Courts taking <i>Wallace</i> one step further

Reasonable notice period extended for “unfair dealing” even in the absence of bad-faith conduct by an employer

Two recent cases of the Ontario Superior Court present a judicial trend of expanding the situations in which a terminated employee can claim she is entitled to a lengthening of the reasonable notice period because of the employer’s conduct.

The award of a Wallace extension of the reasonable notice period has traditionally been awarded on the basis of “bad-faith conduct” in the manner of dismissal or in the events leading up to dismissal.

These new cases suggest, even where the employer does not engage in bad-faith conduct, a terminated employee may be entitled to a lengthening of the notice period if the employer’s conduct is unfair. This theory of liability is a departure from the rationale for the extension of the reasonable notice period in Wallace which is premised on a finding of bad-faith conduct on the part of the employer.

In Wallace v. United Grain Growers Ltd., [1997] 3 S.C.R. 701 (S.C.C.), Wallace was dismissed after 14 years of exemplary service without any explanation. In response to the statement of claim issued by Wallace in his action for wrongful dismissal, the employer alleged he had been dismissed for cause.

These allegations were maintained right up to the eve of trial. As a result of the termination and the unfounded allegations of cause, Wallace suffered emotional difficulties and was eventually forced to seek psychiatric help. The court held while a terminated employee cannot make a separate claim for a “bad-faith discharge,” an employer’s bad-faith conduct in the manner of dismissal can result in an extension of the notice period.

Employers are therefore subject to an obligation of good faith and fair dealing when providing an employee with notice of termination. Employers who breach this duty may be held liable for resulting humiliation, embarrassment or harm to the employee’s self-worth.

In Saunders v. Chateau Des Charmes Wines Ltd. 2002 CarswellOnt 3395 (O.S.C.), Saunders was employed by the defendant winery for about 10 years and was director of marketing at the time of his termination. Saunders and his superior had a series of confrontations in which the superior was critical of his performance. The superior’s behaviour was characterized by the trial judge as hostile, profane and abusive and the trial judge found this resulted in humiliation and embarrassment to Saunders.

Ultimately Saunders took the position he had been constructively dismissed due to his superior’s actions. The trial judge agreed and awarded damages for reasonable notice.

The trial judge accepted the superior’s evidence that he did not believe his behaviour was inappropriate. In fact the trial judge made an express finding there was no bad faith on the part of the employer in this case. Nevertheless the trial judge found Saunders was entitled to three-months’ additional damages for unfair dealing.

While it is easy to understand why the trial judge wanted to compensate the employee for this abusive treatment, a general rule that a Wallace extension of the reasonable notice period is available in the absence of bad-faith conduct by the employer is a dangerous precedent.

For example in Gismondi v. Toronto (City) (2002) 16 C.C.E.L. (3d) 97 (Ont. S.C.J.) Gismondi was a professional engineer who had been working for the City of North York for 20 years prior to the merger of the cities that now comprise Toronto. After the creation of the megacity, many positions became surplus. Guidelines were developed and put in place in order to ensure a fair process with respect to competitions for jobs.

Gismondi applied for the position of manager, road operations and was granted an interview. He was not chosen for the position and his employment was subsequently terminated. The court awarded him 116 -weeks’ salary in lieu of notice. The quantum of damages included an addition to the notice period in accordance with the principles in Wallace.

The court held the city had dropped the ball by failing to apply its own fair, open and equitable hiring criteria uniformly across the board. Gismondi had asked at the end of his interview whether his previous performance appraisals would be reviewed and his references contacted. He was told the panel would consider all relevant matters. But none of his references were ever contacted, whereas the panel did speak with the references of the successful candidate.

The court found the city had effectively treated Gismondi in a manner different from other candidates which, although not malevolent or egregious, entitled him to a lengthening of the reasonable notice period in accordance with the principles laid out in Wallace. This decision is being appealed to the Ontario Court of Appeal.

The possibility of an extension of the reasonable notice period for dropping the ball, differential treatment or simple unfairness in the absence of bad faith conduct creates new difficulties for employers. All kinds of decisions at the time of deciding to terminate employees results in unfairness.

In the context of a large-scale downsizing, some employees are treated differently than others by definition. Some employees are terminated while others keep their jobs. Wallace presupposed additional liability would rest with the employer only where the unfairness to the employee was as a result of some bad-faith conduct on the part of the employer.

Since it appears the courts are now inclined to award a Wallace extension to the reasonable notice period in cases of simple unfairness, in the absence of bad-faith conduct, employers need to be even more vigilant in ensuring they treat employees equitably and with dignity and respect in the course of the termination. These decisions illustrate that courts may not care an employer did not intend to be unfair. If the actions resulted in unfairness to the employee, an extension of the reasonable notice period may follow.

Chris Foulon is an employment law lawyer with Goodman and Carr LLP in Toronto. He can be reached at (416) 597-4088 or cfoulon@goodmancarr.com.

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