Thursday, March 31, 2011

Bad Faith Dismissals and Systemic Practices

Ever since Honda v. Keays changed the face of employment law in June 2008, most dismissed employees have found that their implied contractual right to be dealt with fairly and in good faith by the employer has been a right without a remedy. In order to recover on the basis of a breach of the employer's duty of good faith and fair dealing, an employee has to prove that he has suffered compensable losses as a result of the breach itself.

Combined with repeated affirmations by appellate courts that the test for punitive damages in employment cases remains very high, there is not much incentive for employers to comply with the duty of good faith and fair dealing at this point.

The employer has a lot of bargaining power at every stage in the relationship. And while the law tends to be employee-friendly (in most areas, at least), the legal arena is not. Employees are often unable to afford the legal fees necessary to move forward. When liability is in issue, lawyers are less willing to enter into creative billing arrangements that allow payments out of the settlement proceeds (i.e. contingency fees, etc.). Some employers rely on that to differing extents.

An organization with bargaining power, who owes a duty of good faith to the other party, isn't supposed to play hardball. Yet, given the usual lack of a remedy for that, I am coming to suspect that, for an organization large enough to terminate frequently, a limited amount of hardball may actually be the prudent course of action. Many employees won't fight back at all. Many will have a limited capacity to litigate, and will have to enter into settlements that are unfavourable to them. And while hardball escalates legal fees, it also sends a message to other employees who may later end up in the same place.

In Covelli v. Sears, the the plaintiff has pleaded that Sears takes that sort of approach as a matter of practice, and Sears brought a motion to strike those pleadings.

“11. Mr. Covelli pleads that Sears has adopted a corporate policy or practice of terminating employees for just cause, notwithstanding that it knows or ought to know that no just cause at law exists, as a means of unlawfully evading its statutory and common law obligation to provide employees with notice of termination, or compensation in lieu of notice. Pursuant to this policy, Sears has engaged in similar conduct with other (now former) employees, which is also the subject matter of litigation. Mr. Covelli further pleads that Sears’ cavalier and reprehensible conduct in this regard will invariably exacerbate his ability to secure alternate, comparable employment.

17. …

Adopting and applying a corporate policy or practice of asserting and maintaining allegations of cause where Sears knows or ought to know that no legal cause exists as a means of unlawfully evading its legal obligation to provide statutory and common law notice of termination (or pay in lieu)

19. …”in particular its corporate policy or practice of asserting just cause when it knew or ought to have known that it did not have just cause at law as a means of evading its legal obligations…”

The plaintiff (actually, the plaintiffs...the decision actually deals with three separate wrongful dismissal actions) was seeking production of documents relating to other terminations within a two year period of employees in certain classes. The plaintiffs argue that the systemic practice helps make out their claims for punitive damages.

Sears argued that these other terminations are matters between the employer and the specific employee, and that it would be improper for the plaintiff to gain a benefit from conduct by Sears which had absolutely no effect on the plaintiff.

The Court did not accept Sears' arguments. In this case, the scope of productions and discovery which would be necessitated by the claim was not of "monstrous proportions". So the plaintiffs can pursue and lead evidence of the systemic practice by the employer. These cases, if they don't settle, will be interesting to watch unfold.

What are the wider implications of this, though? The "monstrous proportions" argument is one that could only be made in the first place by an extremely large employer, and was circumvented in this case by the plaintiff limiting the scope of productions sought. What about smaller employers who only terminate infrequently? One would think it would be even harder for them to resist production requests based on allegations of systemic misconduct. This could well open the door to a new boilerplate pleading in wrongful dismissal actions.


This blog is not intended to and does not provide legal advice to any person in respect of any particular legal issue, and does not create a solicitor-client relationship with any readers, but rather provides general legal information. If you have a legal issue or possible legal issue, contact a lawyer.