Moral Damage Award Involves Compensation For Hurt Feelings Due to Bad Faith Conduct By EmployerPage last modified: February 08 2023
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What Are Moral Damages Within a Wrongful Dismissal Lawsuit?
A moral damage award is provided as monetary compensation for bad faith in the manner of dismissal when an employee is terminated.
Understanding Moral Damage Awards Within Wrongful Dismissal Cases For Improper Manner of Dismissal By Employer
At the time that an employee is dismissed, the employee is most vulnerable and is highly dependent upon the conduct of the employer. If the employer acts with insensitivity or bad faith in the manner of dismissal, the employer may become liable for paying a moral damage award to the dismissed employee. Accordingly, employers should act with appropriate due care when terminating an employee.
Bad faith in the manner of dismissal, including handling the dismissal without due sensitivity to the employee, conduct that humiliates the employee or causes a loss of dignity, and failure to promptly provide final wages and proper termination pay, among other things, may lead to a moral damage award. Principles applicable to a moral damage award were well explained within the cases of Pohl v. Hudson’s Bay Company, 2022 ONSC 5230, and Galea v. Wal-Mart Canada Corp., 2017 ONSC 245, wherein it was said:
 Moral damages are available where the employer engages in a breach of the duty of good faith and fair dealing at the time of termination. An employer can breach this duty, for example, by being untruthful, misleading, or unduly insensitive. No independent actionable wrong is required to sustain an award of damages for mental distress resulting from a breach of the employment contract. If an employee can prove the manner of dismissal caused mental distress that was in the reasonable contemplation of the parties, the court may make an award that reflects the actual damages: Honda Canada, at paras. 54-57; Galea v. Wal-Mart Canada Corp., 2017 ONSC 245 at para. 232; McLean v. Dynacast, 2019 ONSC 7146, at para. 92.
 Moral damages are intended to compensate employees for moral distress beyond the usual distress and hurt feelings associated with being dismissed. The court is to look at how the employer carried out the termination of employment, including conduct at and after the time of the termination, if it is related to the dismissal: Doyle v. Zochem Inc., 2017 ONCA 130,  OJ No 748 (QL) at paras. 26, 39, and 47. There needs to be some evidence to support the requisite degree of mental distress, but it need not be proven by medical evidence: Groves v. UTS Consultants Inc 2019 ONSC 5605, 2019 CarswellOnt 15272 rev’d on other grounds 2020 ONCA 630,  OJ No 4214(QL) at paras. 113-114; Russel at para. 56.
 The recognition of a person’s employment by Chief Justice Dickson in 1987 is reflected by the importance the law gives to the manner in which a termination from that employment is made. This importance gave rise to an employer’s implied duty of good faith and fair dealing in the course of dismissing an employee. This duty was established in Wallace v. United Grain Growers Inc, 1997 CanLII 332 (SCC),  3 SCR 701. After Wallace, it was available for the court to award an extended period of notice if a finding was made that an employer had breached that duty.
 The Supreme Court of Canada in Keays v. Honda Canada Inc., 2008 SCC 39 introduced the concept of moral damages that took the place of any extended period of notice as a remedy. The court reaffirmed the fundamental nature of the same principles discussed in Wallace, but characterized them as deserving of a distinct category of damages known as moral damages. Chief Justice McLachlin defined moral damages at paragraphs 56 to 59 in Keays by stating:
 We must therefore begin by asking what was contemplated by the parties at the time of the formation of the contract, or, as stated in para. 44 of Fidler: “[W]hat did the contract promise?” The contract of employment is, by its very terms, subject to cancellation on notice or subject to payment of damages in lieu of notice without regard to the ordinary psychological impact of that decision. At the time the contract was formed, there would not ordinarily be contemplation of psychological damage resulting from the dismissal since the dismissal is a clear legal possibility. The normal distress and hurt feelings resulting from dismissal are not compensable.
 Damages resulting from the manner of dismissal must then be available only if they result from the circumstances described in Wallace, namely where the employer engages in conduct during the course of dismissal that is “unfair or is in bad faith by being, for example, untruthful, misleading or unduly insensitive” (para. 98).
 The application of Fidler makes it unnecessary to pursue an extended analysis of the scope of any implied duty of good faith in an employment contract. Fidler provides that “as long as the promise in relation to state of mind is a part of the bargain in the reasonable contemplation of the contracting parties, mental distress damages arising from its breach are recoverable” (para. 48). In Wallace, the Court held employers “to an obligation of good faith and fair dealing in the manner of dismissal” (para. 95) and created the expectation that, in the course of dismissal, employers would be “candid, reasonable, honest and forthright with their employees” (para. 98). At least since that time, then, there has been expectation by both parties to the contract that employers will act in good faith in the manner of dismissal. Failure to do so can lead to foreseeable, compensable damages. As aforementioned, this Court recognized as much in Fidler itself, where we noted that the principle in Hadley “explains why an extended period of notice may have been awarded upon wrongful dismissal in employment law” (para. 54).
 To be perfectly clear, I will conclude this analysis of our jurisprudence by saying 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. Damages attributable to conduct in the manner of dismissal are always to be awarded under the Hadley principle. Moreover, in cases where damages are awarded, no extension of the notice period is to be used to determine the proper amount to be paid. The amount is to be fixed according to the same principles and in the same way as in all other cases dealing with moral damages. Thus, if the employee can prove that the manner of dismissal caused mental distress that was in the contemplation of the parties, those damages will be awarded not through an arbitrary extension of the notice period, but through an award that reflects the actual damages. Examples of conduct in dismissal resulting in compensable damages are attacking the employee’s reputation by declarations made at the time of dismissal, misrepresentation regarding the reason for the decision, or dismissal meant to deprive the employee of a pension benefit or other right, permanent status for instance (see also the examples in Wallace, at paras. 99‑100).
 In the course of the trial, Ms. MacDonald brought a motion to amend the statement of claim to increase Ms. Galea’s claim to moral damages from $100,000 to $1 million. Leave to amend the statement of claim in this respect was granted, on consent. Ms. Galea also sought leave to amend the statement of claim to plead that Wal-Mart’s duty of good faith and fair dealing in its manner of dismissal encompassed both pre-termination and post-termination conduct.
 After a contested motion, leave to amend paragraph 41 of the Fresh as Amended Statement of Claim was granted, but not to the extent of the allegation “including the defendants conduct throughout the litigation and the trial itself”. The statement of claim was further amended to include the following particulars as subparagraph 41(e) regarding the pre-termination and post-termination conduct:
(e) The defendant failed to disclose, or insufficiently disclosed, relevant documents in its possession to the Plaintiff throughout the litigation, when it was reasonably within the contemplation of the Defendant that such failure to disclose, or insufficient disclosure would cause the Plaintiff to suffer mental distress, having regard to the timing and circumstances of the disclosure.
Test for Moral Damages
 Keays v. Honda relates the availability of moral damages to the requirement that those damages for an employer’s breach of good faith and fair dealing must be reasonably foreseeable. The court bases the principle of reasonable foreseeability on the contractual nature of the employment relationship, and on the principles set out in the seminal case from the English courts in Hadley v. Baxendale, (1854), 9 Ex. 341; 156 E.R. 145. On this approach, damages are recoverable for a contractual breach if the damages are those that may fairly and reasonably be considered either arising naturally from breach of the contract itself, or those that may have within the reasonable contemplation of both parties.
 The reasonable foreseeability of damages would therefore be within the contemplation of the parties having regard to the special circumstances in which the contract or, in the employment context, the employer and employee relationship was formed.
 The Supreme Court in Keays v. Honda refers to its earlier decision in Fidler v. Sunlife Assurance Co. of Canada, 2006 SCC 30, where it held that “as long as the promise in relation to state of mind is part of the bargain in the reasonable contemplation of the contracting parties, mental distress damages arising from its breach are recoverable”. The court in Keays v. Honda also makes reference to Wallace, where the court held that employers were held “to an obligation of good faith and fair dealing in the manner of dismissal” and created the expectation that, in the normal course of dismissal, employers would be “candid, reasonable, honest and forthright with their employees”. The court held that since at least that time, there has been an expectation by both parties to the contract, or in the case of an employment relationship between employers and employees, that the employers will act in good faith in the manner of dismissal, and that failure to do so can lead to foreseeable, compensable damages.
 In Wallace, the court discussed the duty of good faith and fair dealing in the manner of terminating an employee’s employment. It was recognized that this duty is a legal presumption and a primary obligation of all employers. The court held that employers are expected to be “candid, reasonable, honest and forthright with their employees.”
 The court in Keays v. Honda reinforced these principles as values to live by. The court held that compensation flows from conduct of an employer in the course of a dismissal that is “unfair or is in bad faith by being, for example, untruthful, or unduly insensitive”.
 Where an employer has breached the duty of good faith and fair dealing in the manner of dismissing an employee, the court in Keays v. Honda found 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. Instead, the court found that the damages attributable to the conduct of the manner of dismissal shall always be awarded according to the principles in Hadley v. Baxendale.
 The manner of dismissal causing an employee mental distress has now been recognized as the basis for moral damages. The court in Keays v. Honda concluded that if an employee can prove that the manner of dismissal caused mental distress that was in the contemplation of the parties, an award that reflects the actual damages caused may be made by the court. The court gave examples of such conduct upon dismissal of the employee that could result in compensable damages. Among them are cases where an employer attacks the employee’s reputation by making declarations at the time of dismissal, making misrepresentations regarding the reason for the decision, dismissal meant to deprive the employee of a pension or other benefit or right, and those examples given in Wallace itself.
 From the cases, I consider the following factors to summarize when moral damages may be available to a plaintiff:
1. Where an employer has breached its duty of good faith and fair dealing in the manner in which the employee was dismissed;
2. Conduct that could qualify as an employer’s breach of good faith or the failure to deal fairly in the course of a dismissal includes an employer’s conduct that is untruthful, misleading or unduly insensitive, and a failure to be candid, reasonable, honest and forthright with the employee;
3. Where it was within the reasonable contemplation of the employer that the manner of dismissal would cause the employee mental distress;
4. The wrongful conduct of an employer must cause the employee mental distress beyond the understandable distress and hurt feelings that normally accompany a dismissal; and
5. The grounds for moral damages must be assessed on a case by case basis.
 The fundamental nature of damages for conduct in the dismissal of an employee, including damages for psychological injury, is and remains compensatory. Moral damages relate to foreseeable damages to compensate an employee for injury or harm suffered by an employer’s conduct. The award of moral damages is distinct from any award for punitive damages, which are directed at the employer. The analysis regarding punitive damages relates to the employer’s conduct and concerns the disapproval of the court with respect to that conduct.
 Moral damages must not be confused with expense caused by another party for the conduct of the action. That expense is not appropriate as a claim to consider for damages. Litigation conduct is a matter properly reserved for submissions on costs. This is a question I dealt with in the reasons given at trial on June 3, 2016 on Ms. Galea’s motion for leave to amend her pleadings. On that motion, Wal-Mart referred to the decision of Justice Beaudoin in Geographic Resources Integrated Data Solutions Ltd. v. Peterson, 2015 ONSC 4658. In Geographic Resources, Justice Beaudoin recognized that Canadian courts have held that “where the conduct complained of relates to the conduct of litigation, it should be sanctioned by an elevated costs award and not punitive damages”.
 The same might be said to exclude matters relating to litigation conduct from a claim for moral damages. That said, it is my view an exception can be made for moral damages to respond where the evidence proves on the balance of probabilities that an employer has acted in bad faith, and that bad faith is manifested by the decisions and conduct of an employer or counsel acting on the employers’ instructions to frustrate or deny the rights of an employee.
An employer who dismisses an employee in an unfair manner, in bad faith by being untruthful, misleading or unduly insensitive, may become liable for paying moral damages to the dismissed employee.