Wallace Updated

The leading case, at one time, on the issue of bad faith conduct in the termination of employment was the 1997 Supreme Court of Canada decision, Wallace v United Grain Growers.

That decision has since, in one respect, been replaced by a 2008 SCC case called Honda v Keays. Many lawyers and professional observers believe that Wallace no longer has any relevance. This is not so. The important point to note is that Wallace still has significance today for the often-ignored second aspect of the decision.

The current law is that unfair conduct at the time of dismissal will give rise to a potential award of aggravated or moral damages. The Wallace case originally had stated that such conduct should allow for a higher than normal severance award. It is that aspect, the decision has been replaced by Honda, as this case determined that the higher severance award should be replaced by an award for aggravated damages.

However, the Wallace case actually allowed for two potential remedies where the employer had conducted itself in bad faith at the time of dismissal. It allowed for a compensatory order of a higher than usual notice award and, significantly, it also permitted the trial judge to order additional financial compensation where the bad faith conduct had interfered with the ability of the employee to find alternative employment.

The plaintiff in Honda had alleged bad faith treatment due to an alleged medical disability. The issue of his ability, or lack of it more acutely, to find other employment, did not arise in that case.

For many years the second aspect of the Wallace damage claim has remained dormant, until recently.

Modern Application

The facts of a recent case led to the application of this second branch of the Wallace case. The plaintiff was a shift supervisor at a homeless shelter who had been dismissed due to allegations of theft. The judge found that these allegations were not warranted.

The award for aggravated damages due to the making of these allegations was set at $15,000. However, more significantly, the judge also found that the unsubstantiated allegations of theft and the fact that the employer refused to return the plaintiff’s calls for a letter of reference led to a further tangible financial loss resulting from the employee’s inability to secure a new position. This sum was set at an additional $50,000.

These awards were in addition to the severance award of 18 months’ pay.

Employers’ Take Away

An employers‘ allegations of serious wrongdoing when terminating an employee for cause must be premised on a rational and independent investigation of the merits of the case. This will help to avoid any form of aggravated damages or, as in this case, bad faith conduct that led to further unemployment. Creative strategies may be used to avoid hardship to the unemployed plaintiff such as a policy of “no references are ever given” or an agreement to use “tombstone references” containing dates of employment and positions held. This circumstance requires skilful navigation and sound legal advice.

Employees’ View

This case is a good example of the value of skilled legal advice in advancing the claim. This is no time for amateurs.

Get Advice Before You Act

The facts of this case show the need for proper advice from either side. If you have questions about this issue or any employment issue, contact the offices of Toronto employment lawyers Grosman Gale Fletcher Hopkins LLP. We regularly advise employees and employers on issues in the workplace. Contact us online or by phone at 416 364 9599 to schedule a consultation.