An employee’s departure marks a significant juncture in an employment relation, often accompanied by a mix of emotions, uncertainties, and legal considerations for both parties. As custodians of both professional relationships and corporate reputation, employers bear a crucial responsibility during these transitional moments to underscore the ethical and legal obligations employers owe to departing employees, from the negotiation of severance packages to the dissemination of information critical for a smooth departure. As such, how employers handle their team members’ departure extends beyond legal obligations and encompasses a duty to uphold values of kindness and respect.

This blog will review the importance of an employer’s duty of good faith to employees in light of a recent decision from the Ontario Superior Court of Justice in which an employer sought to save money, but ended up costing them a lot more than they anticipated. Whether you are an employer aiming to create a workplace culture that values empathy, or an employee navigating the often emotional terrain of a career transition, understanding the significance of good faith and niceness in the departure process is critical. By gaining insights into these aspects, both employers and employees can foster an atmosphere of trust, transparency, and fairness during what can often be a challenging period.

Vice President of Company Terminated After 18 Years of Employment

In the matter of Koshman v. Controlex Corporation, the plaintiff (“MK”) was summarily dismissed from his role as vice president of the defendant employer (“the employer”) on September 11, 2020. The employer was a land holding company that owned and managed a large shopping centre in Ottawa.

At the time of termination, MK was 69 years old and had worked for the employer for 18.5 years. He earned an annual salary of $228,000 in addition to benefits and a monthly car allowance of $300. MK was a professional engineer by training and was recruited to the employer by its founder, “PD”. He reported directly to PD during his employment and had a good working relationship with him. MK worked with substantial autonomy and helped contribute to the company’s growth and success over the years.

Owner’s Wife Makes “Bizarre and Defamatory Statements” About Employee

PD died suddenly in July 2020 and his wife, “SD”, took over the company despite not previously being involved in the business. SD decided to terminate MK on “a not for cause basis” and he was not provided an opportunity to meet with her in person. He received a letter by courier advising of his immediate termination, with no further explanation, and was provided with his base salary for eight weeks and benefit continuation during the same period.

In the weeks after PD’s death, SD called MK to advise that she would run the company and be the only person with signing authority. However, MK was unable to send documents to SD for instruction or signature as she had no email address and did not come into the office. SD also instructed MK’s subordinates to bypass him and began making “bizarre and defamatory statements about Mr. Koshman, including that he was “a nobody” and was “no good” and not to speak to him and to deal only with her. She suggested it was possible her husband had been murdered and Mr. Koshman may have been involved, that he had been taking kickbacks, and that she had fired him.” MK also learned that SD had offered his job to someone else before he was actually terminated.

Employee Sues for Wrongful Dismissal

MK sued the company for wrongful dismissal and sought damages for breach of contract, aggravated damages, and punitive damages. In response, the company counterclaimed for breach of fiduciary duty, arguing that MK had mismanaged assets which resulted in losses for the company. However, this claim was not supported by evidence and was eventually abandoned. The company also initially refused to pay MK his accrued vacation pay under the Employment Standards Act, however, this was eventually paid out.

The Court determined that MK was terminated without cause and was, therefore, entitled to damages for breach of contract. Based on his age, senior position, lengthy service with the employer and significant contributions to the company, the Court found that a reasonable notice period was 24 months. The Court considered the fact that the company had obstructed his relocation opportunities through SD’s defamatory statements, and ultimately awarded MK $471,461.68 in damages.

Employers Reminded to Not Act in Bad Faith Towards Departing Employees

The Court also addressed the issue of the employer’s bad faith towards the employee, as he was treated in a “highly disrespectful and offensive manner… leading to his summary dismissal” which warranted aggravated and punitive damages. Accordingly, the Court awarded MK with $50,000 in aggravated damages and $50,000 in punitive damages given the employer’s reprehensible conduct. Finally, the Court awarded MK with costs on a partial indemnity scale to the date of his offer to settle, totalling $192,112.90.

This decision reminds employers of the importance of acting in good faith and respecting employee’s rights and reputation, even during the termination process. Failure to comply with such standards can result in exposure to significant legal liability and consequences, including substantial damages and costs awards. As such, regardless of the circumstances, employers should consult with a knowledgeable employment lawyer before beginning the termination process in order to mitigate their risk and exposure to potential liability by ensuring they comply with the terms outlined in the employment agreement and applicable legislation.

Contact Grosman Gale Fletcher Hopkins LLP for Legal Advice on Wrongful Termination Claims

When an employment agreement is terminated, there are various considerations and consequences for both the employee and employer to contemplate and navigate. As such, it is important to seek trusted legal advice as soon as possible in order to learn about your rights and entitlements while complying with both contractual and statutory requirements. At Grosman Gale Fletcher Hopkins LLP, our skilled labour and employment lawyers regularly advise employers and employees on their options when resolving issues related to termination with or without cause. To speak with a member of our team regarding your employment law matter, contact us at 416.364.9599 or reach out to us online.