Moral Damages for Wrongful Termination of Employment

July 30, 2020

By Brian Babcock

Traditionally, if you were fired without cause (“wrongfully dismissed”), you could collect damages equal to pay in lieu of notice (because no job is guaranteed indefinitely, all your employer owes you is reasonable notice) plus perhaps some modest amounts for lost benefits, retraining, moving expenses or the like.

On the other side of the coin, if you were the employer, you took comfort in knowing that damages were limited.

This happened because of a long history in contract law that held that a breach of contract did not entitle the injured party to any amount for hurt feelings. Every breach causes some inconvenience or upset, so the courts were unwilling to measure or compare these intangible losses, ignoring the fact that courts have for almost a century measured and compared damages for personal injury, which though tangible, also lack market value, and also have awarded “at large” damages for the loss of reputation in defamation.

In general contract claims, the availability of general or exemplary damages has opened up gradually over the past forty years or less. “General damages”, as the term is used in personal injury law, are paid for pain and suffering or loss of enjoyment of life – not a great fit for the emotional loss associated with being fired. “Exemplary damages” is an English term that describes what in Canada are two types of awards – aggravated damages or punitive damages. Both of these are only awarded in very rare cases, and require some outrageous or high-handed conduct that the court wished to denounce. The basic difference is that aggravated damages reflect a loss by the injured person, while punitive damages are purely about the bad behaviour of the opposing party (in employment cases, the employer).

Although aggravated damages and punitive damages might be and are awarded in extreme situations of bad employer behaviour, they are also a poor fit for most firing related cases, where the conduct does not meet the high bar of the test for those categories.

Over the years, Canadian courts have struggled with the issue. It is clear that general damages are still not routinely available in most wrongful dismissal cases, and that some additional bad behaviour by the employer is required to trigger additional amounts beyond notice damages.

For a time, courts seemed to have settled on “Wallace damages”, so named after a leading case. Under the rules established by that decision, if the judge decided that the employer’s conduct was more than just a breach of contract, and constituted a breach of good faith, or was untruthful, misleading or unduly insensitive, the notice period would be extended, resulting in those ex-employees receiving larger awards than employees treated fairly on dismissal.

This was not a great fit, for various reasons. There was no consistency in how much the additional amounts were, and as amounts in lieu of income, they were taxable.

In 2008, in a decision known as Honda Canada Inc. v. Keays, the Supreme Court decided that Wallace damages should no longer be awarded. Instead, they created a new category called “moral damages”, which are often referred to as “Honda damages”.

Honda damages are awarded in cases where actual bad faith could be proven and the employee could demonstrate a resulting injury caused by that misconduct. Like general damages, they are awarded as a lump sum, not linked to the income loss. As they are not referred to as “general damages”, they are not always, or generally, available. The term “moral damages” captures the intent of the Supreme Court in redefining the category as still tied to bad faith or similar misconduct. Over the years since, the amounts awarded have increased significantly, and it is not unusual to see awards of $100,000. Of course, these damages are not awarded in every case, and are not always that high.

This means that if you are an employee who was fired, and your employer acted in a way that was unfair or is in bad faith by being, for example, untruthful, misleading or unduly insensitive, and you can show evidence that this conduct caused you mental suffering, you may recover moral damages on top of traditional amounts.

For employers, this is yet another reason to avoid conduct which might be later viewed, in 20/20 hindsight, as “flagrant or outrageous”. You might be surprised how little it sometimes takes to cross that line, once the effect on the employee is apparent. Professionalism and acting in good faith is the appropriate behaviour when it is necessary to terminate employees.