Note: This review has been updated on May 14, 2024 to add reference to the Ontario Court of Appeal decision in Krmpotic v Thunder Bay Electronics referenced below, which allowed a review of the real reason for termination to support an award of aggravated damages. ¹

The traditional view of the common law has been that the employer has no obligation to provide to the employee the reason for termination.

The questions to be considered are:

1. Does the duty of good faith imposed by Wallace and considered in Honda, as supplemented by the duty of honest performance in Bhasin, revise the law on this issue?
2. Is there a duty in human rights jurisprudence to provide such reasons for termination?
3. Is there a statutory duty to advise of the reasons for termination?
4. Might the employer's reason, once given, for termination somehow result in the application of the doctrine of issue estoppel?

To summarize that which follows, this is the synopsis:

Summary

1. The employer has a duty not to deceive the employee as to the reasons for termination.
2. The employee may assert and prove the true reason for termination was not as stated. Once established, the duty of fairness may apply to the alleged wrongdoing, if so, to determine liability for aggravated or other damages.
3. It is submitted that the question of whether the reason for termination must be given, by common law, is undecided presently. There are many authorities to the contrary of this submission, holding that there is no such obligation.
4. There is a statutory duty to advise of the reason for termination as mandated by the Employment Insurance Act.
5. Should these reasons assert misconduct, either party may be vulnerable to an argument of issue estoppel, allowing the E.I. process to determine the outcome of the liability issue in a civil proceeding, provided that the employer is an active participant in the process. There is a detailed, well reasoned Ontario Court of Appeal decision denying the application of issue estoppel to allow the E.I. decision to bind the civil trial. A subsequent Ontario trial level decision has uniquely distinguished the Court of Appeal decision, one which, in turn, has been followed by a Canada Labour Code unjust dismissal case. In each of these last two instances, issue estoppel denied the employer's just cause defence, based on the E.I. decision allowing for benefits. This is reviewed below.
6. The employer may be well advised to remain external to this process, given that the E.I. regime is somewhat employee friendly. ² If so, it will not be a party to the process and the issue estoppel "same parties" test will fail.
7. The employer will likely be prudent to offer an affirmative reason for termination to defend against a possible human rights proceeding.

Brief Synopsis of Wallace-Honda-Bhasin Duties

Wallace and Honda, of course, allowed for the duty of good faith and fair dealing at the time of termination.

The Supreme Court of Canada decision of Bhasin v Hrynew provided two additional duties to the common law. The first is that “good faith contractual performance” was determined to be an important “organizing principle” of the common law of contract. The second is, as a reflection of the first, was that there is a duty “to act honestly in the performance of contractual obligations”. ³

In Bhasin, itself, the trial judge found that Can-Am acted dishonestly in its manner of exercising the existing non-renewal clause by which it could terminate the relationship by the giving of six months advance notice. The conduct of dishonesty was found in Can-Am’s intent to merge the business of Hyrnew with that of Bhasin, thereby to allow the defendant, Hyrnew, the opportunity to take over Bhasin’s business. The trial judge found that Can-Am lied to Bhasin about this intent. ⁴ This dishonest conduct led to the company misleading Bhasin when it terminated the relationship:

 As the trial judge found, this dishonesty on the part of Can-Am was directly and intimately connected to Can-Am’s performance of the Agreement with Mr. Bhasin and its exercise of the non-renewal provision. I conclude that Can-Am breached the 1998 Agreement when it failed to act honestly with Mr. Bhasin in exercising the non-renewal clause.

This decision then demands that in the employment context that the employer must be honest when terminating its employee.

This question may be more complex. Would it be proper, for example, to give a misleading reason for the termination such as “we are firing you on a not-for-cause basis” when the true reason is suspected wrongdoing? Further, taken to a higher level, is there an obligation to state the reason for termination?

Passage from Wallace

The court in Bhasin did reference the Honda duty. The passage which follows recites a citation also from Wallace. These words have been quoted in many cases following to support the principle that the employer has no obligation to state the reason for termination. For reasons which follow, it is submitted that this interpretation is in error.  ^{5 6} The passage reads as follows:

For example, this Court confirmed that there is a duty of good faith in the employment context in Honda Canada Inc. v. Keays, 2008 SCC 39, [2008] 2 S.C.R. 362. Mr. Keays was diagnosed with chronic fatigue syndrome and was frequently absent from work. Honda grew concerned with the frequency of the absences. It ordered Mr. Keays to undergo an examination by a doctor chosen by the employer, required him to provide a doctor’s note for any absences, and discouraged him from retaining outside counsel. The majority held that in all employment contracts there was an implied term of good faith governing the manner of termination. In particular, the employer should not engage in conduct that is “unfair or is in bad faith by being, for example, untruthful, misleading or unduly insensitive” when dismissing an employee: para. 57, citing Wallace v. United Grain Growers Ltd., 1997 CanLII 332 (SCC), [1997] 3 S.C.R. 701, at para. 98. Good faith in this context did not extend to the employer’s reasons for terminating the contract of employment because this would undermine the right of an employer to determine the composition of its workforce: Wallace, at para. 76.

The Court, in the last sentence of this above quotation, above, referenced a passage from Wallace. The context of this observation in Wallace was in response to the  argument made by Wallace that there must be a “good faith” reason for termination, as opposed to honestly stating the reason for termination.

This statement was clearly made in response to the appellant/employee’s submission that there should be implied into the employment relationship a principle that the employer would not be terminated, save the existence of cause or a legitimate business reason.

The plaintiff's argument was noted to be as follows: ⁷

The appellant urged this Court to find that he could sue UGG either in contract or in tort for “bad faith discharge”.  With respect to the action in contract, he submitted that the Court should imply into the employment contract a term that the employee would not be fired except for cause or legitimate business reasons.  I cannot accede to this submission.  The law has long recognized the mutual right of both employers and employees to terminate an employment contract at any time provided there are no express provisions to the contrary.

In rejecting this submission, the Court offered these words to deny the law requires such a term be implied into the employment relationship:

76                              A requirement of “good faith” reasons for dismissal would, in effect, contravene these principles and deprive employers of the ability to determine the composition of their workforce.  In the context of the accepted theories on the employment relationship, such a law would, in my opinion, be overly intrusive and inconsistent with established principles of employment law, and more appropriately, should be left to legislative enactment rather than judicial pronouncement.

This requirement of a “good faith reasons" for dismissal did not relate to the giving of reasons for termination, as has been popularly suggested in many decisions following.

It is submitted that this passage again means that there need not, as a legal construct, be a good faith reason for the termination. The employer may terminate, generally speaking, absent contractual, statutory, or human rights issues, as it may determine. This has not been in issue at any time. The view that passage from Wallace denies the need to state the reason for termination is one which is mistaken.

This proposition need not end the debate as to whether there is, in law, a duty to state the reason for termination. The modern law may well develop to this end, but the Wallace passage does not provide it.

Reason Given Must be Honest

The related submission is that the employer must be honest about the reason, once given. This, as noted below, is beyond doubt presently. It is a higher level issue as to whether the employer must state the reason.

Bhasin was not an employment case but it has been applied to the duties within an employment relationship. The Supreme Court referenced Bhasin in its 2015 decision, defining the employer’s duty of honest performance as one which extends throughout the duration of employment. ⁸

In Potter, the Supreme Court ⁹, noted that the plaintiff had been given no reasons for his administrative suspension. The significant issue is the acceptance of Bhasin setting an employment standard. The Court concluded that this administrative suspension must be accompanied by providing the reasons for it:

In the instant case, this basic requirement was not met.  To begin with, Mr. Potter was given no reasons for the suspension. It seems to me that, in most circumstances, an administrative suspension cannot be found to be justified in the absence of a basic level of communication with the employee. At a minimum, acting in good faith in relation to contractual dealings means being honest, reasonable, candid, and forthright: Bhasin v. Hrynew, 2014 SCC 71, [2014] 3 S.C.R. 494, at para. 66. Failing to give an employee any reason whatsoever for his suspension is, in my opinion, not being forthright. Moreover, the limited evidence presented in support of the Board’s ostensible purpose of facilitating a buyout is undercut by the actions the Board took to have Mr. Potter terminated. As I mentioned above, the Board’s resolution of January 5, 2010, and the January 11, 2010 letter to the Minister in which the Board recommended that Mr. Potter be terminated ought to have been admitted at this stage of the analysis. With respect, this constituted a significant error on the trial judge’s part.  Add to this the facts that Mr. Potter was replaced during the suspension period and that that period was indefinite, and there remains no doubt in my mind that the suspension was unauthorized. To reiterate, which factors must be considered will vary with the context and will depend on the nature and circumstances of the suspension.

The above statement arose in the context of determining whether there was an implied right to suspend within the employment relationship. The issue of “no reasons given” in this circumstance was not one intending to answer the question posed in this immediate review. It is, nonetheless, reflective of the Court’s acceptance of Bhasin as determining a common law employment standard.

The Supreme Court in 2020 also observed that it is a breach of duty to lie to the employee as to the reason for termination. ¹⁰ This statement was an extrapolation of the duty outlined in Potter:

  Nonetheless, I would observe that it is clear from the findings at trial Mr. Matthews was mistreated and lied to about the security of his future with the company in the years leading up to his constructive dismissal in a manner that contributed to making his job intolerable. Compensation during the reasonable notice period does not speak to this. While it may not result in further remedies in this case, it is not inappropriate to recall that the “non-monetary benefit” (Potter, at para. 84) derived from the performance of work can be wrongly taken from employees if, at dismissal, they are lied to or misled as to the reasons for termination.

That certainly establishes that it is a breach of the duty of honesty to mislead the employee as to the reason for termination. That issue is beyond doubt. The related issue is whether there is an obligation to provide the reason.

Collateral Attack on Reason Given

This issue becomes more complex when the reason given is false in the sense that the employer believed it had just cause due to alleged performance or other issues, but chose not to enter into this debate with the employee and elected to fire for no cause, and/or asserted some other untrue business reason.

These were the facts that led to a court room in Ontario in 2021. ¹³ The termination was said to be a not for cause termination. No reason was given. The plaintiff sued, however, alleging that the true reason was otherwise. The evidence at trial showed that her allegations were correct. The minutes of the town council meeting which led to her termination included unsavory allegations made against the plaintiff.

As to the discrete issue whether the defendant was untruthful to the plaintiff in providing the reason for termination as not-for-cause, the court stated that there was no violation of the duty of good faith and this particular issue was not actionable to lead to an aggravated damage claim.

However, in this instance, given the allegations made against her, the court stated that this conduct leading up to the termination was a violation of the duty of good faith under the Honda test. This would appear to be a distinction without a difference. The end result becomes the same. The court determined that the real motivator was the cause allegations, none of which had been put to the plaintiff.

This conduct allowed for the award of aggravated damages:

I do not suggest that an employer is obliged to give an employee the reasons for termination, but I agree that the failure to allow an employee to respond to allegations of misconduct can be considered part of the “conduct during the course of the dismissal” and can be a factor in determining whether moral damages should be awarded.

In substance, this conclusion required the employer to put the real reason for termination to the plaintiff in advance of effecting the termination.

This led to an aggravated damage claim of $75,000. ¹⁴

This decision allowed the court to look behind the stated reason for termination. It then looked to the real unstated reason and applied the test of unfairness to it.

This same principle was applied in a May 2024 decision of the Ontario Court of Appeal. ¹⁵ The employer had asserted at the time of termination that the reason for this was its financial concerns. It refused to produce relevant documents to support this assertion. The trial judge, as affirmed by the Court of Appeal, found that the true reason was the physical difficulties encountered by the plaintiff upon his return to work following a workplace injury. This led to an aggravated damage claim of $50,000.

These cases all pay homage to the principle that there is no obligation to state the reason for termination, which is, in reality, becoming a fiction. There clearly is a duty to be honest and candid at the time of termination. The Court of Appeal noted:

The trial judge found that Mr. Caron breached the duty of good faith in the manner of dismissal in a number of ways. Mr. Caron claimed that Mr. Krmpotic had been dismissed for financial reasons and that the appellants’ financial statements would support that claim. However, he refused to produce the financial statements. Further, while the trial judge found that Mr. Caron was not directly untruthful with Mr. Krmpotic during the termination meeting, he had “no hesitation” in finding that Mr. Caron was neither candid nor forthright. He found that Mr. Krmpotic’s employment was terminated because his physical limitations restricted him from continuing to perform the wide array of job duties and responsibilities that he had performed for the appellants over the previous 29 years. He described Mr. Caron’s conduct during the termination process as the antithesis of what is required by the duty of good faith in dismissal. Mr. Krmpotic was terminated within two hours of returning to work after his back surgery. During the termination meeting, instead of being candid, reasonable, honest, and forthright, Mr. Caron engaged in conduct that was untruthful, misleading, and unduly insensitive.

Human Rights Considerations

The employer has an affirmative obligation to respond to a successful case showing a prima facie case. This is a relatively low bar for reasons discussed elsewhere. The employer must then introduce evidence to show that the issues leading to the prima facie case are without foundation or that there did exist an alternate bona fide reason for the actions taken, such as termination. That burden is now upon the employer.

The issue will then turn to the reason for termination. The tribunal will examine the evidence to establish the presence of such action. It will not serve the employer well in this instance had it given a “no reason” or “not-for-cause” termination. There will be an emphatic need for affirmative evidence to prove the real intent. It is a difficult evidentiary burden on the best of days, but in this context, it starts with the need to show why the termination letter did not state the reasons now to be offered in evidence.

Such an issue was an emphatic one in a 2010 Ontario Tribunal decision. At the hearing, the employer put forward assorted reasons to rebut the complainant’s assertions. However, at the time of termination, no reason was given for the termination. The reasons asserted at the hearing were not after-acquired cause. The Tribunal made this observation: ¹⁶

The letter of termination gives no reason for the decision, and so I am left to infer from the documents and the testimony of the personal respondent (that which could be believed) the real reason or reasons for the termination of applicant’s employment.

The same theme is present when the assertion is made that the termination was a reprisal against a threatened complaint.

In such a case, the applicant’s evidence showed a remarkable adverse change in the employer’s attitude towards her, following her report of an offending incident. This was followed by an email terminating her employment in which there was no reference to termination for cause. The Tribunal concluded that, in the absence of an explanation showing a contrary reason, that the reprisal complaint was successful. ¹⁷

Summary

To repeat the initial summary:

1. The employer has a duty not to deceive the employee as to the reasons for termination.
2. The employee may assert and prove the true reason for termination was not as stated. Once established, the duty of fairness may apply to the alleged wrongdoing, if so, to determine liability for aggravated or other damages.
3. It is submitted that the question of whether the reason for termination must be given, by common law, is undecided presently. There are many authorities to the contrary of this submission, holding that there is no such obligation.
4. There is a statutory duty to advise of the reason for termination as mandated by the Employment Insurance Act.
5. Should these reasons assert misconduct, either party may be vulnerable to an argument of issue estoppel, allowing the E.I. process to determine the outcome of the liability issue in a civil proceeding, provided that the employer is an active participant in the process. There is a detailed, well reasoned Ontario Court of Appeal decision denying the application of issue estoppel to allow the E.I. decision to bind the civil trial. A subsequent Ontario trial level decision has uniquely distinguished the Court of Appeal decision, one which, in turn, has been followed by a Canada Labour Code unjust dismissal case. In each of these last two instances, issue estoppel denied the employer's just cause defence, based on the E.I. decision allowing for benefits.
6. The employer may be well advised to remain external to this process, given that the E.I. regime is somewhat employee friendly. ¹⁸ If so, it will not be a party to the process and the issue estoppel "same parties" test will fail.
7. The employer will likely be prudent to offer an affirmative reason for termination to defend against a possible human rights proceeding.