Bad Faith — Ontario Employment Law

In Ontario employment law, the concept of 'bad faith' refers to an employer's breach of its duty to act honestly and fairly in its dealings with an employee. While employers have the right to manage their business and make decisions like terminating employment, they cannot exercise these rights in a manner that is dishonest, misleading, or unduly insensitive. This principle, solidified by the Supreme Court of Canada, means there is an underlying obligation of good faith performance in every employment contract.

Bad faith is not simply poor management or having an unpleasant boss. It involves a higher level of misconduct. Examples include an employer being untruthful about the reason for a termination, fabricating performance issues to justify a dismissal, conducting a biased or sham workplace investigation, or using the threat of termination to intimidate an employee into accepting a lesser role. The duty of good faith applies throughout the entire employment relationship—from hiring and performance management to the manner of dismissal. While it is most commonly argued in the context of termination (a topic covered in more detail on our 'bad faith dismissal' page), an employer's bad faith conduct during the course of employment can also give rise to legal claims.

Under the common law, if an employer is found to have acted in bad faith, a court can award additional damages beyond standard termination pay. These are often called 'moral' or 'aggravated' damages, intended to compensate the employee for the mental distress, humiliation, or harm to their reputation caused by the employer's blameworthy conduct. This is separate from damages for wrongful dismissal, which compensate for the failure to provide adequate notice. Because determining whether an employer's actions meet the legal standard for bad faith is so dependent on the specific details of the situation, understanding your rights and the evidence required is a critical first step.