Alberta case showcases downside for employers of landmark Supreme Court decision
In the summer of 2008, the Supreme Court of Canada rendered its ground-breaking decision in Honda Canada v. Keays. Among other things, the court, on its own initiative, elected to revisit the nature of damages to be awarded in circumstances where an employer does not act in good faith in the course of dismissal.
Prior to that, courts awarded what was known as a “Wallace bump” for an employer’s bad-faith conduct. However, the Supreme Court chose to replace this arbitrary approach with one based on a compensatory analysis. The wording of the decision suggested, in the future, the damages formerly known as Wallace would not be awarded as frequently as they had been, since an employee would have to show not only that an employer acted in bad faith but this bad faith caused her to suffer some form of actual damages.
The decision was expected to reduce the number of Wallace-type bumps, though, in the right circumstances, it looked like it might be possible for employees to win more substantial damages.
A review of cases decided since the Keays ruling shows courts have, for the most part, followed the Supreme Court’s guidance. Employees have had to prove they suffered actual harm that was caused not by the dismissal itself but by the bad faith exhibited by their employers. 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 expected.
Most recently, however, the Alberta Court of Queen’s Bench released a decision in Soost vs. Merrill Lynch Canada Inc. In this case, the court found Merrill Lynch acted in bad faith and adopted the compensatory approach set out by the Supreme Court in the Keays case. As a result, the employee received $1.6 million in damages. Needless to say, this was far beyond any Wallace bump under the old regime.
The employee in Soost was a financial advisor. He was highly successful and had a book of business valued at $70 to $80 million when he was hired by a predecessor of Merrill Lynch in the summer of 1998, enticed away from RBC Dominion Securities. During his tenure with Merrill Lynch, which ended in the spring of 2001, he increased the value of his book of business to about $150 million.
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 allegations of just cause were unwarranted, found the trial court, and, therefore, Soost had been wrongfully dismissed. The court took into account not only Soost’s three years with Merrill Lynch and its predecessor but his seven years in the industry and awarded him 12 months’ notice — about $600,000.
In addition, by dismissing Soost in the manner 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, found the court.
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.”
Merrill Lynch could have given him 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 on his career that was generated by the dismissal with cause, found the court.
The Soost ruling appears to be a perfect example of what many employment law commentators suggested could happen as a result of the Keays decision.
This was one of those rare instances where not only could an employee prove he suffered actual damages as a result of an employer’s bad faith, but the amount of damages was far beyond what any worker would have received via a “Wallace bump” under the old regime.
It’s a reminder there are circumstances in which the damages formerly known as Wallace will be awarded, and those damages can dwarf prior awards based on the compensatory approach. The courts have, deliberately and with good reason, left the door open for substantial damages if an employee can prove such damages were caused by an employer’s bad faith.
Stuart Rudner is a partner at Miller Thomson’s labour and employment group in Toronto. He can be reached at (416) 595-8672 or [email protected].
