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The damages formerly known as Wallace – Are they still relevant?

damagesIt has been a while since I have written about “The Damages Formerly Known as Wallace”, more commonly known as either bad faith damages or Honda damages. In fact, it has been about eight years since the Supreme Court of Canada decision in Honda Canada v Keays, which dramatically altered the law with respect to damages relating to bad faith conduct in the course of dismissal. Is the topic still relevant? A recent Ontario decision confirms that it is.

Those who have been in the HR world for a while will recall that the duty to act in good faith in the course of dismissal was enshrined by the Supreme Court of Canada in United Grain Growers v Wallace.That led to a decade where virtually every claim for wrongful dismissal included a component for Wallace damages. Damages were awarded for any example of bad faith, and were calculated by adding an arbitrary extension to the applicable notice period. At times, it seemed as though almost every employer action constituted bad faith: dismissing an employee on a Friday before the weekend, on the Monday after the weekend, at the beginning of the day, at the end of the day, in the month of their birthday, the month of their anniversary, shortly before a vacation, shortly after a vacation, etc.

In the Supreme Court of Canada decision in Honda, they completely changed the court’s approach to bad faith damages. What is particularly interesting is that I have discussed in the past, this was not an issue there was placed squarely before the court. However, the court went out of its way to address it. I was lucky enough to be at the hearing, as I represented the Human Resources Professionals Association, which was granted status as an Intervener. I know that little if any time was spent discussing the issue of when bad faith damages should be awarded and if so, how they should be assessed.

Nevertheless, the Supreme Court made it clear that there must be actual bad faith before damages would be awarded, and that not any trivial act would qualify. Furthermore, the Supreme Court ruled that rather than imposing an arbitrary “Wallace bump” to the notice period, an employee alleging bad faith would have to demonstrate loss or damage arising out of that bad faith; the typical emotions arising out of losing one’s job would not qualify. A plaintiff employee would have to prove that they suffered from loss or damage resulting directly from the bad faith of the employer.

This decision actually followed the lead of the Ontario Court of Appeal in Mulvihill v. Ottawa (City), where that court overturned the trial judge’s award of Wallace damages. The Court took the opportunity to remind everyone that “bad faith” must have some meaning. Notably, former Supreme Court of Canada Justice Iacobucci foresaw the danger of unwarranted awards of damages for bad faith, but was unable to prevent it with his words of wisdom in the 1997 ruling.

As a result of this, and other decisions which limited the interpretation of “bad faith”, the number of claims that we see in this regard has decreased dramatically.

In the recent decision in Colistro v Tbaytel, the the trial Judge at the Superior Court of Justice of Ontario awarded damages after he found that the company knowingly hired an executive who had previously sexually harassed the plaintiff. The Court found that this constituted a constructive dismissal and awarded damages for that. However, far more extensive damages ($100,000) were awarded for the company’s bad faith conduct.

As an employment lawyer, I am quite happy that courts no longer hand out bad faith damages like candy, finding every opportunity to do so. That penalized employers without good reason and also diluted the value of legitimate claims. The Colistro decision is a helpful reminder that although we don’t talk about “the Damages Formerly Known as Wallace” often, and we now refer to them as moral, bad faith, or Honda damages, they are still relevant. Employers need to remember that when they fail to treat an employee with good faith in the course of dismissal, they expose themselves to additional liability beyond the applicable termination or severance pay.

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Stuart Rudner

Employment Lawyer at Rudner MacDonald LLP
Stuart Rudner is a leading HR Lawyer and a founding partner of Rudner MacDonald LLP, a firm specializing in Canadian Employment Law. He provides clients with strategic advice regarding all aspects of the employment relationship, and represents them before courts, mediators and tribunals. He is the author of You’re Fired! Just Cause for Dismissal in Canada, a textbook and database of summary dismissal cases published by Carswell. Read more
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