Bad faith in firing will cost employers dearly
Sometimes a win is a loss. When the Supreme Court of Canada handed down its ruling last year in the case involving Kevin Keays and Honda, it was generally lauded as a victory for employers.
Among other things, the Keays ruling struck a blow to Wallace damages. These were the damages courts tacked on to wrongful dismissal awards to compensate an employee if an employer acted in bad faith during the course of a dismissal.
In theory, Wallace damages — which have been around since 1997 — were a good idea. Courts put the onus on employers to behave properly when it came time to terminate someone. After all, losing a job can be a traumatic experience and employers should do everything possible to ease the pain.
But the reality turned out to be quite different. Wallace damages quickly became boilerplate — almost everyone who sued for wrongful dismissal tacked them on to the claim for damages. The fact courts weren’t always consistent in awarding Wallace damages didn’t help either.
Even though one judge in Ontario threatened to reduce awards if employees kept claiming Wallace damages when there was absolutely no cause, it never (to my knowledge) happened.
The Supreme Court of Canada took the opportunity in its ruling in Keays to try and fix the problem. It essentially eliminated Wallace damages, replacing them with a different structure.
Employers, sick of constantly fighting unsubstantiated claims for Wallace damages, breathed a collective sigh of relief.
But there was a landmine planted in the Keays decision. And it went off in October, hitting Merrill Lynch to the tune of $1.6 million after it wrongfully dismissed a financial adviser in Alberta. (Stuart Rudner, a partner with Miller Thomson, has all the details in his article 7460.)
Here’s the Reader’s Digest version: Merrill Lynch was ordered to pay the worker 12 months’ notice — about $600,000. Then the court tacked on $1.6 million more because of the detrimental effect the allegations of just cause had on his career.
In the Wallace days (which must seem like halcyon ones to Merrill Lynch), a court would have added a couple extra months’ salary to compensate an employee. Since the advisor was earning about $50,000 per month, a four-month Wallace bump would have been $200,000. Not insignificant but a far cry from $1.6 million.
This is a critical employment law ruling HR professionals should pay close attention to because the message that came out of the Alberta Court of Queen’s Bench was clear: If employers act in bad faith, and an employee can prove that bad faith caused harm, the courts will tack on additional damages. And the additional damages won’t be a slap on the wrist.
In a world where HR people are being inundated by talk of numbers, metrics and justifying return on investment, rulings like this provide even more ammunition in support of good HR policies.
Does the executive team not want to bother with progressive discipline? Or perhaps they don’t see the importance of building an airtight case for alleging just cause?
No problem. Just make sure they have their wallets handy — and those wallets had better be full.
