Are 'damages formerly known as Wallace' still relevant?

In the past, Wallace damages were commonplace. Now, even 'unprofessional, dishonest, callous, careless, unfair and cruel' conduct may not be enough to warrant damages for bad faith.

Stuart Rudner

By Stuart Rudner

For a decade, courts seemed prepared to rely upon any reason to find that an employer had acted in bad faith and award "Wallace damages." The notion of a "Wallace bump" — which was an artificial extension of the notice period in cases where a court determined the employer had acted in bad faith in the course of dismissal — became commonplace after the Supreme Court of Canada's 1997 decision in Wallace v. United Grain Growers Ltd.

In the years that followed, courts seemed willing to accept almost any basis to find bad faith. As a result, employers spent too much time and energy trying to decide if it was better to dismiss on a Friday or a Monday, before or after an employee's vacation, in the morning or afternoon, etc. And plaintiffs' counsel routinely included pleas for Wallace damages in wrongful dismissal claims.

I have discussed the evolution of these damages in many contexts, including this previous post. Readers will know that in 2008, the Supreme Court of Canada, in Keays v. Honda Canada Inc., changed the manner in which damages arising out of bad faith in the course of dismissal are calculated.

No longer were courts to arbitrarily extend the notice period when bad faith was found. Rather, the employee would have to prove not only the employer acted in bad faith, but that the employee suffered some sort of loss or damages as a result of that bad faith (and not simply as a result of being dismissed).

At the same time, there was a movement to rein in the awards of Wallace damages and restrict them to situations that were truly egregious.

In recent years, claims seeking bad faith damages — which I still refer to as "the damages formerly known as Wallace" — have dwindled, and many that have been pursued have been rejected by the courts. In many cases, courts have agreed that an employer acted in bad faith, but found there was no evidence of damages resulting out of that bad faith conduct. As a result, no award of damages would be made.

This morning, professor David Doorey added a post to his blog entitled “Unfair and Cruel” Dismissal of Employee Still Not “Bad Faith Discharge”. In it, he discusses a recent court decision in which the employer's conduct was found to be unprofessional, dishonest, callous, careless, unfair and cruel, but the court chose not to award any bad faith damages. The court reviewed some of the facts as follows:

"On May 5, 2005, the day before Wendy’s termination, a very unfortunate incident took place. Wendy required authorization for overtime work and further authorization to have a vendor access one of her systems. She needed that authorization from Tom MacKenzie, the defendant’s manager of operations and, from Larry Fretz whose position was at a similar level to that of MacKenzie. When she telephoned MacKenzie he advised her that Fretz was present in his office. Wendy then heard Tom MacKenzie advise Larry Fretz that the plaintiff was on the phone requesting authorization but 'don’t spend too much time on this, Wendy’s getting canned tomorrow anyway.'"

The court found that the employee, understandably upset, confronted her managers, who misled her and allowed her to work nine hours of overtime under the impression she was not going to lose her job.

Professor Doorey posits that under the old "Wallace regime," damages would have been awarded for such conduct. I tend to agree, though these cases are fact-driven and depend very much upon the particular judge hearing the case. In this case, the court found the misconduct was not egregious enough to warrant the damages formerly known as Wallace, and, furthermore, there was no evidence of damages or emotional upset beyond that which would normally accompany those of one's job.

Since every decision of this nature is fact-specific, it is often difficult to derive a principle from one particular case. However, this is certainly an example of how things have changed since Honda and how high the threshold has been raised for plaintiffs seeking the damages formerly known as Wallace.

Of course, I would still caution employers to be cautious and sensitive to the feelings and dignity of employees. While the damages formerly known as Wallace may be harder to come by, we have seen recent examples of large punitive damages awards in employment law cases, as well as cases where both forms of damages have been awarded on top of "regular" damages for wrongful dismissal.

Stuart Rudner is a leading HR Lawyer and a partner in the Labour & Employment Law Group of Miller Thomson LLP, a national law firm. He provides clients with strategic advice regarding all aspects of the employment relationship, and represents them before courts, mediators and tribunals. He is author of You’re Fired: Just Cause for Dismissal in Canada, published by Carswell. He can be reached at (416) 595-8672 or [email protected]. You can also follow him on Twitter @CanadianHRLaw and join his Canadian HR Law Group on LinkedIn.

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