Record-setting <i>Wallace</i> award overturned (Legal view)

Employer's bad-faith conduct sufficient to merit compensation even though employment prospects weren't affected

In 1997 the Supreme Court of Canada endorsed the idea of extending reasonable notice periods in wrongful dismissal cases where the employer had acted in bad faith during termination. In essence, the court placed a responsibility on all employers to play nice during termination, recognizing that callous behaviour causes unnecessary stress and problems for workers.

Shortly after the decision in Wallace v. United Grain Growers, the British Columbia Supreme Court awarded a worker six months’ reasonable notice and added 36 months for the employer’s bad-faith actions in Clendenning v. Lowndes Lambert (B.C.) Ltd. The trial judge found the termination for cause, which was based on a number of serious allegations including forgery, misuse of a company cellphone, incompetence, dishonesty, participation in a fraudulent scheme and drug and alcohol abuse made the possibility of finding alternative employment for the employee “virtually impossible.” The employer appealed the ruling.

The B.C. Court of Appeal said the 36-month period for Wallace damages was so far out of the appropriate range that it constituted a palpable error. It lowered it to 18 months.

Since then, the Wallace pendulum has swung back and forth. The pendulum recently swung to the extreme high end when a Nova Scotia jury awarded 48 months’ in Wallace damages to a worker who had been on the job less than three years in Jessen v. CHC Helicopters International Inc.

Jessen had worked for CHC for two-and-a-half years before she was terminated from her employment without cause. In February 2001 Jessen told the president about her concerns regarding the lack of competent leadership at her location. She was subsequently terminated by a manager who felt he could not trust her. Jessen immediately called the president who told her she would be given a letter of reference.

Jessen was offered two-and-a-half months’ pay in lieu of notice. Her record of employment was not provided to her within the mandated five days. It was held up for more than two months, delaying her claim for benefits. Further, CHC never provided a letter of reference. While Jessen found some contract work, she never secured a full-time position as of the trial date. At trial, a jury awarded her four months’ pay in lieu of notice and a further 48 months for CHC’s delay in sending the record of employment and failure to send the letter of reference.

The employer appealed that ruling. The Nova Scotia Court of Appeal found the 48-month extension was out of sync with other awards. It further found that nothing about CHC’s treatment of her — neither the lack of reference letter nor the delay of the record of employment — amounted to exceptional circumstances to warrant such a high award. The court commented that 48 months was the highest award of Wallace damages ever and the facts of the case simply did not support it. Consequently, it was set aside and an award of nine months was substituted — still a relatively high Wallace award.

This case is not only notable for the exceptional award of Wallace damages, comparatively speaking, but also for the court’s decision to embrace the principle endorsed by the Supreme Court of Canada in Wallace that “injuries resulting from bad-faith conduct were sufficient to merit compensation in and of themselves, irrespective of whether the bad-faith conduct affected employment prospects.”

Typically, where courts have found an employee has mitigated her damages fully or partially by finding alternate employment, courts will subtract the earnings of the employee over the period of reasonable notice to which they are entitled. In this case, despite the fact Jessen had partially mitigated her damages by earning some money from contract work, the court did not subtract what she had earned from the period of reasonable notice to which she was entitled. In refusing to do so, the Nova Scotia Court of Appeal’s decision was in line with other court decisions that have recognized that the employee would not be effectively compensated if deductions of earned income were made from the damages awarded in relation to a Wallace extension.

Punishing bad faith
What’s a Wallace average?

In its ruling in Jessen, the Nova Scotia Court of Appeal discussed an article written by Gavin Hume and David Wong entitled “Wallace Damages: What Constitutes Bad Faith?” from the Annual CBA National Administrative Law and Labour/Employment CLE conference held in Ottawa in November 2005.

A review of 73 cases in which Wallace damages were awarded showed the average extension to be 3.4 months. None of the cases exceeded 12 months.

Natalie MacDonald is a partner with Grosman, Grosman and Gale, a Toronto-based law firm specializing in employment law. She can be reached at (416) 364-9599 or [email protected].

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