Ontario Court of Appeal Affirms Employer’s Duty to Provide Honest Reasons for Dismissal

In Krmpotic v. Thunder Bay Electronics Limited, 2024 ONCA 332, the Ontario Court of Appeal upheld a Superior Court of Justice decision confirming that the duty of honest performance applies to employment contracts and encompasses the employer’s duty to exercise good faith upon terminating an employee.

Background

The respondent, Drago Krmpotic, was employed full time as the building maintenance supervisor until his employment was terminated without notice or cause. Mr. Krmpotic worked full time for the appellant for almost 30 years. At that time, Mr. Krmpotic had been on medical leave to recover from back surgery and had returned to work just hours before he was called into a meeting in which his employer terminated him. Subsequently, Mr. Krmpotic brought an action for wrongful dismissal.

Superior Court of Justice

The trial judge found that the defendant had breached the duty of good faith. The employer claimed that Mr. Krmpotic had been dismissed for financial reasons and that the financial statements would support that claim. However, the employer refused to produce the financial statements. The trial judge found that the real reason Mr. Krmpotic was terminated was due to his physical limitations, which restricted him from continuing the job duties he previously performed for the employer.

The trial judge found Mr. Krmpotic was entitled to a reasonable notice period of 24 months and awarded damages of $48, 576 for the remaining 8 months notice. The employer argued that the reasonable notice period should be reduced because Mr. Krmpotic failed to make reasonable efforts to mitigate his damages. The trial judge rejected this argument because Mr. Krmpotic was terminated when he was recovering from back surgery, which limited his ability to perform any meaningful physical labour during the notice period.

In addition, the trial judge awarded $50,000 for aggravated damages because the manner in which the defendant terminated Mr. Krmpotic was “the antithesis of an employer’s duty” to be candid, reasonable, honest and forthright, and to refrain from engaging in conduct that is in bad faith by being untruthful.

The Court of Appeal

The Court of Appeal upheld the trial judge’s award of aggravated damages, as well as the reasonable notice period of 24 months.

The court highlighted that the duty of honest performance applies to all contracts, including employment contracts. It encompasses the employer’s duty to exercise good faith during the course of dismissal from employment. Breach of the duty of good faith occurs through conduct that is unfair or made in bad faith, such as being untruthful, misleading, or unduly insensitive. The court confirmed that aggravated damages are available where the employer engages in conduct that is unfair or amounts to bad faith during the dismissal process by being untruthful or misleading.

The court found no basis to interfere with the trial judge’s decision. Mr. Krmpotic was terminated within two hours of returning to work after his back surgery. The court found that during the termination meeting, instead of being candid, reasonable, honest and forthright, the employer engaged in conduct that was untruthful, misleading and unduly insensitive.

Takeaway

The Court of Appeal affirmed that an employer has a duty to act in good faith throughout the process of terminating an employee. This decision highlights that employers should steer clear from being untruthful, misleading, and unduly insensitive when terminating an employee. Otherwise, if the employer breaches their duty of honest performance, they risk the consequence of an aggravated damages award.