Here’s a question for the employment law community:
Is it now bad faith in the manner of dismissal for an employer to make an honest, but ultimately incorrect conclusion that there is cause for dismissal?
I have been left wondering that question after my quick read of a recent case from Alberta called Soost v. Merrill Lynch.
Background: From Wallace Damages to Keays Damages
Honda v. Keays was generally received favorably by employers because the Supreme Court put an end to “Wallace Damages”: the practice wherein courts would extend the notice period to account for bad faith by an employer in the manner of dismissal. Courts had been going nuts with that new power, ordering Wallace damages in case after case. In Honda, the Court ruled that bad faith damages ’will be awarded not through an arbitrary extension of the notice period, but through an award that reflects the actual damages‘. The Court ruled that ‘there is no reason to retain the distinction between ‘true aggravated damages’ resulting from a separate cause of action and moral damages resulting from conduct in the manner of termination’. (para. 59) That is because, now, damages are available whenever an employer engages in bad faith conduct in the manner of dismissal that causes ‘foreseeable damage’ to the employee.
I argued back in 2005 in a paper in the Queens Law Journal (available here) that one problem with the Wallace extended notice damages approach was that, although it was pretty easy for employees to recover, it also will often significantly undervalue the true loss to the employee flowing from the bad faith. That is because the notice period–even including the extended notice permitted by Wallace–is arbitrarily capped by the courts at about 12 months for non-managerial and 24 months of senior management types (See Cronk v. Canadian General Insurance) Wallace damages were not intended to, and did not, compensate the employee for the actual loss suffered.
The Honda case corrected that problem by requiring employees to prove damages flowing from bad faith in the manner of dismissal. I noted at the time that this is a double-edged sword for both parties: it will make it harder for employees to recover damages for bad faith dismissal, but could also allow for much larger damage awards in those cases where employees can prove actual harm.
Soost v. Merrill Lynch
Now comes Soost v. Merrill Lynch. Soost was a highly paid financial advisor who was dismissed for cause by Merrill Lynch, which alleged a variety of grounds, but mostly asserted Soost engaged in practices that violated the company’s policies. The Court ruled that there was not sufficient grounds to dismiss Soost for cause. Therefore, the Court turned to the question of damages. It ruled that 12 months notice was appropriate, based on the fact that Soost had been recruited from a competitor and had been employed ‘in the industry’ for 7 years, even though he had only worked for Merrill for 3 years.
The court then ruled that Merrill had engaged in bad faith in the manner of dismissal by acting ‘unfairly’ and ‘insensitively’. It awarded Soost $1.6 million dollars for bad faith dismissal!! The damages were recoverable because it was foreseeable that dismissing Soost for cause would have a “significant detrimental affect on his reputation in the industry”.
To terminate for cause someone in Soost’s position in the financial industry would foreseeably have the effect of mortally wounding that person’s ability to successfully carry on as an investment advisor. Merrill Lynch knew or ought to have known that. There was no good reason why, once Merrill Lynch had decided to let Soost go, it could not have done so with some minimal notice or allowed Soost to resign of his own accord.
I think the judge is correct about that foreseeability of the damages that flow from dismissing an employee in this sort of position for cause–it will no doubt cast a shadow over the person’s ability to work in the industry in the future.
However, you don’t get to the question of damages for bad faith dismissal until you have first found bad faith. Here, I must confess to having some confusion about what the employer did that constituted bad faith in the manner of dismissal. What was the bad faith?
Well, the court notes that the employer should have given Soost some notice of the problem and a date by which he was to to fix the problem (para 116). Does that mean that it is bad faith in the manner of dismissal to fail to give an employee a warning of performance problems and chance to fix them before dismissing the employee and alleging cause? Do you think a duty to warn an employee before firing them for cause should be implied through the mechanism of bad faith dismissal damages?
Was the bad faith not giving Soost notice, or a right to resign? That would be interesting. The reason the employer didn’t give Soost notice or a ‘right to resign’ is because it believed Soost had committed a significant breach of the contract and destroyed the necessary trust. It turns out that the employer was wrong about that and therefore committed a wrongful dismissal. But this wasn’t like Wallace, where the employer asserted cause when it knew there wasn’t any. Here the court accepts that Merrill Lynch actually believed it had cause to summarily dismiss Soost (see para. 204), and the judge confesses to having some difficulty deciding whether or not there was cause.
Which brings me back to my original question:
Is it now bad faith in the manner of dismissal for an employer to make an honest, but ultimately incorrect conclusion that there is cause for dismissal?
Wouldn’t surprise me if we have not heard the last of this case. Anyone know whether an appeal is being filed?
