Bad Faith Damages — Ontario Employment Law
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About Bad Faith Damages
In Ontario employment law, employers have an implied contractual obligation to act in good faith and deal fairly with employees during the termination process. When an employer breaches this duty by engaging in conduct that is untruthful, misleading, or unduly insensitive, courts may award 'bad faith damages' to the affected employee. These financial awards are designed to compensate the worker for the mental distress caused specifically by the high-handed or malicious manner of their dismissal, rather than the dismissal itself.
Historically, Ontario courts compensated for this type of mistreatment by arbitrarily extending the employee's reasonable notice period—a practice known as 'Wallace damages'. However, following the Supreme Court of Canada's landmark decision in Honda Canada Inc. v. Keays, the law shifted. Today, bad faith damages (frequently referred to interchangeably as moral damages) are awarded as a specific, lump-sum monetary amount.
To trigger an award for bad faith damages, the employee must demonstrate two things: first, that the employer engaged in bad faith conduct during the course of dismissal, and second, that this conduct caused the employee actual mental distress beyond the normal upset or grief that naturally accompanies losing a job. Examples of bad faith conduct often recognized by Ontario courts include manufacturing completely baseless 'just cause' allegations (such as theft or conflict of interest) to avoid paying out severance, intentionally delaying or falsifying a Record of Employment (ROE) to interfere with Employment Insurance claims, terminating an employee in a humiliating public manner, or making threats during settlement negotiations.
It is important to distinguish bad faith damages from punitive damages. While bad faith damages are compensatory—meaning they aim to make the employee whole for the psychological harm suffered—punitive damages are strictly designed to punish the employer for exceptionally malicious or oppressive behavior. An employer's conduct can sometimes attract both, but they serve entirely different legal purposes.
Because the line between a poorly handled termination and legally compensable bad faith conduct is highly nuanced and depends heavily on the specific context of the dismissal, having a legal professional review the circumstances is highly recommended. Consulting an Ontario employment lawyer can help you determine whether your employer's actions meet the strict judicial threshold required to successfully claim bad faith damages.
Frequently Asked Questions
What is the difference between bad faith damages and punitive damages?
Bad faith damages are meant to compensate an employee for the actual mental distress and suffering caused by an employer's unfair conduct during termination. Punitive damages, on the other hand, are awarded specifically to punish an employer for exceptionally malicious or outrageous behavior and to deter others from acting the same way.
Do I need a doctor's note to prove mental distress for bad faith damages?
While medical evidence such as a doctor's note or psychological assessment is not always strictly mandatory, it is highly recommended. Courts are much more likely to award bad faith damages if you have objective medical evidence proving the employer's conduct caused you distinct psychological harm, like severe anxiety or depression.
How much does a court usually award for bad faith damages in Ontario?
There is no fixed formula, as awards depend entirely on the severity of the employer's conduct and the extent of the employee's distress. In Ontario, courts frequently award lump sums ranging from $15,000 to $50,000 for bad faith damages, though extreme cases can result in higher amounts.
Does a wrongful dismissal automatically mean I am entitled to bad faith damages?
No. A wrongful dismissal simply means you were not given adequate notice or severance pay. To get bad faith damages, you must separately prove that the employer acted untruthfully, unfairly, or with undue insensitivity in the way they carried out the termination.
Can I claim bad faith damages if my employer lied on my Record of Employment (ROE)?
Yes. If an employer intentionally falsifies your ROE—for example, saying you 'quit' or were fired 'with cause' when you were not—specifically to block you from receiving Employment Insurance benefits, courts often view this as an act of bad faith that warrants additional damages.
How long do I have to file a claim for bad faith damages?
Bad faith damages are typically claimed as part of a broader wrongful or constructive dismissal lawsuit. Under the Ontario Limitations Act, 2002, you generally have exactly two years from the date of the termination or the bad faith conduct to initiate your legal claim.
When should I consult a lawyer if I feel my termination was handled maliciously?
You should speak with an employment lawyer before you sign any final release or severance agreement. A lawyer can evaluate whether the employer's threats, baseless allegations, or humiliating tactics meet the legal threshold to demand bad faith damages on top of your standard severance pay.
Common Scenarios
- An employer wishes to terminate a senior director without paying their substantial severance entitlement, so they launch a sham investigation into a fabricated conflict of interest, terminating the director 'for cause' knowing the allegations are entirely baseless.
- A retail company fires an employee over a minor disagreement and, out of spite, refuses to issue their Record of Employment (ROE) for several months, deliberately preventing the single parent from accessing Employment Insurance (EI) benefits.
- During severance negotiations, an employer tells a newly terminated graphic designer that if they do not accept a lowball severance offer within 24 hours, the employer will start calling other agencies in the city to ruin their professional reputation.
- An employee on an approved medical leave for a severe health condition is suddenly terminated via a harsh text message, with the employer immediately cutting off their medical benefits without any prior warning or sensitivity to their vulnerable state.
What You Should Know
- Keep a detailed, chronological record of everything your employer says and does during the termination process, including saving emails, text messages, and voicemails, as these will be vital to proving untruthful or intimidating conduct.
- If your employer is aggressively leveraging an unsubstantiated 'for cause' allegation to pressure you into signing a poor severance package, do not sign; this high-handed tactic is a classic trigger for bad faith damages.
- Seek medical attention if the manner of your dismissal has caused you significant mental distress, sleep loss, or anxiety, as specialized medical documentation will greatly strengthen a claim for compensatory bad faith damages.
- Monitor your Service Canada account to see what reason code your employer puts on your ROE; document any unreasonable delays or false codes, as these are actionable issues.
- Before pursuing any legal action for a high-conflict termination, have an Ontario employment lawyer evaluate the facts to accurately determine if the conduct crosses the line from merely 'unprofessional' into legally punishable bad faith.
Featured Cases
B.A.C. v. Automobile Specialties Inc. et al
2026 ONSC 3956 (CanLII) · 2026-07-07Constructive Dismissal: Common Employer Liability & Bad Faith Damages
This is a default judgment case involving wrongful and constructive dismissal claims against an employer and related entities. The court found the defendants liable under the common employer doctrine and awarded damages for constructive dismissal, including unpaid wages, eight weeks of termination pay, and additional damages for bad faith conduct.
L. v. St. Laurent Automotive Group Inc.
2025 ONSC 1956 (CanLII) · 2025-03-31Constructive Dismissal: Temporary Layoff & 7 Months Notice
This case addresses whether a temporary layoff without contractual authorization constitutes constructive dismissal, resulting in a finding that the employer breached essential terms of the employment contract. The court awarded seven months' notice to a mechanic, considering factors such as inducement and economic uncertainty, while rejecting claims for bad faith damages due to a lack of malicious conduct.
R. v Markhaven Inc.
2022 ONSC 3183 (CanLII) · 2022-11-15Wrongful Dismissal: 21-Year Executive Awarded 22 Months Notice
This wrongful dismissal case involved an Executive Director with 21 years of service who was terminated following an investigation into an alleged conflict of interest. The court found the employer failed to prove just cause and applied the McKinley framework, awarding 22 months' notice based on the Bardal factors. Additionally, the court awarded $48,230 for additional entitlements and $50,000 in bad faith damages due to the employer's conduct during the investigation and litigation.
I. v. Canadian Professional Sales Association
2019 ONSC 7332 (CanLII) · 2019-12-18Wrongful Dismissal: Settlement Privilege vs Bad Faith Pleadings
This is an interlocutory motion to strike portions of a Statement of Claim in a wrongful dismissal action. The employer sought to strike paragraphs referencing settlement offers, arguing they were protected by settlement privilege. The court held that while settlement privilege is an evidentiary rule, the plaintiff's allegations that the offers constituted threats supporting bad faith and punitive damages raised a triable issue, allowing the claims to proceed subject to amended pleadings.
Zesta Engineering Ltd. v. C.
2010 ONSC 5810 (CanLII) · 2010-10-21Wrongful Dismissal: 19-Year Employee Bad Faith Damages
This wrongful dismissal case involves an employee with 19 years of service who was terminated without cause. The court addressed the employer's bad faith conduct, including intimidation and interference with employment insurance, to determine entitlement to moral damages. Additionally, the case examined the employee's breach of fiduciary duties through solicitation of customers and misuse of confidential information while still employed.
R. v. 413554 Ontario Limited (Chouinard Bros. Roofing)
2008 CanLII 44716 (ON SC) · 2008-06-11Wrongful Dismissal: Dependent Contractor Awarded $39,984 in Damages
A wrongful dismissal case where the plaintiff, who was found to be a dependent contractor, was terminated without cause. The court awarded damages based on a calculated notice period and bad faith damages, while also determining the plaintiff adequately mitigated their losses.
G. v. John Bear Pontiac Buick Cadillac Ltd.
2006 CanLII 1190 (ON SC) · 2006-01-19Wrongful Dismissal: Employee Terminated Without Notice After Refusing Commission Agreement
A wrongful dismissal case where an employee was terminated without notice after refusing to sign a commission agreement. The court addressed whether the termination constituted wrongful dismissal or resignation, the appropriate notice period, and whether the employer was entitled to reduce the notice period due to the employee’s mitigation efforts. The case also involved disputes over commission agreements and bad faith damages.