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Update on damages arising out of bad faith in the course of dismissal: Soost v. Merrill Lynch Canada Inc.

Author: Stuart Rudner

Posted on Wednesday, September 1st, 2010 at 09:30

Yet another large dollar damages award in the context of a wrongful dismissal claim has been blown out of the water on appeal. Readers will recall the Honda Canada Inc. v Keays case, in which the plaintiff was initially awarded half a million dollars in punitive damages at trial, only to have that award whittled down to $100,000 on appeal and eliminated completely by the Supreme Court. In the fall of 2009, the plaintiff in a claim against Merrill Lynch Canada Inc. was awarded $600,000 pay in lieu of notice and an additional $1.6 million in what we used to call Wallace damages. The Court of Appeal in Alberta has just ruled that there was no basis to award “The Damages Formerly Known as Wallace” in that case, dramatically reducing the value of the award.

It has now been a little over two years since the Supreme Court of Canada released its decision in Honda Canada Inc. v Keays. During that time, I and many other employment law commentators have written and spoken on the decision and its impact upon damages arising out of bad faith in the course of dismissal. One of the points that I have frequently made is that the decision in Honda Canada would be likely to result in far fewer awards of The Damages Formerly Known as Wallace, but in the right circumstances, the quantum of the awards could be dramatically higher than they were under the old regime. The trial court decision in Soost v. Merrill Lynch Canada Inc. seemed to be a prime example of that as $1.6 million was far beyond the typical award of “Wallace damages”.

In reviewing the Merrill Lynch decision, the Court of Appeal Alberta undertook a fairly detailed analysis of the law underlying the trial court’s award. To begin with, the Court looked at the type of conduct that could lead to an award of The Damages Formerly Known as Wallace:

[16] The Honda case says that when dismissing an employee, an employer has a duty not to use methods which are unduly unfair or insensitive (paras. 57-60). I stress that the unfairness or insensitivity must be in the methods used, not in the mere fact of dismissal

[17] Mere sloppy conduct by the employer does not suffice for such extra damages; it takes something akin to intent, malice, or blatant disregard for the employee.

[23] Honest belief [that just cause for dismissal exists], especially with arguable grounds, bars Honda damages for alleging cause.

[25] …A dismissed employee gets no damages for any prejudicial effect (even on reputation) of the dismissal itself.

The Court of Appeal also commented on the nature of such awards and the manner in which they are to be calculated:

[19] Honda damages are limited to compensating loss, and are not punitive: Honda (at para. 60).

Ultimately, the Court of Appeal held that The Damages Formerly Known as Wallace were unwarranted in this case. The Plaintiff has attempted to argue that the trial court’s reasons suggested two potential bases:

1. the appellant employer alleged that it had had cause when it dismissed the respondent employee, or
2. “stigma”: the appellant employer telling the clients that the respondent was gone, but not why, thereby impugning his reputation (respondent’s paras. 43, 48, 51, 69).

The Court of Appeal rejected both as a ground for damages arising out of bad faith conduct, finding that “The trial Reasons criticize some acts by the appellant employer, but never suggest that they were infected by bad faith.” According to the Court of Appeal,

[63] The second damage award of $1.6 million has no basis in law: it purports to compensate for matters which the law does not recognize as compensable. And it lacks a factual basis… The extra $1.6 million award cannot stand, and so must be quashed.

Indirectly, the Court also addressed a question that has challenged many of us since the decision in Honda Canada was released; what do we call these damages now that they are no longer Wallace damages? I have been calling them “The Damages Formerly Known As Wallace”; others have simply called them bad-faith damages or moral damages. In Soost, the Court of Appeal Alberta referred to them as “Honda Damages”; we will have to wait and see if this holds up.

So are plaintiffs out of luck if they can’t prove damages that arose out of the employer’s bad faith? The New Brunswick trial court recently considered a claim for bad faith damages. In Nuala MacDonald-RPublishoss v. Connect North America, the court found that the employer had acted in bad faith, but that the employee could not prove that she had suffered damages as a result. As the law suggests, the court therefore declined to award The Damages Formerly Known as Wallace. However, the court found a way to compensate the plaintiff through the “back door”, granting $50,000 in punitive damages.

This decision may raise fear amongst employers that courts will start awarding punitive damages when they cannot award damages directly for bad faith. The court did, however, note that “This is, in my view, one of the rare cases in which the defendant’s conduct is so egregious that punitive damages are required for the purposes of deterrence, denunciation and retribution.” Presumably, employers are hoping that this remains a rare outcome.

Stuart Rudner
Miller Thomson LLP

Tags: bad faith, bad faith damages, canadian employment law, Court of Appeal in Alberta, damages arising out of bad faith in the course of dismissal, Dismissal, employment law, Honda Canada Inc. v Keays, just cause for dismissal, moral damages, punitive damages, Soost v. Merrill Lynch Canada Inc., terminations, The Damages Formerly Known as Wallace, Wallace damages, wrongful dismissal, wrongful dismissal claim

This entry was posted on Wednesday, September 1st, 2010 at 09:30 and is filed under Employment Standards, Human Resources. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.