Private eye awarded <i>Wallace</i> damages after being turfed

MacKenzie v. Rau (2002), 22 C.C.E.L. (3d) 238 (Ont. S.C.J.)

Gary MacKenzie brought an action against his former employer for damages for wrongful dismissal. MacKenzie had worked for Rau for about 12 years as a private investigator. For the six years prior to his dismissal, MacKenzie had taken on the position of manager of the employer’s London, Ont. office.

MacKenzie signed an employment agreement when he first started working for the employer and then later signed a second contract because of a change in the employer’s corporate and partnership structures. The employer alleged MacKenzie was dismissed for just cause, claiming he had falsified an investigation report.

The basis of the employer’s allegations of cause were some discrepancies between the reports of MacKenzie and another of the employer’s private investigators who, because of a mix-up, were both conducting surveillance on the same individual at the same time.

In particular the other investigator observed the individual drive to a Tim Horton’s, return to the parking lot in front of his apartment building and then enter a main level apartment. MacKenzie, on the other hand, who was also observing the individual at the same time from the parking lot of the building, did not see the individual leave the building and in fact did not actually see or identify the individual in the course of his investigation that day at all.

Based on the discrepancies between the reports of the two investigators, the employer concluded MacKenzie had falsified his report and terminated his employment.

The court held that despite the obvious discrepancies between the reports, there was no fraudulent or dishonest conduct on the part of MacKenzie. He had made a good-faith effort at surveillance, although he had missed some observations which he should have made.

Accordingly the court held the employer did not have just cause for dismissal. Interestingly the court held the employment agreement which MacKenzie had signed at the start of his employment was enforceable, even though when he entered into it he was an hourly wage employee earning $11.50 an hour and when he was fired he had advanced to the level of manager and was earning $26 an hour.

The court limited MacKenzie’s damages to what was provided for in the notice clause of the employment agreement which was 16 weeks. From the reasons of the decision, it does not appear that counsel for MacKenzie argued the contract should be unenforceable on the basis of the changed substratum doctrine.

This principle recognizes that notice provisions which may be fair in the early part of an employment relationship may be unfair when an employee has achieved a new position and greater remuneration and responsibilities. In such circumstances, the substratum of the contract can be said to have disappeared and therefore the contractual provision limiting notice may no longer be enforceable.

Another important aspect of this case is the fact the court awarded an addition to the notice period provided for in the employment contract for Wallace damages (damages awarded based on an employer’s bad-faith conduct in the manner of dismissal). The court held, despite the cap on notice set out in the employment agreement, the Wallace doctrine still allowed for an extension of the notice period in the rare and appropriate cases which justified a Wallace extension of the reasonable notice period. The court made an award of extended notice damages equal to three months’ salary which was not subject to a deduction for money earned by MacKenzie from alternate employment during this additional three-month period.

The court held that an extension of the notice period, based on Wallace principles, should never be subject to deduction for mitigation since by its character a Wallace extension is analogous to aggravated damages.

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