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Are 'damages formerly known as Wallace' still relevant?

In the past, Wallace damages were commonplace. Now, even 'unprofessional, dishonest, callous, careless, unfair and cruel' conduct may not be enough to warrant damages for bad faith.

By Stuart Rudner

For a decade, courts seemed prepared to rely upon any reason to find that an employer had acted in bad faith and award "Wallace damages." The notion of a "Wallace bump" — which was an artificial extension of the notice period in cases where a court determined the employer had acted in bad faith in the course of dismissal — became commonplace after the Supreme Court of Canada's 1997 decision in Wallace v. United Grain Growers Ltd.

In the years that followed, courts seemed willing to accept almost any basis to find bad faith. As a result, employers spent too much time and energy trying to decide if it was better to dismiss on a Friday or a Monday, before or after an employee's vacation, in the morning or afternoon, etc. And plaintiffs' counsel routinely included pleas for Wallace damages in wrongful dismissal claims.

I have discussed the evolution of these damages in many contexts, including this previous post. Readers will know that in 2008, the Supreme Court of Canada, in Keays v. Honda Canada Inc., changed the manner inwhich damages arising out of bad faith in the course of dismissal arecalculated.

No longer were courts to arbitrarily extend the noticeperiod when bad faith was found. Rather, the employee would have toprove not only the employer acted in bad faith, but that the employeesuffered some sort of loss or damages as a result of that bad faith (andnot simply as a result of being dismissed).

At the same time, there was a movement to rein in the awards of Wallace damages and restrict them to situations that were truly egregious.

In recent years, claims seeking bad faith damages — which I still refer to as "the damages formerly known as Wallace" — have dwindled, and many that have been pursued have been rejected by the courts. In many cases, courts have agreed that an employer acted in bad faith, but found there was no evidence of damages resulting out of that bad faith conduct. As a result, no award of damages would be made.

This morning, professor David Doorey added a post to his blog entitled “Unfair and Cruel” Dismissal of Employee Still Not “Bad Faith Discharge”. In it, he discusses a recent court decision in which the employer's conduct was found to be unprofessional, dishonest, callous, careless, unfair and cruel, but the court chose not to award any bad faith damages. The court reviewed some of the facts as follows:

"On May 5, 2005, the day before Wendy’s termination, a very unfortunateincident took place. Wendy required authorization for overtime work andfurther authorization to have a vendor access one of her systems. Sheneeded that authorization from Tom MacKenzie, the defendant’s manager ofoperations and, from Larry Fretz whose position was at a similar levelto that of MacKenzie. When she telephoned MacKenzie he advised her thatFretz was present in his office. Wendy then heard Tom MacKenzie adviseLarry Fretz that the plaintiff was on the phone requesting authorizationbut 'don’t spend too much time on this, Wendy’s getting canned tomorrowanyway.'"

The court found that the employee, understandably upset, confronted her managers, who misled her and allowed her to work nine hours of overtime under the impression she was not going to lose her job.

Professor Doorey posits that under the old "Wallace regime," damages would have been awarded for such conduct. I tend to agree, though these cases are fact-driven and depend very much upon the particular judge hearing the case. In this case, the court found the misconduct was not egregious enough to warrant the damages formerly known as Wallace, and, furthermore, there was no evidence of damages or emotional upset beyond that which would normally accompany those of one's job.

Since every decision of this nature is fact-specific, it is often difficult to derive a principle from one particular case. However, this is certainly an example of how things have changed since Honda and how high the threshold has been raised for plaintiffs seeking the damages formerly known as Wallace.

Of course, I would still caution employers to be cautious and sensitive to the feelings and dignity of employees. While the damages formerly known as Wallace may be harder to come by, we have seen recent examples of large punitive damages awards in employment law cases, as well as cases where both forms of damages have been awarded on top of "regular" damages for wrongful dismissal.

Stuart Rudner is a leading HR Lawyer and a partner in the Labour & Employment Law Group of Miller Thomson LLP, a national law firm. 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 (416) 595-8672 or srudner@millerthomson.com. You can also follow him on Twitter @CanadianHRLaw and join his Canadian HR Law Group on LinkedIn.

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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