Employers in Alberta must navigate both statutory employment standards and common law principles when terminating employees. While the Alberta Employment Standards Code sets minimum requirements for termination (such as notice or pay in lieu), the common law imposes additional duties of fairness and good faith in the manner of dismissal. A termination carried out in “bad faith” – for example, in a dishonest or unduly harsh way – can expose an employer to extra damages beyond standard severance. This article outlines the legal frameworks governing termination in Alberta, defines bad faith termination with examples, highlights key court precedents (especially in Alberta), explains the criteria for punitive damage awards in employment disputes, and discusses the role of wrongful dismissal claims and good faith obligations.
Termination of employment requires adherence to legal standards in Alberta. Bad faith in the manner of dismissal can lead to additional liability beyond basic notice or pay.
Alberta Employment Law Framework: Statutes And Common Law
Employment Standards Code (Statutory Law): Alberta’s Employment Standards Code is the primary legislation setting out minimum requirements for terminating employees without cause. Section 56 of the Code mandates minimum notice periods (or pay in lieu) based on length of service. For example, an employee with over 90 days but under 2 years of service is entitled to at least one week’s notice, scaling up to eight weeks’ notice for ten years or more of service. Employers can choose to give working notice or equivalent termination pay, but they must meet these minimum standards to comply with the law. Importantly, these statutory notice periods are minimums – an employment contract may provide greater entitlements, and an agreement cannot legally contract out of the minimum standards. Failure to provide the required notice or pay in lieu is a violation of the ESC and can result in penalties or orders to pay wages owed.
Human Rights Legislation: In addition to the Employment Standards Code, employers must heed the Alberta Human Rights Act, which prohibits terminations based on protected grounds such as race, gender, disability, age, etc. In Alberta, an employer cannot terminate an employee (whether with or without cause) if a protected ground is even part of the reason for dismissal. For example, firing someone due to pregnancy or a medical disability is discriminatory and unlawful. An employee who experiences a discriminatory dismissal can file a human rights complaint, separate from any wrongful dismissal lawsuit. In short, terminations must not only meet basic employment standards but also be free of discriminatory intent.
Common Law and Wrongful Dismissal: Beyond statutes, Alberta employers are bound by common law principles of employment, as developed by court decisions. Under common law, unless there is just cause for immediate dismissal, an employer must provide “reasonable notice” of termination or pay in lieu thereof. Reasonable notice is often significantly longer than the ESC minimum, taking into account factors like the employee’s age, length of service, position, and availability of alternate work (Bardal factors). If an employer dismisses someone without cause and without adequate notice or pay, the employee can sue for wrongful dismissal, claiming damages equal to the compensation that would have been earned during a reasonable notice period. These damages aim to put the employee in the position they would have been in had proper notice been given (typically covering lost salary, benefits, and bonuses during the notice period). Alberta courts have awarded notice periods as high as 24 months in exceptional cases for long-service or senior employees. While the Employment Standards Code caps statutory notice at 8 weeks, the common law can require much more, unless a valid contract limits the notice. In Alberta, as elsewhere in Canada, the common law presumes an implied term of reasonable notice in every indefinite employment contract, and wrongful dismissal claims enforce that right.
Good Faith Obligation: Crucially, the manner in which an employer carries out a termination is also regulated by common law. The Supreme Court of Canada has recognized an implied duty of good faith and fair dealing in the employment relationship, especially at the time of dismissal. This means even when an employer has the right to end the employment (e.g. by giving proper notice or pay), they must act honestly and fairly in the course of the termination. As discussed below, a breach of this duty – a “bad faith” termination – constitutes a distinct wrong that can lead to additional damages (often called aggravated or moral damages). In summary, Alberta’s legal framework for termination involves: (1) compliance with statutory minimum standards, (2) meeting the common law requirement of reasonable notice or just cause, and (3) upholding an implied duty of good faith in the way the dismissal is effected.
What Constitutes Bad Faith Termination?
Definition of Bad Faith Termination: “Bad faith termination” refers to a dismissal carried out in an unfair, dishonest, or unduly insensitive manner. In the landmark case Wallace v United Grain Growers Ltd, the Supreme Court of Canada described the employer’s obligation in clear terms: “at a minimum, in the course of dismissal employers ought to be candid, reasonable, honest and forthright with their employees and should refrain from conduct that is unfair or is in bad faith – for example, being untruthful, misleading or unduly insensitive” . In other words, an employer breaches the duty of good faith by engaging in manipulative or cruel behavior when firing someone. This could include lying about the reasons for termination, firing an employee in a humiliating way (such as in front of colleagues or via public spectacle), making unfounded accusations of misconduct, or refusing to pay owed entitlements as a tactic to pressure the employee. Bad faith can also encompass callous actions like providing a false reference to sabotage the employee’s job search, or mishandling the termination process in a way that unnecessarily causes psychological harm.
Examples of Bad Faith Conduct: Courts have found bad faith in a variety of scenarios. Some illustrative examples include:
• Dishonesty or Misrepresentation: An employer fabricates reasons for the dismissal or misleads the employee. For instance, telling an employee they are being laid off due to “restructuring” when the real motive is personal dislike or a discriminatory reason, or falsely accusing the person of misconduct without evidence. In one Alberta case, the employer told the employee that co-workers had lodged frequent complaints about him – a complete fabrication – apparently to induce the employee to resign; the court held this deceitful tactic breached the duty of good faith.
• Unduly Harsh Delivery: The manner of termination needlessly injures the employee’s dignity. Examples might be firing an employee in a very public or demeaning way, having security march them out without explanation, or breaking the news in a cruel, insensitive manner (such as during a personal crisis or by surprise ambush). Canadian courts have condemned terminations that were handled as a “dirty trick” on the employee. In the Elgert case (discussed later), the employee was escorted out in tears without even being told the allegations against him, which was considered a high-handed and unfair treatment.
• Failure to Allow Due Process: If an employee is accused of wrongdoing, a rushed or biased investigation leading to termination can constitute bad faith. For example, not giving the employee a chance to respond to allegations, or conducting a sham investigation where the outcome is predetermined, are actions that breach the obligation to act fairly. An employer is not required to conduct a perfect investigation, but a blatantly unfair process (e.g. where an investigator is not impartial or basic information is withheld from the accused employee) can make the manner of dismissal bad faith.
• Intimidation or Retaliation: An employer that uses the threat of termination or the act of firing to punish an employee for asserting their rights (such as filing a complaint) or that engages in post-termination retaliation (like spreading false rumors about the ex-employee) may be acting in bad faith. For instance, sending out negative emails to other employers about the dismissed person in order to undermine their job prospects would likely be seen as malicious bad faith conduct. Similarly, terminating an employee for whistleblowing or raising safety concerns, and dressing it up as a “performance” issue, could be found to be a bad faith dismissal (as well as a violation of public policy).
In essence, bad faith termination goes beyond the fact of ending the employment – it’s about how the employer behaved in doing so. The courts recognize that losing a job is often traumatic in itself, but they look for conduct by the employer that needlessly exacerbates that trauma in a manner that a reasonable person would find offensive or unfair. It’s an implied term of every employment contract that the employer will act in good faith when terminating; when they breach this, the employee can seek damages for the mental distress and other losses caused by the improper conduct.
Wrongful Dismissal And The Duty Of Good Faith
Wrongful Dismissal Claims: A wrongful dismissal claim is the usual legal action an employee takes when they allege their termination was not handled lawfully. In Alberta, a wrongful dismissal lawsuit typically focuses on whether adequate notice (or severance pay) was given. If not, the employer has breached the contract and owes damages equal to the pay/benefits the employee would have received during a reasonable notice period. However, modern wrongful dismissal claims often include additional allegations – specifically that the employer breached the duty of good faith in the manner of termination. When an employee can prove the firing was conducted in a bad faith way, courts may award aggravated (moral) damages or even punitive damages on top of the standard pay in lieu of notice.
Implied Obligation of Good Faith: Canadian courts have firmly established that employers have an obligation of good faith and fair dealing at the time of dismissal. This principle, first articulated in Wallace, was later affirmed and refined in subsequent cases and is now considered a general doctrine of contract law. In Bhasin v Hrynew, the Supreme Court introduced an “organizing principle” of good faith in contract performance, including a duty of honest performance. In the employment context, this means an employer must not lie or unduly mislead an employee about matters related to their dismissal. By 2020, the Supreme Court in Matthews v Ocean Nutrition explicitly reiterated that the duty of good faith and honest performance applies to employment contracts, particularly at the time of termination. Unlike some contract terms, this duty cannot be disclaimed or contracted out of by the employer. Even if an employment contract tries to limit termination entitlements, it cannot permit bad faith conduct – an employer who acts in bad faith will be liable for damages regardless of what the contract says.
Proving Bad Faith and “Moral” Damages: After the Wallace case, courts for a time would extend the notice period as a remedy for bad faith dismissals (so-called “Wallace damages”). This changed with Honda Canada Inc v Keays, where the Supreme Court clarified that damages for bad faith termination should be compensatory in nature, tied to the actual mental distress or harm suffered by the employee. Now, instead of arbitrarily bumping up the notice period, courts award aggravated damages (often termed moral damages) if the employee proves that the employer’s bad faith conduct in the manner of dismissal caused additional harm (such as psychological distress or reputational damage). The employee must show more than the normal upset and embarrassment that accompany any firing – there must be evidence of serious mental distress or other loss caused by the employer’s unfair conduct. For example, medical evidence of depression or anxiety triggered by the ordeal, or proof that the employee’s reputation was unjustly tarnished by the employer’s statements, can support an aggravated damages claim. Alberta courts require a clear causal link between the bad faith acts and the employee’s harm. If no actual extra damage is proven, then even if the employer behaved poorly, moral damages will not be awarded. This was illustrated in the Alberta Court of Appeal’s decision in Elgert v Home Hardware – the court acknowledged the employer acted in an unfair, bad faith manner, but it overturned the jury’s $200,000 aggravated damages award because there was insufficient evidence that the manner of dismissal itself caused a quantifiable loss beyond the fact of being fired.
In summary, a wrongful dismissal claim can encompass not just the lack of notice, but also the breach of the good faith obligation. When an employer fails to be “candid, reasonable, honest and forthright” in terminating an employee, the courts may require the employer to compensate the employee for resulting mental anguish or other fallout. These bad faith damages (aggravated damages) are compensatory and based on the concept that the employer’s manner of dismissal violated an implied contractual duty. They serve to recognize the intangible harm (humiliation, distress, damage to one’s sense of dignity) that flows from a bad faith firing.
Key Court Precedents
Alberta courts follow the principles set by the Supreme Court of Canada on wrongful dismissal and bad faith, and several important cases have shaped this area of law:
• Wallace v United Grain Growers Ltd (1997 SCC): This seminal case set the stage for recognizing bad faith termination in Canadian law. Mr. Wallace was long-serving and was fired in a callous manner. The Supreme Court held that employers have an implied duty of good faith in the manner of dismissal. The Court famously stated that employers should be honest and forthright and should not be “untruthful, misleading or unduly insensitive” when firing someone. As a remedy, the Court extended Mr. Wallace’s notice period, effectively creating a bonus for the bad faith conduct. Key point: Wallace established that bad faith conduct at termination is a compensable wrong, though at the time the damages were folded into the notice period.
• Honda Canada Inc v Keays (2008 SCC): In this case, Mr. Keays was mistreated and then terminated by Honda while he was on disability leave. The trial judge had awarded significant damages (including $500,000 punitive) for Honda’s egregious conduct. The Supreme Court, however, recalibrated the law. It affirmed that damages for manner of dismissal are meant to be compensatory (not an automatic extension of notice) and should be awarded only if the employee suffers actual harm (mental distress) beyond the normal upset of being fired. The Court struck down the punitive damages (finding no independent actionable wrong once a finding of discrimination was overturned) and clarified that punitive damages in wrongful dismissal are reserved for exceptional, high-handed misconduct. After Honda v Keays, the term “Wallace damages” has given way to “moral damages” or “aggravated damages,” and the focus is on evidence of the impact on the employee. Key point: Honda refined the test for bad faith damages – employees must prove the employer’s conduct caused tangible mental distress or loss, and punitive damages require a separate wrong and extraordinary misconduct.
• Elgert v Home Hardware Stores Ltd, 2011 ABCA 112: This is a leading Alberta case on bad faith dismissal and punitive damages. Mr. Elgert, a supervisor with 17 years’ service, was fired for alleged cause after a flawed investigation into a co-worker’s accusations. A jury found he was wrongfully dismissed and slammed the employer with 24 months’ notice, $200,000 aggravated damages and $300,000 punitive damages. On appeal, the Alberta Court of Appeal upheld the finding of wrongful dismissal but significantly reduced the awards. It eliminated the aggravated damages entirely because Mr. Elgert hadn’t proven a specific loss (like a medical condition) caused by the bad faith manner of termination – his distress was deemed to stem from the firing itself, not the manner of it. The Court did agree that the employer’s conduct warranted punishment, but it ruled the $300k punitive award was excessive. Citing the principle of proportionality and surveying other cases (where punitive awards rarely exceeded six figures), the Court cut the punitive damages to $75,000. The Elgert decision is significant for Alberta employers and employees: it confirms that while courts will step in to curb outrageous termination conduct, there are limits. Punitive damages in Canadian wrongful dismissal cases generally stay below ~$100,000, and aggravated damages require proof of actual mental harm. Key point: Elgert demonstrates both the possibility of large awards for truly egregious employer behavior and the appellate courts’ tendency to rein in awards that go beyond proven evidence or Canadian norms.
• Merrill Lynch Canada Inc v Soost, 2010 ABCA 251: Another Alberta Court of Appeal case (decided around the same time as Elgert) dealt with an employee who was wrongfully dismissed but found a new job almost immediately. The trial judge had awarded the employee additional damages for the manner of dismissal. Justice Côte, writing for the Court, clarified that if an employee hasn’t suffered compensable harm from any bad faith conduct (for example, they quickly mitigated their losses by finding work, and had no medical evidence of mental distress), then no aggravated damages should be awarded. This case underscored that bad faith damages are not a default in every wrongful dismissal – the employee must demonstrate a loss beyond lost wages. Key point: Soost (in line with Honda and Elgert) reinforces the need for evidence of damage caused by the employer’s unfair conduct; otherwise, only normal wrongful dismissal damages (notice pay) will be given.
• Holm v Agat Laboratories, 2018 ABQB 415: In this Alberta Court of Queen’s Bench (as it then was) case, an employee claimed constructive dismissal and accused the employer of orchestrating her exit in bad faith. The court found the employer had indeed breached the duty of good faith and fair dealing – notably, a manager lied to the employee by saying co-workers complained about her (which was untrue) to provoke her departure. This calculated deception was deemed malicious enough to warrant aggravated damages for the mental distress it caused. However, the court refused to award punitive damages, observing that “in employment law, punitive damages are restricted to situations where the employer’s conduct has been so malicious and outrageous that it is deserving of sanction.” In Holm, the employer’s conduct, while dishonest, did not rise to the extraordinary level needed for punishment. Instead, the employee was compensated for the breach of the good faith duty (aggravated damages of $20,000). Key point: Holm illustrates the threshold distinction – many bad faith terminations will justify moral/aggravated damages, but only the most egregious cases justify punitive damages. The employer’s lies and unfair dealings breached the contract’s implied terms (leading to aggravated damages), but without an independent actionable wrong or truly egregious behavior, punitive damages were not merited.
In summary, the case law in Alberta – guided by Supreme Court precedents – establishes that bad faith in a dismissal is a legal wrong. The major takeaways from the courts are: (1) Every termination must be handled with good faith and fairness; (2) If an employer breaches that duty (lies, mistreatment, etc.), the employee can recover aggravated damages provided they show real harm resulted; (3) Truly shocking misconduct by an employer can attract punitive damages, but such awards are rare and must meet a high bar; and (4) Alberta courts will carefully scrutinize the evidence and keep awards proportionate to the wrong suffered.
Criteria For Awarding Punitive Damages In Employment Disputes
Punitive damages are intended to punish and deter wrongful conduct, rather than to compensate the victim. In employment law, punitive damages are not awarded lightly – Canadian courts have set a strict test for when they are available. The general criteria for punitive damages in a wrongful dismissal context include:
• Independent Actionable Wrong: The employer’s conduct must constitute an independent wrong beyond the mere breach of the employment contract (beyond the failure to give adequate notice). In practice, this often means the employer committed a distinct legal wrong such as a tort (e.g. defamation, assault, fraud) or a breach of statutory duty (e.g. violating human rights laws) in the course of the dismissal. The Supreme Court in Honda v Keays reaffirmed the rule that punitive damages for breach of contract require a separate actionable wrong. However, courts have sometimes treated an egregious breach of the good faith duty itself as an independent wrong, especially if it involves serious unfair dealing or a “ litany of acts of discrimination and harassment”. The safest view is that something more than just not providing notice is needed – there must be a marked departure to bad faith, illegal, or outrageous conduct that is actionable on its own.
• Malicious or High-Handed Misconduct: Punitive damages are only awarded where the employer’s actions are malicious, oppressive, or reprehensible to a degree that “offends the court’s sense of decency.” In Holm, the court phrased it as conduct “so malicious and outrageous that it is deserving of sanction”. Examples might include firing an employee in a manner intended to cause humiliation or damage (such as trumping up criminal allegations), or deliberately violating the employee’s rights (for instance, retaliating against an employee for filing a sexual harassment complaint). The misconduct must represent a marked departure from ordinary standards of decent behavior in employment. Even investigations that are clumsy or unfair usually are not enough by themselves – there must be evidence of an intent to harm or recklessness of a serious nature. The Alberta Court of Appeal cautioned in Elgert that employers should not be punished for merely believing an allegation that turns out false or for a botched investigation done in good faith; punitive damages are reserved for truly blameworthy conduct, not mere errors in judgment.
• Exceptional Circumstances: The Supreme Court has emphasized that punitive damages should be “rare and exceptional” in employment cases. They are the exception, not the rule. The court must be satisfied that the normal remedies (notice damages and aggravated damages) are insufficient to express society’s condemnation of the employer’s conduct. Punitive awards are only appropriate if the compensatory damages plus any aggravated damages still would not achieve the goals of punishment, deterrence, and denunciation of the conduct. In other words, there must be something that cries out for added punishment – for example, a persistent pattern of bad faith deceit or a cover-up that only came to light in litigation. In Whiten v Pilot Insurance Co, the SCC noted punitive damages are a tool for when the defendant’s misconduct is so outrageously dishonest or shocking that it warrants further sanction by the court. In the employment realm, this could include an employer engaging in a “David vs. Goliath” campaign against a dismissed employee – such as baselessly alleging just cause and aggressively litigating to wear the employee down, or publicizing false reasons for the firing out of spite. Courts will look holistically at whether the scenario is an extreme outlier.
• Proportionality and Precedent: If punitive damages are to be awarded, the amount must be proportionate to the wrong and in line with Canadian standards. The court considers factors like the harm caused, the employer’s intent, and the need for deterrence. In Alberta and Canada generally, punitive damage awards in employment cases tend to be relatively modest (especially compared to U.S. verdicts). As noted, amounts are usually five figures. A review of cases shows most punitive awards for wrongful dismissal are well under $100,000. The Elgert case, after appeal, resulted in $75,000 in punitive damages – which is toward the high end historically. Alberta courts will adjust any jury award or trial award that far exceeds the established range. The guiding principle is that the punishment should fit the crime: just enough to denounce the behavior and deter others, but not a windfall beyond what’s rationally needed to send a message.
In summary, punitive damages in employment law are reserved for the worst-of-the-worst employer misconduct. An employee seeking punitive damages must clear a high bar by showing the employer did something independent of the dismissal breach that was exceptionally wrongful (often a legal wrong in its own right), and that normal damages won’t adequately hold the employer accountable. If those criteria are met, the court can make an example of the employer through a monetary penalty. But if the employer’s conduct, while unfair, was not egregious or malicious to an extreme degree, the employee’s remedy will likely be limited to reasonable notice damages and perhaps aggravated damages for mental distress. Canadian courts are generally cautious with punitive damages, ensuring they are only used to condemn truly outrageous employment practices and not to punish every instance of bad behaviour.
Conclusion
Terminating an employee in Alberta engages a combination of statutory rules and common law duties. Employers must meet the minimum termination standards of the Employment Standards Code and ensure they do not contravene the Alberta Human Rights Act. Equally important, however, is how the employer goes about the dismissal. The implied covenant of good faith and fair dealing means an employer should act honestly and compassionately when ending the employment relationship. A failure to do so – a bad faith termination – can lead to legal consequences beyond ordinary severance. Courts in Alberta (following Supreme Court precedent) may award aggravated damages to wrongfully dismissed employees to compensate for mental distress if the employer’s unfair conduct caused real harm. In especially reprehensible cases, courts can also impose punitive damages to denounce the employer’s misconduct, though such awards are exceptional. Key cases like Wallace, Honda (Keays), and Alberta’s own Elgert decision illustrate the evolution of these principles and serve as cautionary tales to employers. The criteria for bad faith and punitive damage awards emphasize honesty, decency, and proportionality – essentially encouraging employers to “fire fairly.”
In recent years, the law has continued to affirm good faith obligations and to fine-tune the remedies for breaches. The duty of good faith at termination is here to stay, and no contractual clause can remove it. Employees who have been treated egregiously now have a clearer roadmap to claim additional damages, while employers face the reality that heavy-handed or deceitful tactics in a dismissal can significantly increase the cost of a wrongful dismissal case. The overarching lesson from Alberta’s legal landscape is that termination is not just a contractual event but a process that must be conducted with integrity. By adhering to both the letter and the spirit of the law – providing proper notice/pay and treating the employee with respect – employers can minimize the risk of bad faith findings. And for employees, understanding these rights means they can better recognize when a firing might entitle them to more than just standard severance. The balance struck by the courts seeks to ensure that ending a job, while never pleasant, is done in a civilized manner – and that those who breach this standard of good faith are held to account.
*Always seek legal advice. The above is for information purposes only.
Stephen Dugandzic received his Juris Doctor degree from the University of Alberta in 2013 and is Calgary-based. He previously practised with Bennett Jones LLP and Taylor Janis LLP before founding YYC Employment Law Group in 2018 and Evolution Legal in 2026.