Everyone wants a piece of <i>Wallace</i>

A plethora of <i>Wallace</i> claims

Stuart Rudner

In his decision in Wallace v. United Grain Growers, Justice Frank Iacobucci specifically stated he did not want the judgment to result in claims for bad-faith damages being made virtually automatically in every claim for wrongful dismissal.

His concern seems to have been well-founded. It seems as though almost every claim for wrongful dismissal since the release of the Wallace decision includes an allegation of bad faith and a corresponding request for additional damages. The question, however, is how many of those claims are successful.

The landmark Wallace decision

The court in Wallace held employers have a duty of “good faith and fair dealing in the manner of dismissal” of an employee. If the employer breaches that duty, the employee can be compensated by way of an extension of the applicable notice period. This is true whether or not the bad faith exhibited by the employer affects the employee’s re-employment prospects.

The Wallace decision was a landmark one. The courts have now had several years to refine what is meant by “bad faith”, and what types of conduct will justify an extension of the notice period. The Ontario Court of Appeal addressed the issue of what constitutes bad faith in Gismondi v. Toronto (City), and provided a non-exhaustive list of examples of the type of conduct that could be labelled “bad faith”:

•false allegations that termination was because of inability to perform the job;

•false allegation that termination was for cause;

•persisting in the allegation of cause up to the time of trial;

•spreading word through the industry that the employee was terminated for dishonest conduct or having done “something reprehensible”;

•refusal to provide a letter of reference after termination;

•although the employee’s position was eliminated, he was led to believe he would be transferred to a new job and only told of termination after selling his home;

•firing employee immediately upon return from disability leave (because suffering from major depression);

•laid-off employee learning, through a newspaper advertisement for his position, that he had been terminated.

Cases where Wallace damages have been awarded

The court in Gismondi confirmed bad faith can be found in actions prior to and also subsequent to termination, but only where the conduct is a component of the manner of dismissal. It went on to review a number of decisions that had been rendered after, and in light of, the Wallace decision. A few that are worthy of mention:

Noseworthy v. Riverside Pontiac Buick Ltd: The employer confronted the plaintiff with a false allegation of forgery and threatened criminal charges unless the employee resigned. The plaintiff suffered traumatic stress disorder as a result.

Kroll v. 949486 Ontario Inc: Shortly before the plaintiff’s wedding, his employer purported to terminate him and offered an inadequate amount of severance pay. The employer told the plaintiff that if he did not accept the offer, he would be terminated for cause and would not receive anything. The “offer” included a restrictive covenant effectively precluding the plaintiff from working elsewhere.

Prinzo v. Baycrest Centre for Geriatric Care: The plaintiff, an employee with nearly 18 years of service, was on disability leave. The employer made harassing telephone calls suggesting she was malingering and wrote a letter to her falsely implying her physician had said she was fit to return to work. When she returned to work, she was told she would be dismissed. The trial judge found that as a result the plaintiff suffered emotional upset, increased blood pressure, weight gain, the return of diabetes symptoms, a loss of self-esteem and disabling distress.

In each of those cases, Wallace damages were awarded. What is particularly instructive, however, is the court’s conclusion in Gismondi that the common element to all cases where bad faith had been found was “something akin to intent, malice, or blatant disregard for the employee. It is conduct that could be characterized as ‘callous and insensitive treatment.’”

Cases where Wallace was rejected

Conversely, Wallace damages have been rejected in a number of cases. Although I am not aware of any statistics, I would guess that, more often than not, they are not awarded. For example the Prince Edward Island Court of Appeal overturned a trial judge’s decision which awarded Wallace damages in Barnard v. Testori Americas Corp. In that case the employee had signed an employment contract providing for eight weeks’ notice of termination without cause during the first year. The trial judge found the employer had breached an implied term to act fairly and in good faith when it terminated the employee, and awarded additional damages over and above the eight weeks.

The Court of Appeal confirmed “there is no implied contractual term that an employee will not be dismissed in a bad faith manner.” But, in accordance with Wallace, any bad faith on the part of the employer can be taken into account when determining the length of notice. In this case the Court of Appeal did not find it appropriate to do so.

Interestingly, two British Columbia cases have found a failure to pay the full amount of statutory notice did not constitute bad faith on the part of the employer. In Coutts v. British Columbia, the court held that while the employer’s conduct was not commendable, it was not in bad faith or unduly sensitive. Similar conclusion were reached in Bondi v. Geographics Marketing Canada Inc.

In Baldwin v. Quinsam Coal Corp., the plaintiff was lured away from previous employment on the representation there would be work available for 15 to 20 years. He was then misled by the defendant into thinking he had been laid off for four months when he had actually been terminated. Despite these factors the court found there was no bad faith, although there was “unfair dealing.” It awarded a total period of notice without specifying how much this unfair dealing added to the award.

In many more cases, Wallace damages are initially pleaded but not pursued. Plaintiff’s counsel include them either out of fear that they may later discover a basis for it, or as leverage to extract a larger settlement. Whatever the reason, counsel in many cases are doing exactly what Justice Iacobucci feared: including a claim of bad faith as part of their “boiler-plate” statement of claim.

For more information see:

Wallace v. United Grain Growers Ltd., 1997 CarswellMan 455, 1997 CarswellMan 456, 36 C.C.E.L. (2d) 1 (S.C.C.)

Gismondi v Toronto (City), 2003 CarswellOnt 1498, 24 C.C.E.L. (3d) 1 (Ont. C.A.)

Noseworthy v. Riverside Pontiac-Buick Ltd., 1998 CarswellOnt 4889, 39 C.C.E.L. (2d) 37 (Ont. C.A.)

Kroll v. 949486 Ontario Inc., 1997 CarswellOnt 4869, 34 C.C.E.L. (2d) 78 (Ont. Gen. Div.)

Prinzo v. Baycrest Centre for Geriatric Care, 2002 CarswellOnt 2263, 17 C.C.E.L. (3d) 207 (Ont. C.A.)

Barnard v. Testori Americas Corp., 2001 CarswellPEI 29, 11 C.C.E.L. (3d) 42 (P.E.I. C.A.)

Coutts v. British Columbia, 2000 CarswellBC 2029, 4 C.C.E.L. (3d) 279 (B.C. C.A.)

Bondi v. Geographics Marketing Canada Inc., 1999 CarswellBC 1507 (B.C. S.C.)

Baldwin v. Quinsam Coal Corp., 1999 CarswellBC 606 (B.C. S.C.)

This in depth look at Wallace damages was provided by Stuart Rudner. He practices civil litigation and employment law with Miller Thomson LLP’s Toronto office. He can be reached at (416) 595-8672 or via e-mail at srudner@millerthomson.ca.

The case that started it all

Wallace v. United Grain Growers, 1997 CarwellMan 455, 1997 CarswellMan 456, 36 C.C.E.L. (2d) 1 (S.C.C.)

Jack Wallace was a 59-year-old salesman with 14 years tenure at United Grain Growers when he was fired in 1986, a dismissal the court found to be without cause.

He suffered mental distress when he was fired, and was awarded $15,000 for mental distress on top of 24 months’ notice by the Manitoba Court of Queen’s Bench. The case ended up in front of the Supreme Court of Canada, which upheld the landmark award. In the decision the Supreme Court said the trial judge concluded it was the dismissal and events following that were mostly responsible for the mental anguish suffered by Wallace.

These damages were compensable provided they flowed from the employer’s failure to treat Wallace in good faith at the time of dismissal. The trial judge found bad-faith conduct on the part of United Grain Growers in:

•terminating Wallace in an abrupt manner after having complimented him numerous times prior to his dismissal; and

•its decision to play hardball with Wallace by maintaining completely unfounded allegations of just cause up until the start of the trial which resulted in Wallace being essentially ostracized from the business he worked in.

The employer thus breached the implied term of good faith and fair dealing by acting as it did at the time of dismissal, the Supreme Court ruled. The damages claimed under the heading mental distress and loss of reputation are general damages flowing directly from the employer’s breach of the implied term and are therefore compensable, it ruled.

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