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Ongoing evolution of ‘the damages formerly known as Wallace’

As we all know, in the late 1990’s the Supreme Court of Canada held that employers had a duty to act in good faith in the course of terminating the employment relationship. In Wallace v. United Grain Growers, our High Court found that the employer had breached that duty, and the majority held that the remedy for such a breach would be to extend the applicable notice period. Over the following decade, claims for “Wallace damages” became commonplace, to say the least. Unfortunately, many courts seemed more than willing to oblige plaintiffs, finding bad faith in all sorts of circumstances that, while not demonstrative of perfect practice in the course of dismissal, hardly seemed to indicate conduct taken in bad faith.

In 2008, the Ontario Court of Appeal heard the case of Mulvihill v. Ottawa (City) and took the opportunity to attempt to restrict the types of situations in which Wallace damages were awarded. Mulvihill was the first bit of good news in relation to Wallace damages. Not long after, the famous, or infamous, case of Keays v. Honda Canada Inc. was heard by the Supreme Court of Canada. In its decision, the Supreme Court went out of its way to change the manner in which damages arising out of bad faith in the course of dismissal are calculated. No longer were courts to arbitrarily extend the notice period when bad faith was found. Rather, a plaintiff would have to prove not only that the employer acted in bad faith, but that the plaintiff suffered some sort of loss or damages as a result of that bad faith (and not simply as a result of being dismissed). At the time, many of us who practice in the area commented that this ruling was likely to result in far fewer awards of “The Damages Formerly Known As Wallace”, but that there was potential for significantly larger awards where evidence existed to support it.

A few years later, along came the case of Soost v. Merrill Lynch, which involved the dismissal of a high flying (or at least high earning) financial advisor. The Trial Judge found that the plaintiff was entitled to damages arising out of the manner of dismissal, and took into account the earnings that this individual would have earned over the next few years. As a result, the Court awarded damages for bad faith in the amount of $1.6M. Many of us pointed to that case as an example of the potential for large awards. However, the Court of Appeal wiped out the award entirely, finding that bad faith had not been proven and that the award lacked any legal basis.

Recently, the Ontario Superior Court of Justice heard the case of Altman v. Steve’s Music Store Inc. The case involved the dismissal of a 59 year old store manager with approximately three decades of loyal service after she missed time due to cancer. While she was under the impression that her employer was supportive of her in this difficult time, she received a lawyer’s letter, delivered by a bailiff, which read as follows:

We are the attorneys representing the interests of your employer Steve’s Music and as such, we have as instructions to serve you with the present letter. According to the information provided by our client, it appears that you have been remiss in your duties and obligations towards Steve’s Music in failing to work minimum number of hours required by your employer from Monday to Friday. You have taken it upon yourself to come in late and leave early or for that matter not attend for days on end, without providing your employer with prior notice or written justification for your absenteeism.

In view of the foregoing, we have as instructions to advise you that unless you fulfill your obligations towards your employer in full by working regular working day [sic] as stipulated by your employer’s directives, Steve’s Music will have no alternative but to advise you that your employment will be terminated, without further notice or delay.

In a state of panic, she returned to work, but subsequently had to go off work again for medical reasons. The next letter, also from the company’s lawyers and delivered by bailiff, read (in part):

We have as instructions from our client to advise you that in light of our correspondence addressed to both you and your attorney since October 2008 to date, as well as your application for long term disability and the fact that your position with Steve’s Music, has since been abolished, Steve’s Music has no obligation to re-instate you.

…. Steve’s Music was fully entitled to offset and deduct from your remuneration or for that matter any other sums due and owing to you, for your absenteeism, late arrivals and early departures.

Perhaps not surprisingly the Court felt that such conduct was deserving of The Damages Formerly Known As Wallace. Happily for the plaintiff, she was able to adduce substantial evidence with respect to the impact of Steve’s Music conduct on her health and mental state. As a result, the Court awarded $35,000 as a result of the employer’s bad faith, and added another $20,000 in punitive damages. This was over and above 22 months’ pay in lieu of notice.

The Damages Formerly Known As Wallace continue to evolve. All in all, I think it is fair to say that employers do not have to fear such damages as much as they did a few years ago. However, employers must act in good faith and treat employees with dignity and respect when they choose to terminate the relationship. Furthermore, while employers should not be scared to address attendance issues, even with an employee that is known to have a disability, they must do so with caution and understanding. Otherwise, they can certainly find themselves facing an award of damages for bad faith, which can be significant if the plaintiff can prove a substantial loss.

Stuart Rudner
Miller Thomson LLP

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Rudner Law, Employment / HR Law & Mediation

Employment Lawyers and Mediators at Rudner Law
Rudner Law specializes in Canadian employment law and mediation. Rudner Law provides clients with strategic advice regarding all aspects of the employment relationship, and represents them before courts, mediators and tribunals. Stuart Rudner is a leading HR Lawyer and founder of Rudner Law. Stuart and his team speak and write frequently on HR Law issues. Read more
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