New regime of bad-faith damages not always good news for employers
In the summer of 2008, the Supreme Court of Canada rendered its groundbreaking decision in Keays vs. Honda Canada. Among other things, the Supreme Court, on its own initiative, elected to revisit the nature of damages awarded in circumstances where the employer does not act in good faith in the course of dismissal. Prior to that, courts awarded what we have come to know as a “Wallace bump” in circumstances where bad faith had been found. However, the Supreme Court of Canada in Keays chose to replace this arbitrary approach with one based upon a compensatory analysis. As I and other commentators reported, the wording of the Supreme Court’s decision suggested that in the future, “the damages formerly known as Wallace” would not be awarded as frequently, since a plaintiff would have to show not only that the employer had acted in bad faith, but this bad faith caused the employee to suffer some form of actual damages. Although I predicted that these awards would be made less frequently, I also suggested that in the right circumstances, employees may be able to prove more substantial damages and the awards could be greater under the new regime.
Recently, I wrote a summary of the jurisprudence over the course of the first 15 months or so after the Keays decision was handed down. Although there was some inconsistency, most courts seemed to have followed the guidance of the Supreme Court and required that an employee seeking bad-faith damages prove she suffered actual harm caused not by the dismissal itself, but rather by the bad faith exhibited by her employer. In many cases, claims for bad faith damages that would have succeeded under the old regime failed under the new analysis. This was, by and large, as I had predicted.
Recently, however, the Alberta Court of Queen’s Bench went in the other direction, towards more damages. In Soost vs. Merrill Lynch Canada Inc., the court found Merrill Lynch acted in bad faith and adopted the compensatory approach set out in Keays. As a result, the employee received $2.2 million in damages. Needless to say, this was far beyond any “Wallace bump” under the old regime. This seems to be an example of the type of case I suspected would result in far more substantial damages than the old approach.
The employee, Kurt Soost, was a financial advisor. He was highly successful and had a book of business valued at approximately $70 to $80 million at the time he was recruited from RBC Dominion Securities by Merrill Lynch’s predecessor in the summer of 1998. During his tenure with Merrill Lynch, he increased the value of his book of business to approximately $150 million by the spring of 2001, when Merrill Lynch fired him for cause, alleging he had failed to comply with industry standards. Although Soost found new employment as a financial advisor, only a small portion of his client base followed him. He sued Merrill Lynch for wrongful dismissal and sought damages for, among other things, the loss of his book of business.
The Alberta Court of Queen’s Bench found the allegations of just cause were unwarranted and Soost had been wrongfully dismissed. The court took into account not only Soost’s three years with Merrill Lynch and its predecessor, but also his seven years in the industry. It awarded him 12 months’ notice amounting to approximately $600,000. In addition, the court found that by dismissing Soost in the manner that it did, Merrill Lynch knew or ought to have known it would be “mortally wounding” his ability to continue his career as an investment advisor. As a result, and despite finding there was no ownership of clients and Merrill Lynch was free to compete with Soost for his clients at the time of his termination, the court awarded $1.6 million in “the damages formerly known as Wallace.” The court found Merrill Lynch could have given Soost the chance to address and correct any issues with his performance, dismissed him with notice or allowed him to resign in order to avoid the devastating impact upon his career the dismissal with cause generated.
On its face, Soost appears to be a perfect example of what employment law commentators suggested could happen as a result of the Supreme Court’s decision in Keays. This case appears to be one of those rare examples where not only can the employee prove he suffered actual damages as a result of the employer’s bad faith, but the amount of damages is far beyond what any employee would have received via a “Wallace bump” under the old regime. While Keays was widely perceived to be good news for employers, this case does provide a reminder that there are circumstances in which bad-faith damages will be awarded, and those damages can dwarf prior awards based upon the compensatory approach. While we are judging the notion of an automatic extension of the notice in circumstances where the employer is found to have acted in bad faith, the courts have, deliberately and with good reason, left the door open for substantial damages where the plaintiff can prove such damages were caused by the employer’s bad faith.
For more information see:
•Keays v. Honda Canada Inc., 2008 CarswellOnt 3743 (S.C.C.).
•Soost v. Merrill Lynch Canada Inc., 2009 CarswellAlta 1623 (Alta. Q.B.).
