distress of losing one’s job).

So it’s not enough to establish that an employer was unfair or misrepresented the facts in the manner of dismissal. You must also prove that those actions resulted in reputational damage or the employee’s ability to find work or severe mental distress.

Courts review cases of bad faith in the manner of dismissal in context. The courts take many factors into consideration in the decision, such as

  • The employee’s age;
  • The length of the employee’s employment;
  • The employee’s health;
  • The employer-employee relationship;
  • The timing of the dismissal;
  • The size of the employing organization; and
  • The nature of the community in which the company operates.

Bad Faith Damages

Bad faith damages are not punitive; they’re not awarded for the purpose of punishing the employer. Instead, they’re moral, meant to compensate the employee for the harm they suffered as a result of the employer’s conduct in the manner of dismissal.

The damages an employee may be awarded are at the discretion of the judge who will base the amount of the award on the degree of mental distress suffered by the employee. These damages are separate from termination notice awards (in the event of wrongful dismissal due to improper termination pay).

Bad faith damages are not taxable. How to Dismiss an Employee in Good Faith

This information might cause an employer to become nervous about dismissing an employee. “What if I say something wrong? What if we make a mistake?” Honest mistakes are unlikely to warrant an award of bad faith damages.

Dismissing an employee in good faith doesn’t have to be complicated. The key is to be professional, consistent, honest, and fair. Follow your policies and procedures. Honor the contract. Maintain professionalism during the dismissal (i.e. no yelling, insults, humiliation, etc.).


Employment dismissal is never easy. Employers can minimize the trauma by acting in good faith.

As an employer, it’s vital to understand your duty of good faith in the manner of dismissal. If you need clarification about this or if you’ve been accused of bad faith, Osuji & Smith Employment Lawyers can help.

If you’re an employee who was dismissed and has suffered mental distress because of the manner of dismissal, Osuji & Smith Employment Lawyers can review your situation to determine whether you have a case for bad faith damages.