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The latest word on the 'damages formerly known as Wallace'

Saskatchewan decision provides more insight on how and when damages arising out of bad faith in the course of dismissal will be awarded

By Stuart Rudner

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, the high court found 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 employees, 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 Supreme Court of Canada released its groundbreaking decision in Keays v. Honda Canada Inc. In its decision, the 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, the employee would have to prove not only the employer acted in bad faith, but that the employee 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” (as I dubbed them), but that there was potential for significantly larger awards where evidence existed to support it.

The "damages formerly known as Wallace" continue to evolve. Some courts have strictly applied the decision in Keays, holding no damages will be awarded unless there is evidence of both bad faith conduct and resulting loss. Others have been more liberal. It seems clear, however, that there are fewer claims seeking such damages and fewer awards thereof.

The most recent court decision to tackle this issue is Coppola v. Capital Pontiac Buick Cadillac GMC Ltd., a trial judgment out of Saskatchewan. The analysis of the court is instructive. The judge disbelieved much of the evidence led by the company, and rejected many of its explanations for its conduct. I will set out below excerpts of the judgment:

I would first make it clear that it is not my intent only to examine the conduct of Capital Pontiac at the moment of dismissal on June 28, 2002. I am satisfied that the court is also entitled to consider acts of the employer before and after termination

I am of the opinion that Mr. Coppola has established grounds for an award of aggravated damages for mental distress resulting from the manner of his dismissal from Capital Pontiac

I find that Capital Pontiac not only failed to meet its obligations of good faith and fair dealing with Mr. Coppola, but indeed acted in a manner that was harsh and vindictive ostensibly because Mr. Coppola claimed to have been wrongfully dismissed-a claim which was well-founded in law. The damages which Mr. Coppola suffered as a result of the false accusation of dishonest and/or fraudulent conduct were clearly foreseeable and are compensable under the Hadley principle. The attack on Mr. Coppola's reputation and the misrepresentation regarding the reason for his dismissal are the type of conduct in dismissal which call for an award of damages for mental distress.

In the circumstances, I am of the view that Mr. Coppola is entitled to a substantial award for aggravated damages for mental distress caused by the false allegation of dishonest and/or fraudulent conduct following his wrongful dismissal from Capital Pontiac… I have decided that a reasonable award for aggravated damages in this case is $20,000.00.

With respect to evidence of damages, the employee put forward evidence of mental distress, but did not produce medical evidence. He did not see a doctor but his wife gave evidence that she is a psychiatric nurse and treated him.

While Mr. Coppola did not seek medical attention for the mental distress, I also accept the evidence of Mrs. Coppola that she employed her own skill as a psychiatric nurse to help her husband overcome the effects of these false accusations. I am satisfied that the allegation of dishonest and/or fraudulent conduct exacerbated and prolonged the mental distress beyond the normal hurt feelings associated with dismissal.

In Honda, the Supreme Court discouraged duplication of damages, suggesting that in most cases it would be inappropriate to award both damages for bad faith and punitive damages. In Coppola, the plaintiff sought punitive damages and the court held as follows:

The threshold issue is whether Capital Pontiac's conduct in dismissal was so outrageous that punitive damages are necessary for the purpose of deterrence, denunciation and retribution. In my view, this is not a case which calls for the imposition of punitive damages. Significant compensatory damages have already been awarded under the headings of pay in lieu of notice and aggravated damages. These awards are, in my opinion, adequate to achieve the objectives of retribution, deterrence and denunciation.

I would be interested in hearing about whether people agree that there has been a decrease in claims for "the damages formerly known as Wallace," as well as any other comments on this issue.

Stuart Rudner is a partner with Miller Thomson LLP in Ontario, specializing in 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 author of You’re Fired: Just Cause for Dismissal in Canada, published by Carswell. He can be reached at (905) 415-6767 or srudner@millerthomson.com. You can also follow him on Twitter @CanadianHRLaw, join his Canadian Employment Law Group on LinkedIn, and connect with him on Google+.

Stuart Rudner

Stuart Rudner, Employment Lawyer and MediatorStuart Rudner is the founder of Rudner Law (RudnerLaw.ca), a firm specializing in Employment Law and Mediation. He can be reached at stuart@rudnerlaw.ca, (416) 864-8500 or (905) 209-6999, and you can follow on Twitter @RudnerLaw.
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