Court Awards Over $600,000 in Landmark Wrongful Dismissal Decision

Background

In a landmark decision released earlier this month, the Ontario Superior Court of Justice addressed several complex issues at the intersection of commercial litigation and employment law. The case, which had been closely watched by legal practitioners across the province, involved allegations of wrongful dismissal, breach of fiduciary duty, and misappropriation of trade secrets.

The plaintiff, a former senior executive at a mid-sized technology company, alleged that her termination was carried out in bad faith following her disclosure of certain irregularities in the company’s financial reporting. The defendant corporation maintained that the termination was for cause, citing performance deficiencies and insubordination.

Key Issues Before the Court

Justice Morrison identified four central issues for determination:

1. Whether the plaintiff’s termination constituted a wrongful dismissal at common law
2. Whether the defendant breached its duty of good faith and fair dealing in the manner of dismissal
3. Whether the plaintiff was entitled to damages for mental distress arising from the termination
4. Whether the defendant’s counterclaim for breach of non-competition and non-solicitation covenants could succeed

Analysis and Findings

The Court undertook an extensive review of the employment relationship, spanning nearly fifteen years of correspondence, performance reviews, and internal memoranda. In reaching its conclusions, the Court drew upon established precedent from the Supreme Court of Canada, including the seminal decisions in Honda Canada Inc. v. Keays and Matthews v. Ocean Nutrition Canada Ltd.

“The duty of good faith and fair dealing in the manner of dismissal is not merely aspirational — it is a binding legal obligation that requires employers to act honestly, reasonably, and without ulterior motive when terminating an employment relationship.” — Justice Morrison

On the first issue, the Court found that the employer had failed to establish just cause for termination. The alleged performance deficiencies were not supported by contemporaneous documentation, and the Court noted that the plaintiff had consistently received positive performance evaluations throughout her tenure.

Damages Assessment

Having found that the plaintiff was wrongfully dismissed, the Court turned to the assessment of damages. The reasonable notice period was determined to be 22 months, taking into account the following factors established in Bardal v. Globe & Mail Ltd.:

• The plaintiff’s age at the time of termination (54 years)
• Her length of service (14.5 years)
• The character of her employment as a senior executive
• The availability of similar employment in the relevant market
• The plaintiff’s mitigation efforts, which the Court found to be reasonable and diligent

The total damages awarded were as follows:

• Pay in lieu of notice: $385,000.00
• Loss of benefits: $42,500.00
• Loss of bonus entitlement: $115,000.00
• Moral damages (bad faith): $50,000.00
• Punitive damages: $25,000.00

Implications for Employers

This decision serves as an important reminder to employers regarding several best practices in employment law. First, the importance of maintaining thorough and contemporaneous documentation of performance issues cannot be overstated. The Court expressly noted that retrospective characterizations of an employee’s performance carry significantly less weight than real-time assessments.

Second, the award of punitive damages — while relatively modest — signals the Court’s willingness to impose additional sanctions where employer conduct is found to be particularly egregious. In this case, the Court found that the employer’s conduct in orchestrating the termination while simultaneously pursuing baseless counterclaims constituted an “abuse of the litigation process.”

Restrictive Covenants

The Court’s treatment of the non-competition covenant is also noteworthy. Applying the framework established in Elsley v. J.G. Collins Insurance Agencies Ltd., the Court found the clause to be unreasonably broad in both geographic scope and temporal duration. The 24-month, province-wide restriction was held to be unenforceable as it went beyond what was reasonably necessary to protect the employer’s legitimate business interests.

The non-solicitation clause, by contrast, was upheld as reasonable in scope. However, the Court found no evidence that the plaintiff had in fact solicited any of the defendant’s clients or employees following her departure.

Conclusion

This case underscores the evolving landscape of employment litigation in Ontario and the increasing willingness of courts to scrutinize employer conduct not only at the point of termination but throughout the litigation process itself. Employers would be well advised to seek competent legal counsel before proceeding with any termination, particularly where the employee holds a senior position and the termination is alleged to be for cause.

For further information on wrongful dismissal claims or employment law matters, please contact our office.