Despite extra damages becoming common and often a part of claims, an employer can still avoid them as long as it acts in good faith
It’s been 10 years since the Supreme Court of Canada ruled Jack Wallace was entitled to extra damages in lieu of notice because of the bad faith his former employer demonstrated in firing him and the extreme effects it had on him. This set the tone for courts to punish employers for bad-faith treatment of employees, making wrongful dismissal cases potentially more expensive for employers.
However, now that Wallace damages have become a common element in wrongful dismissal decisions, dismissed employees are now expecting them as a regular outcome of wrongful dismissal findings, even where they aren’t warranted. Rather than being an extra award decided by the courts, Wallace damages are often included in a wrongful dismissal claim. Courts may be responding to this expectation by becoming more reluctant to award them and may even start to punish wrongfully dismissed employees for undeserving claims.
Recent decisions by the British Columbia Supreme Court and the Ontario Superior Court of Justice show if employers make a genuine effort to assist employees and act in good faith when terminating them, they should be off the hook for Wallace damages even if there is a finding of wrongful dismissal and the employee claims bad faith by the employer.
In its landmark 1997 decision in Wallace v. United Grain Growers Ltd., the Supreme Court of Canada made it abundantly clear employers have an obligation to act in good faith and have fair dealings when terminating an employee.
Jack Wallace, 59, was terminated after 14 years of service for his alleged inability to perform his duties satisfactorily. Wallace had been induced to join the company and promised job security until retirement. Prior to his dismissal for failure to perform, he was the top salesperson for each of the 14 years he was with the company.
The termination of his employment and the allegations of cause created emotional difficulties for Wallace and he was forced to seek psychiatric help. His attempts to find similar employment were largely unsuccessful. On Sept. 26, 1986, a few weeks after the termination of his employment, Wallace declared personal bankruptcy.
At trial, the Manitoba Court of Queen’s Bench awarded him damages for wrongful dismissal based on a 24-month notice period and aggravated damages. However, the Manitoba Court of Appeal reversed the findings of the trial judge, substituting a 15-month notice period and overturning the aggravated damages. The Supreme Court of Canada restored the original notice period of 24 months, clarifying two principles:
• when an employee has been induced to leave previous secure employment, inducement will be a significant factor considered when determining the reasonable notice period; and
• an employer has an obligation to act in good faith and have fair dealings when terminating an employee.
After the Wallace decision, trial judges extended the notice period in wrongful dismissal actions where they concluded the employer had acted in bad faith in the manner of the employee’s dismissal. The most significant example of this was Clendenning v. Lowndes Lambert (B.C.) Limited, where a fired employee who had received a six-month notice period received a further 36 months for the employer’s bad faith termination. On the employer’s appeal, the British Columbia Court of Appeal set aside the award of 36 months and substituted 18 months.
Ten years later, Wallace damages, as they have become known, still remain significant in wrongful dismissal actions. However, in Yanez v. Canac Kitchens, Justice Randall Echlin of the Ontario Superior Court of Justice strongly criticized the employee’s claim for additional Wallace damages for alleged employer misconduct. A 15-year employee claimed Wallace damages because the employer requested a release and stated in its letter of termination the offer was in excess of his statutory entitlements though it was not. Yanez claimed he deserved Wallace damages despite the fact the employer immediately rectified the situation and paid the full amounts owing.
In dismissing the Wallace claim, Justice Echlin observed “plaintiffs and their counsel appear not to have appreciated or wilfully ignore the fact that the ‘Wallace bump-up’ does not occur automatically in every dismissal. The time has now come to express this court’s disapproval of routine assertions of Wallace damage claims which are not justified by the facts.”
Echlin warned “in future cases, clearly unmeritorious claims for Wallace damages, may well face sanctions.”
Although Wallace claims continue today, the courts are demonstrating a resistance in awarding these types of damages for unmeritorious cases.
In Finlan v. Richie Bros. Auctioneers (Canada) Limited, the British Columbia Supreme Court refused to find Wallace damages for a clerical error which occurred in completing the employee’s record of employment and found nothing wrong with the notice to the staff saying the employee had resigned. In fact, the court commented this was merely an attempt to minimize the embarrassment which the employee may have experienced over the dismissal.
In Perkins v. Shuen, the B.C. Supreme Court refused to find Wallace damages for the defendant’s failure to pay the employee the full eight weeks’ compensation pursuant to the Employment Standards Act.
In Stant v. Elaho Logging Ltd., the B.C. Supreme Court did not find Wallace damages for the employer’s wrongful accusation of theft, refusal to provide a letter of reference and having terminated the employee while disabled. Rather, the court found the employer attempted to make amends as soon as it received legal advice, offered the employee the opportunity to return to his previous employment and paid his salary prior to his return. The organization had made genuine attempts to make amends and it had not acted in bad faith. The court referenced Yanez, as did the court in Salazar v. Murtz Canada Inc., where the trial judge refused Wallace damages where there was no evidence of the defendant having acted in bad faith.
In Gallagher v. John Bear Pontiac Buick Cadillac Ltd., the Ontario Superior Court of Justice declined Wallace damages requested by the employee for not providing a letter of reference. The court examined the employee’s behaviour and found there was never a further request for the letter nor was there a specific refusal from the employer. Incidentally, this case stands in direct contrast with the case of Jessen v. CHC Helicopters International, wherein the court awarded an extra seven months in Wallace damages because the employer had failed to provide a promised letter of reference.
While the above are only a few of the recent decisions regarding Wallace, they appear to indicate an unwillingness to award Wallace damages where the court believes the employer has made genuine efforts to assist the employee. Wallace damages are still being awarded without any set limits, as several recent decisions also illustrate, but there are signs Justice Echlin’s prediction in Yanez of sanctions against unwarranted claims for Wallace damages could eventually come true.
For more information see:
• Wallace v. United Grain Growers Ltd., 1997 CarswellMan 455 (S.C.C.).
• Clendenning v. Lowndes Lambert (B.C.) Ltd., 2000 CarswellBC 2361 (B.C. C.A.).
• Yanez v. Canac Kitchens, 2004 CarswellOnt 5351 (Ont. S.C.J.).
• Finlan v. Richie Bros. Auctioneers (Canada) Ltd., 2006 CarswellBC 442 (B.C. S.C.).
• Perkins v. Shuen, 2006 CarswellBC 162 (B.C. S.C.).
• Stant v. Elaho Logging Ltd., 2006 CarswellBC 1105 (B.C. S.C.).
• Salazar v Murtz Canada Inc., 2006 CarswellOnt 1963 (Ont. S.C.J.).
• Gallagher v. John Bear Pontiac Buick Cadillac Ltd., 2006 CarswellOnt 209 (Ont. S.C.J.).
• Jessen v. CHC Helicopters International Inc., 2006 CarswellNS 296, 2006 NSCA 81 (N.S. C.A.).
Natalie MacDonald is a partner with Grosman, Grosman and Gale in Toronto. She can be reached at (416) 364-9599 or [email protected].
However, now that Wallace damages have become a common element in wrongful dismissal decisions, dismissed employees are now expecting them as a regular outcome of wrongful dismissal findings, even where they aren’t warranted. Rather than being an extra award decided by the courts, Wallace damages are often included in a wrongful dismissal claim. Courts may be responding to this expectation by becoming more reluctant to award them and may even start to punish wrongfully dismissed employees for undeserving claims.
Recent decisions by the British Columbia Supreme Court and the Ontario Superior Court of Justice show if employers make a genuine effort to assist employees and act in good faith when terminating them, they should be off the hook for Wallace damages even if there is a finding of wrongful dismissal and the employee claims bad faith by the employer.
In its landmark 1997 decision in Wallace v. United Grain Growers Ltd., the Supreme Court of Canada made it abundantly clear employers have an obligation to act in good faith and have fair dealings when terminating an employee.
Jack Wallace, 59, was terminated after 14 years of service for his alleged inability to perform his duties satisfactorily. Wallace had been induced to join the company and promised job security until retirement. Prior to his dismissal for failure to perform, he was the top salesperson for each of the 14 years he was with the company.
The termination of his employment and the allegations of cause created emotional difficulties for Wallace and he was forced to seek psychiatric help. His attempts to find similar employment were largely unsuccessful. On Sept. 26, 1986, a few weeks after the termination of his employment, Wallace declared personal bankruptcy.
At trial, the Manitoba Court of Queen’s Bench awarded him damages for wrongful dismissal based on a 24-month notice period and aggravated damages. However, the Manitoba Court of Appeal reversed the findings of the trial judge, substituting a 15-month notice period and overturning the aggravated damages. The Supreme Court of Canada restored the original notice period of 24 months, clarifying two principles:
• when an employee has been induced to leave previous secure employment, inducement will be a significant factor considered when determining the reasonable notice period; and
• an employer has an obligation to act in good faith and have fair dealings when terminating an employee.
After the Wallace decision, trial judges extended the notice period in wrongful dismissal actions where they concluded the employer had acted in bad faith in the manner of the employee’s dismissal. The most significant example of this was Clendenning v. Lowndes Lambert (B.C.) Limited, where a fired employee who had received a six-month notice period received a further 36 months for the employer’s bad faith termination. On the employer’s appeal, the British Columbia Court of Appeal set aside the award of 36 months and substituted 18 months.
Ten years later, Wallace damages, as they have become known, still remain significant in wrongful dismissal actions. However, in Yanez v. Canac Kitchens, Justice Randall Echlin of the Ontario Superior Court of Justice strongly criticized the employee’s claim for additional Wallace damages for alleged employer misconduct. A 15-year employee claimed Wallace damages because the employer requested a release and stated in its letter of termination the offer was in excess of his statutory entitlements though it was not. Yanez claimed he deserved Wallace damages despite the fact the employer immediately rectified the situation and paid the full amounts owing.
In dismissing the Wallace claim, Justice Echlin observed “plaintiffs and their counsel appear not to have appreciated or wilfully ignore the fact that the ‘Wallace bump-up’ does not occur automatically in every dismissal. The time has now come to express this court’s disapproval of routine assertions of Wallace damage claims which are not justified by the facts.”
Echlin warned “in future cases, clearly unmeritorious claims for Wallace damages, may well face sanctions.”
Although Wallace claims continue today, the courts are demonstrating a resistance in awarding these types of damages for unmeritorious cases.
In Finlan v. Richie Bros. Auctioneers (Canada) Limited, the British Columbia Supreme Court refused to find Wallace damages for a clerical error which occurred in completing the employee’s record of employment and found nothing wrong with the notice to the staff saying the employee had resigned. In fact, the court commented this was merely an attempt to minimize the embarrassment which the employee may have experienced over the dismissal.
In Perkins v. Shuen, the B.C. Supreme Court refused to find Wallace damages for the defendant’s failure to pay the employee the full eight weeks’ compensation pursuant to the Employment Standards Act.
In Stant v. Elaho Logging Ltd., the B.C. Supreme Court did not find Wallace damages for the employer’s wrongful accusation of theft, refusal to provide a letter of reference and having terminated the employee while disabled. Rather, the court found the employer attempted to make amends as soon as it received legal advice, offered the employee the opportunity to return to his previous employment and paid his salary prior to his return. The organization had made genuine attempts to make amends and it had not acted in bad faith. The court referenced Yanez, as did the court in Salazar v. Murtz Canada Inc., where the trial judge refused Wallace damages where there was no evidence of the defendant having acted in bad faith.
In Gallagher v. John Bear Pontiac Buick Cadillac Ltd., the Ontario Superior Court of Justice declined Wallace damages requested by the employee for not providing a letter of reference. The court examined the employee’s behaviour and found there was never a further request for the letter nor was there a specific refusal from the employer. Incidentally, this case stands in direct contrast with the case of Jessen v. CHC Helicopters International, wherein the court awarded an extra seven months in Wallace damages because the employer had failed to provide a promised letter of reference.
While the above are only a few of the recent decisions regarding Wallace, they appear to indicate an unwillingness to award Wallace damages where the court believes the employer has made genuine efforts to assist the employee. Wallace damages are still being awarded without any set limits, as several recent decisions also illustrate, but there are signs Justice Echlin’s prediction in Yanez of sanctions against unwarranted claims for Wallace damages could eventually come true.
For more information see:
• Wallace v. United Grain Growers Ltd., 1997 CarswellMan 455 (S.C.C.).
• Clendenning v. Lowndes Lambert (B.C.) Ltd., 2000 CarswellBC 2361 (B.C. C.A.).
• Yanez v. Canac Kitchens, 2004 CarswellOnt 5351 (Ont. S.C.J.).
• Finlan v. Richie Bros. Auctioneers (Canada) Ltd., 2006 CarswellBC 442 (B.C. S.C.).
• Perkins v. Shuen, 2006 CarswellBC 162 (B.C. S.C.).
• Stant v. Elaho Logging Ltd., 2006 CarswellBC 1105 (B.C. S.C.).
• Salazar v Murtz Canada Inc., 2006 CarswellOnt 1963 (Ont. S.C.J.).
• Gallagher v. John Bear Pontiac Buick Cadillac Ltd., 2006 CarswellOnt 209 (Ont. S.C.J.).
• Jessen v. CHC Helicopters International Inc., 2006 CarswellNS 296, 2006 NSCA 81 (N.S. C.A.).
Natalie MacDonald is a partner with Grosman, Grosman and Gale in Toronto. She can be reached at (416) 364-9599 or [email protected].
