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It's The End Of Wallace As We Know It

Canada’s superior courts just keep cranking out the hits when it comes to labour and employment law. Their most recent chart-topper appears to bring to an abrupt end the era of so-called “Wallace damages”.
 
The common law of employment, for the last ten years or so, has allowed fired employees to claim damages for bad faith actions by their employer. These bad faith damages are also referred to as “Wallace” damages for the 1997 Supreme Court of Canada decision in which the concept was introduced.
 
Bad faith can refer to any action on the employer’s part which makes the (already bad) situation of being fired even worse for the employee. The legal foundation for a claim for Wallace damages is the employer’s common law obligation to deal with its employees in good faith. 
 
Generally speaking, exercising good faith means treating employees with decency and civility.
 
There is no limit on the range of employer conduct which could be the basis for a claim of bad faith damages. It could include, for instance, callous treatment of the employee during the dismissal, spreading of malicious rumours, unfounded allegations of misconduct, etc. 
 
The law, according to Wallace, presumed these types of activities to have a damaging impact on the employee even without actual proof of harm.
 
Since 1997, the courts have shown some willingness to award these additional damages to employees who have been terminated under less-than-ideal circumstances. The typical award (on top of the normal damages for wrongful dismissal) has tended to be in the range of 2 months of pay. 
 
The courts have not, however, been handing out such damage awards willy-nilly. I, for one, have had no success in convincing judges of the existence of bad faith in what I considered to be very questionable circumstances of dismissal.
 
Only in egregious situations have the bad faith damages seemed to exceed the 2 month range. The high water mark was a Nova Scotia decision in which the court awarded a fired employee an additional 48 months of salary as damages for her employer’s bad faith in the course of dismissal.
 
Now, in its decision relating to Honda Canada Inc.’s dismissal of Kevin Keays, the Supreme Court of Canada seems to have drastically restricted the availability of Wallace damages. 
 
That case had made its way up the appeal trail to the Supreme Court of Canada after a trial decision in which Keays was awarded an extra 9 months’ damages as a result of Honda’s bad faith dismissal. The trial judge had referred to Honda’s conduct towards Keays as an example of “egregious bad faith”.
 
The Court retraced the lineage of damages for wrongful dismissal. It summarized by saying that damages in such actions are confined to the loss suffered as a result of the employer’s failure to give proper notice. No damages are available to the employee for the pain and distress and hurt feelings that may have been suffered as the normal consequence of being terminated.
 
The Court confirmed that damages resulting from the manner of dismissal must be available only if they result from circumstances in which the employer engages in conduct that is unfair or in bad faith. Most importantly, such damages will now only be awarded when the employee can prove the manner of dismissal actually caused mental distress or some other injury.
 
This is a huge departure from the Court’s analysis in the Wallace case, the keystone of which was the presumption that such bad faith by the employer injures the employee. Having to prove the existence of some form of injury, mental or otherwise, flowing from the employer’s conduct will make it much more difficult to obtain these damages.
 
This decision effectively removes a trial judge’s discretion to whack an employer when its actions in the course of dismissal have violated the accepted standard of conduct. It likely means that damages will be awarded only in cases in which the employee has been so adversely affected that counseling, medication, or other medical measures are required.
 
Employment lawyers can pretty much kiss this avenue of pleading goodbye. Given my own record of (lack of) success with these claims, I can’t say it will affect my practice much. However, I wonder whether this is a development the Court will look back on - in a decade or so - and question whether it achieved anything beyond encouraging callous behaviour towards departing employees.
 

 
Robert Smithson is a partner at Pushor Mitchell LLP in Kelowna practicing exclusively in the area of labour and employment law. For more information about his practice, log on to http://www.pushormitchell.com/.