WHERE’S WALLACE?: AN UPDATE ON BAD FAITH DAMAGES
INTRODUCTION
The decision of Wallace v. United Grain Growers Limited is one of the more
substantial pronouncements on employment law by the Supreme Court of Canada in the
past 20 years. It is also as a matter of contractual damages and extra contractual damages,
the most significant pronouncement the Supreme Court has probably ever made or at
least since Vorvis.
Wallace v. United Grain Growers Limited [1997] 3 S.C.R. 701
Vorvis [1989] 1 S.C.R. 1085
First of all, notwithstanding the title of this paper, in Wallace the Supreme Court
expressly rejected the bad faith discharge argument. There is no fiduciary duty owing
generally and you can’t sue for breach of that duty. It is not a tort. Iaccobucci, who wrote
the decision said the bad faith discharge idea conflicted with the principle that
employment contracts can be terminated without fault by either party on reasonable
notice. What we know for sure from Wallace is there is no tort of bad faith discharge in
Canadian law.
The Supreme Court went on to confirm the Bardal approach continues to be the
way damages should be assessed and what we have always known, the Bardal factors are
not exhaustive and there could be other facts that will increase the notice period above
what Bardal would normally provide. It is in this context that the decision in Wallace
allows the Court to consider if the employer was “unfair”. In these circumstances, the
reasonable notice period can be extended based on what were always the Bardal factors.
Bardal v. Globe & Mail Limited (1960), 24 D.L.R. 2d 140
2
It is not in the scope of this paper to analyze the reasoning in Wallace but to
provide an outline of how trial Judges over the last couple of years have dealt with this
and what the Court of Appeal is doing with Wallace damages.
Wallace does not really define what bad faith conduct or unfair dealing is, they
leave that to the trial Judge. It must be remembered that being fired even in the nicest
way possible is difficult for the fired employee. Being fired alone should not get you
anything more than in Bardal.
Barry Fisher is an employment mediator and arbitrator in Toronto and keeps the
wrongful dismissal database. He wrote in 1998 that when he reviewed the Wallace
“bump up” damages in 1998 the average bump up was 33%.
“The Wallace Factor: An Analysis of Effect of Bad Faith Dismissal Doctrine
On Reasonable Notice Periods in Wrongful Dismissal Actions”, The Canadian
Empoyment Law Super Congress, October 21-22, 1998, Canada Law Book.
When Mr. Fisher looked at the issue again in 2006, he found that the Wallace
bump up had increased on average to 43%.
“Revisiting Reasonable Notice Periods in Wrongful Dismissal Cases”,
2006 Edition by Barry Fisher, 9th Annual Six-Minute Employment Lawyer,
Continuing Legal Education.
A number of judges whom I have spoken to about this issue and some of the cases
have expressed concern that the Wallace numbers are going up too fast. As plaintiffs
counsel you want to be aware that Wallace can give real money to your client,
particularly given that there is a line of cases out there to indicate that Wallace damages
are not subject to mitigation when the client becomes re-employed.
3
CASES
Yanez v. Canac Kitchens [2004] O.J. No. 5238, Echlin J.
This is an action by Yanez against his former employer for dismissal without
cause. He was a 15-year production team leader who supervised 37 employees. He was a
good employee and due to a downturn in business they dismissed him. Justice Echlin, as
he does in several decisions, provides a detailed review of Wallace and what a trial Court
should do with it. Justice Echlin states at paragraph 13 of his decision that Wallace
damages are not automatic and certainly do not apply to every case of dismissal. He
comments that it is indeed very rare at this point for employees’ counsel not to scrutinize
every action of the employer and attempt to find evidence of Wallace damages. This is an
odd criticism, as I would have thought this is a plaintiff’s lawyer’s job in these matters.
He further states: “Some plaintiffs and their counsel appear not to have appreciated or
willfully ignore the fact that ‘the Wallace bump up’ does not occur automatically with
every dismissal.” This is certainly an accurate statement.
Justice Echlin goes on to find that there is no Wallace damages payable in this
case. While there are mistakes made by the employer, they were not made in bad faith
and the initial offer of severance was made on misapprehension of the facts by the
employer. It is important to note that Justice Echlin expressly rejected the argument for
offering less than the Employments Standards Act 2000 minimums and asking for a
release he was entitled to Wallace damages. He found that the lower offer was based on a
mistake and not intentionally trying to shortchange the plaintiff and dismissed the claim
for a Wallace bump up. He cites a case which I believe is still good law, of Hobbs v. TDI
Canada Ltd., [2004] O.J. No. 4876, a decision of the Ontario Court of Appeal, that
offering the Employment Standards minimum and asking for a release does not in itself
create a Wallace situation.”
Quite simply there will be a lot of cases where Wallace is an issue but like any
claim for punitive or exemplary damages, if you run this issue and cannot prove it, you
4
will pay costs. Justice Echlin expressly states when the employer is not trying to play
hardball or not trying to be expressly unfair Wallace should not be pled. “This Court
discourages the assertion of claims which have little or no support on the evidence”.
He points out as is quite right, that making these claims where the evidence is not
there impedes the consensual resolution of these matters. We all know that the great
majority of employment law cases resolve and they resolve on the basis that both sides
understand the risks. Making a non-meritorious Wallace claim simply sends you to trial.
COURT OF APPEAL
Keays v. Honda Canada Inc. [2006] O. J. No. 3891, Ontario Court of Appeal
The plaintiff in this matter suffered from chronic fatigue syndrome and was
absent from work for a period of about two years where he received disability payments
and then went back to work but continued to miss time. The plaintiff had met with the
company doctors on occasion and said he was treated badly and refused to go a second
time. At that point Keays was terminated. The trial Judge was really unhappy with Honda
in this matter and found their conduct to be reprehensible and abusive over a period of
five years. This was particularly harsh on a disabled employee. The trial Judge said the
normal period would be 15 months and added 9 months as a Wallace bump up. The
employer appealed.
The Court of Appeal found that the wrongful dismissal and notice period damages
were appropriate and that the costs award and punitive damages were adjusted. They still
had no difficulty on the facts of this case in extending the notice period 9 months. They
reduced the punitive damages from $500,000.00 to $100,000.00. The Court of Appeal
found that the Wallace bump up is a finding of fact and it can only be successfully
attacked by showing that the trial Judge committed a palpable and overriding error. They
expressly accepted that Honda misrepresented the position of the company doctor that the
Plaintiff was not suffering from a disability but malingering. The trial Judge had found
5
that in providing the Plaintiff with accommodated work and then withdrawing that,
without any notice, was a reprisal in bad faith. Importantly, the Court found that while the
9-month extension was very generous given the circumstances of this vulnerable and
disabled employee, this was an appropriate award pursuant to Wallace.
Leave to appeal to the Supreme Court of Canada has been granted in this case.
[2006] SCCA No. 470.
Kitzman v. Babcock & Wilcox Canada Ltd. [2007] O.J. No. 2870, Ontario Court
of Appeal
This is an employer appeal on the issue of cause and Wallace damages. Here the
trial Judge found there was no just cause and ordered Wallace damages. The Court of
Appeal agreed as the factual matter the trial Judge was satisfied that the breaches of the
employer’s policy were not sufficient to grant cause. The Court of Appeal stated: “The
respondent first claimed Wallace damages in his opening at trial and this claim was based
solely on the failure of the appellant to warn the respondent of the impending dismissal
and the failure to give the respondent an opportunity to explain his conduct.” The Court
of Appeal was very critical that the trial Judge considered matters that were not pled or
argued by the respondent. The plaintiff was awarded Wallace damages in part because he
found that there was a conspiracy amongst certain employees to get rid of the plaintiff.
He also seemed to consider that because they were pressing a counterclaim for damages
that this was a terrible way for an employer to behave and awarded a Wallace bump up.
The Court essentially says that these things were not pled so the defendant did not get a
chance to properly present evidence about them. While the Judge theoretically could have
found misconduct and that would have justified his Wallace damages, the misconduct
was not pled and therefore it could not be used to justify Wallace damages.
Essentially this case stands for the proposition that if you want Wallace damages
you need to plead not only that issue but the facts on which it is supported.
6
Stone v. SDS Kerr Beavers Dental [2007] O. J. No. 2919, Ontario Court of
Appeal.
This was an appeal by the employer of a judgment for wrongful dismissal against
them. The allegations that the plaintiff had sexually harassed female coworkers were
unproven. He however found that he drank at work and was annoying and harassing but
not in a sexual way. The conduct was short of just cause. 13 months was awarded for a
16-year employee and Wallace was not expressly cited. The Court finds here that
although the trial Judge did not segregate the award she ordered for the Wallace
extension she claimed to make that and in the 13 months overall notice for a 16-year
employee any Wallace bump up must have been small.
Sommerard v. I.B.M. Canada Ltd. [2006] O.J. No. 1209, Ontario Court of Appeal
I.B.M. appealed a judgment awarding damages for wrongful dismissal. A 4-year
technical non-managerial position had short-term disability benefits when he was off sick
and was waiting to hear from Great-West Life about his long-term disability benefits.
While he was waiting for the Great-West Life appeal the employer terminated his
employment. The employer said that they terminated his employment because while
speaking to him on the phone about his termination of benefits from Great-West Life he
suggested that he did not want to come back to work because he might “thump
somebody”. The employer terminated claiming that was a threat to hurt someone at
I.B.M. This was a case before a jury. The jury found there was no just cause. The jury
gave 9 months reasonable notice plus 4 months for Wallace damages. I.B.M. appealed.
The Court of Appeal found that damages of 9 months at the Court of Appeal for a 42year-old 4-year employee was too long and reduced it to the appropriate award, which
was 4 months. The Court of Appeal then says in discussing Wallace damages: “A
dismissed employee is not entitled to compensation for injuries flowing from the fact of
dismissal.” They made clear what has always been the case in Wallace, that it’s not the
dismissal that gives damages but the “manner of dismissal”. The Court finds that the jury
verdict of 4 months added Wallace notice was not unreasonable. They discussed that the
7
jury was open to accept that it was not a threat made on the phone but rather a cry for
help and that I.B.M. was well aware of his illness. Having said that, they found that the
manner of termination for an emotionally vulnerable worker was overly harsh and as
such found that it was open for the jury to award Wallace damages.
The case stands for the proposition that doubling the notice period because of
Wallace is not out of line. In the right circumstances, like in Keays with the disabled
employee, the Court of Appeal makes clear that substantial Wallace damages will be paid
if there is a breach of good faith in the manner of termination.
Manoni v. Powell [2006] O. J. No. 1700, Ontario Court of Appeal
At the appeal, it was agreed in this dismissal matter that there was a wrongful
dismissal and a payment of reasonable notice was required. The trial Judge had awarded
14 months which the Court of Appeal observed would have been excessive for this
younger employee who was employed in a mid-management position. The employee had
only been employed for 2½ years. The award of 14 months was justified by the trial
Judge on the basis of the employer’s failure in the circumstances to provide a promised
reference letter which the trial Judge found warranted additional notice pursuant to
Wallace.
The Court of Appeal agreed that not providing a reference letter is grounds for a
Wallace award. However they thought in the circumstances of a 2½ year younger
employee 14 months was too long. They also expressly found the employment security
provision in the employment contract did not provide grounds for enhanced notice. The
Court found that the appropriate notice given the Wallace factors in that case was 7
months total. This would appear to be about a 4 month Wallace bump up on a 3 month
reasonable notice period.
8
RECENT TRIAL DECISIONS
Budhram v. 1257229 Ontario Ltd. [2007] O.J. No. 1788
4-year employee who sold fitness memberships for a gym. It was a lower end job
being paid $10.00 per hour. The trial Judge found that the appropriate range of notice
absent Wallace was 4 months. Justice Dunn provides the payment of one month’s wages
which he describes as punitive damages but given the way they are determined it would
appear that he is making a Wallace award.
Plotogea v. Heartland Appliances Inc. [2007] O.J. No. 2717
10-year employee working as a design engineer at the time of termination. The
employer took the position of cumulative cause. The Judge found the employer had some
valid complaints but they fell short of just cause. After extensively referring to the
Supreme Court of Canada decision in Wallace the Court finds expressly that the
defendant had proven each of the allegations of misconduct but they did not warrant
dismissal without cause. The trial Judge found that the misconduct must be viewed in the
context of 11 years of otherwise commendable service. He found that the immediate
termination without any notice was disproportionate to the cause alleged and he
acknowledges that they may well have believed in good faith that they had cause. The
Judge finds expressly that there was nothing about the plaintiff’s termination that was
high handed or mean spirited. He awards 9 months and states that there was no Wallace
bump on these facts.
This is an important case as it stands for the proposition that an employer who in
good faith believes they have cause will not face a Wallace bump up.
Boyd v. Wright Environmental Management Inc. [207] O.J. No. 1236
9
This is a complex factual scenario including an Ontario Business Corporations
Act claim for an equity interest in the company. It is again important because it represents
an indication of a trial Judge pulling back from Wallace damages when at first blush it
would appear that the employer was playing hardball. The Judge finds: “Inelegant though
the circumstances of the termination of the plaintiff’s employment may have been, I am
not satisfied that the circumstance surrounding the plaintiff’s employment termination are
ones mandating the application of the Wallace principle.” Interestingly, he goes on to say
that it may be a case for aggravated damages and increased costs award but not a Wallace
extension. I find here that it is hard to reconcile the facts of this case with Wallace itself
given that the Judge found that the employer treated the plaintiff as an incompetent
employee when in fact he had a positive record of employment. The employer had
marked on the record of employment “Termination without cause by reason of
unsatisfactory sales performance”. While the Judge acknowledged that was a “kiss of
death” to the plaintiff’s job prospects the Justice later found that much of the trial was
wasted in attempting to tarnish the reputation of the plaintiff even though it was not
advanced as a reason for his termination. For that wrong the Judge awarded $25,000.00
in exemplary damages, but no Wallace bump up.
SUMMARY
It will be interesting to see statistically whether or not the Wallace bump ups are
becoming less frequent and of a smaller quantum as suggested by Justice Echlin in Yanez.
As Barry Fisher wrote, they really seemed to get out of control for a period of time where
any time an employer in good faith or not wanted to litigate with the employee and lost
they were exposed to further damages. While as plaintiffs’ counsel we saw that as a
positive development it is not consistent with the Supreme Court of Canada decision in
Wallace. It is submitted that the approach in these more recent cases is more in keeping
with the law of this province.