Dismissal, Duties of Good Faith and Bonus
Update by Erin Brandt, Cofounder
We’ve known for a long time now: employers must act in good faith when dismissing employees. In recent years, employment lawyers have debated whether this obligation is broader: can an employee sue their employer who failed to act in good faith towards them during the life of the employment contract (i.e. for issues unrelated to dismissal)?
In Matthews v Ocean Nutrition Canada, 2020 SCC 26, the Supreme Court of Canada (SCC) had an opportunity to answer this question, but (spoiler alert) ultimately declined to do so.
The SCC did provide some general commentary on the legal claims an employee can make following their dismissal from employment, and the corresponding compensation they can ask for. Specifically:
When an employer dismisses an employee without cause, they must provide that employee with reasonable working notice of dismissal. This applies to constructive dismissals as well. If an employer fails to provide reasonable working notice, the absence or presence of good faith does not determine an employee’s claim for wage-loss compensation. Rather, the dismissal is considered a “good faith wrongful dismissal”.
If an employer fails to act in good faith when dismissing an employee, the employee can claim compensation for that failure (such as compensation for mental distress and/or punitive damages). This includes where an employer is untruthful, misleading or unduly insensitive in the manner of dismissal.
When an employer fails to act in good faith in the manner of dismissal, this is a distinct contractual breach from an employer’s obligation to provide an employee with notice of their dismissal. An employee seeking compensation for wrongful dismissal, and for their employer’s failure to act in good faith in the manner of dismissal, must make sure both claims are separately described in the Notice of Civil Claim.
Someone who has agreed to a contract must not lie or otherwise knowingly mislead the other party about matters directly linked to the performance of the contract. This is a general principle applicable to all contracts, including employment contracts. On this basis, an unhappy employee can argue in court that their former employer was dishonest in the performance of the contract. However, it remains unclear if this could entitle an employee to additional compensation.
While this case gave the SCC an opportunity to talk about duties of good faith, Mr. Matthews’ claim was actually for an unpaid bonus.
The SCC confirmed that in the absence of reasonable notice, an employee may claim the compensation (including both salary and bonus) that they would have earned had they received reasonable notice. The SCC reminded that an employee’s termination date is the last day of their reasonable notice period. Therefore, if an employee was expecting a bonus during their reasonable notice period but were denied that reasonable notice period, they are in fact entitled to the bonus, unless something in the bonus plan unambiguously states that they aren’t entitled to it. On this point, the Court clarified that language which requires an employee to be “actively employed” or which purports to remove an employee’s common law rights to damages upon termination “with or without cause” is not sufficiently explicit. Rather, if an employer doesn’t want to pay an employee their bonus after notifying them of their dismissal, they must draft contractual language which clearly covers the exact circumstances which ultimately arise.
This decision allowed the SCC to provide a summary of some fundamental employment law issues. As for Mr. Matthews, he won his case and his bonus.
