Can <i>Wallace</i> damages be awarded if there is a written contract?

Question: Can an employer be held liable for Wallace damages for the dismissal of an employee if there was a written employment agreement in place which contained express termination provisions which limits the amount of notice or pay in lieu of notice?

Answer: In Wallace v. United Grain Growers, the Supreme Court of Canada held the reasonable notice period can be lengthened when an employer deals unfairly or in bad faith. Accordingly the question arises as to whether a court can award Wallace damages against an employer guilty of bad faith in the manner of termination where the employment relationship is governed by a written provision that specifically limits the period of notice.

There is little case law on this issue, but a recent P.E.I. decision has held Wallace damages cannot be imposed where a written employment contract expressly limits the notice or pay in lieu of notice upon termination of employment.

In Barnard v. Testori Americas Corp., the court held that where an employment contract contains an express term regarding notice, the law does not imply a term for reasonable notice and therefore there is no implied reasonable notice period which can be extended for bad-faith considerations. Accordingly Barnard suggests a court cannot extend the notice period stipulated in an agreement where an employer has acted in bad faith in the dismissal of an employee.

But in light of the lack of case law, there is no doubt Barnard will not be the final word on the matter. It has been argued this case is not consistent with the principles set out in Wallace and there is no basis in Wallace for the proposition that damages for bad faith in the manner of dismissal can only be awarded in the absence of a written agreement which limits the notice period.

Thus an employer should not count on a written employment contract to shield it from liability and should act reasonably and with sensitivity when terminating an employee.

Peter Israel is counsel to Goodman and Carr LLP in Toronto and is head of the firm’s Human Resource Management Group. Peter can be reached at [email protected] or (416) 595-2323.

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