Volume 3, Issue 1 MAY  2005

This Email Newsletter contains just a few of the many new cases and findings detailed for the Canadian law community in David Harris's Canadian Cases On Employment Law Quarterly, available for purchase online from Carswell. 

Commentary on Wallace v United Grain Growers
(For Printable PDF Version of this article, please click here to download)

The October 30, 1997 decision of the Supreme Court of Canada in Wallace v United Grain Growers represented a dramatic step to alter the wrongful dismissal remedy. This paper examines the decision and its subsequent interpretations.

The Case - Wallace v United Grain Growers

Jack Wallace was hired in June of 1972 by a printing company, “Public Press”, which had determined to update its operations and expand its volume of commercial printing. Wallace had many years experience in this business, 25 to be exact, with a competitor that had used the same type of web press being used by Public Press.

At the time of his hiring, Wallace was 45 years of age. He requested and received assurances of job security, and fair treatment as to his employment and remuneration. He was told that if he did perform as expected, he would have a job until retirement.

He was successful. He was top salesman in the company for each year of his employment, until his termination in August of 1986, approximately 14 years later at age 59. No reason for termination was given at the time.

When Wallace sued, the company met his claim with allegations of just cause. This plea was made until the trial commenced when it was withdrawn. The termination and the allegations of cause made against him caused him real emotional harm.

Step 1: The Trial
The trial judge, Lockwood, J., awarded Jack Wallace 24 months notice, then considered the highest likely sum for a severance award. Also the trial judge awarded $15,000 in aggravated damages, given as an award for emotional suffering, in both contract and tort. Punitive damages were sought and denied.

Step 2: The Manitoba Court of Appeal
On appeal, the 24 month award was reduced to 15 months. The aggravated award was set aside.

Step 3: Supreme Court of Canada
As the ending is well known, there no point in keeping it to the finale. The Supreme Court restored the trial judge’s award of 24 months. No aggravated or punitive sums were granted.

Ironically Wallace’s main submission in the Supreme Court failed. The argument had been made that a new tort of “bad faith discharge” should be given judicial recognition, either in contract or tort. The court was quick to reject this proposition. The award the court did make was not requested in argument. It was a decision made at the initiative of the court, not one made by Wallace’s plea.

Good Faith
The Court did, however, inject into the employment relationship the requirement of good faith conduct at the time of termination, the breach of which, it determined, will cause the “normal” notice period to be increased.

In passing the court did speak of the “special relationship” which governs the parties to an employment relationship. This will likely of some consequence to future extrapolations of this decision. ( par 90 )

Also the court spoke of the evident lack of bargaining power inherent in the relationship. ( par 91 - 93 )

At the time of termination, the court determined, the employee is at his most vulnerable point, and hence most in need of protection. ( par 95) The law must encourage conduct which minimizes such damage and dislocation, both economic and personal. Accordingly employers must be held to an obligation of good faith and fair dealing, the violation of which will heighten the notice period. Justice Iacabucci stated:

"However, in my view the intangible injuries are sufficient to merit compensation in and of themselves. I recognize that bad faith conduct which affects employment prospects may be worthy of considerably more compensation than that which does not, but in both cases damage has resulted that should be compensable." ( par 104)

Punitive damages were not really discussed comprehensively in Wallace, notwithstanding the plaintiff’s request for this award. The Court stated the well known test of a deterrent as a punishment to harsh, vindictive and malicious conduct and also the presence of an independently actionable wrong. The claim had been dismissed by both courts below and was not given much serious chance of success, given the findings of fact made below.

It is to be noted that there is no suggestion in Wallace that bad faith conduct will allow for only the notice period adjustment and will not also support a punitive award, as is the present theme prevalent in subsequent decisions.

Post Wallace Decisions

Wallace Only and no Punitive or Aggravated Awards
There are numerous trial and appellate decisions reviewing and applying the Wallace decision since 1997. ( see www.wallaceawards.com ) The pattern apparent to date in the appellate decisions is that it is a successful award of Wallace damages will rarely, if fact, ever be accompanied by an award of punitive damages and/or an award of emotional suffering. ( see Marshall v Watson Wyatt 57 OR (3d) 813 - this I expect will remain the law notwithstanding a recent trial decision to the contrary in Keay v Honda in which an award was made of $500,000 in punitive damages and a Wallace gross-up)

Lower the Bar
The bar, however to attain a Wallace award is definitely much lower than that required for an award of punitive damages. The more severe the transgression of the employer, the higher the increment will likely be. Cases involving unproven allegations of fraud, dishonesty, forgery and the like will be the subject of higher awards. ( see Noseworthy v Riverside OCA December 1998; Clendenning v Lowndes Lambert BCCA November 2000; Day v Walmart NSCA November 2000; Baughn v Offierski OSCJ; )

Defence
The company may defend these claims, even where unsuccessful on the merits of the plea at trial, be evidence showing the plea was made in good faith, based on evidence which it reasonably believed to be reliable. The fact that the plea was not successful should not, in itself, be enough to allow for a Wallace increment, particularly given the award of full costs typically made on an unsuccessful plea of this nature.

Damages
The damages, needless to say, when awarded, are based on the salary of the plaintiff, and to some extent, the normal common law notice. The cases tend to show the extent of the Wallace increment to be based on the normal common law. This is not an absolute rule, particularly given serious allegations of wrongdoing. ( See Clendenning above where the common law award of 6 months was increased to 12 months; also Day v Walmart where common law award of 17 months was increased to 29; both these decisions are appellate decisions )

One might question why the award designed to compensate for injured feelings should be tied to the salary of the plaintiff and his/her history with the company, as opposed to being directly linked to the events and the extent of the injury suffered by the plaintiff. This is the nature of the beast.

The award will receive full tax treatment. This may not be the case for an intentional tort such as intentional infliction of emotional distress, defamation claims, or damages under the rubric of a human rights complaint, which may explain the rationale for advancing such claims.

Other Successful Arguments
Similar prevalent themes include allegations that the dismissal was motivated by conduct which was a violation of Human Rights legislation ( see Galbraith v Acres - age; or Skopitz v Intercorp Foods and also McKinley v BC Tel - both cases alleging failure to accommodate a medical issue ); or a failure to pay statutory minimum sums due on termination; a failure to pay a sum which was owing independently of termination ( Marshall v Watson Wyatt ); or that the employer interfered with and delayed the application of Employment Insurance benefits ( Zesta v Cloutier - re Durante ).

Also a common fact situation is one in which the employer has terminated due to apparent medical issues or failure to accommodate a medical illness whether or not the Human Rights Code violation is specifically pleaded. ( Montague v Bank of Nova Scotia; George v Imagineering; Kaiser v Multibond ).

The fact situations are endless. The important thread is conduct which is essentially unfair and has taken advantage of the employee’s vulnerability. Medical evidence will be helpful, but does not appear to be mandatory.

Mitigation
The Ontario Court of Appeal in Prinzo v. Baycrest raised the issue in obiter as to whether the incremental sum awarded should be subject to a mitigation offset, given its purpose to allow for compensation for emotional suffering. This was the result in the recent decision of Echlin, J. in which no offset was required for income earned in the extension period in McCulloch v Iplatform Inc. [2004] OJ 5237. The plaintiff, who had been employed for 105 days in the position of Production Manager-Packaging, earning $72,000 per annum, was awarded a common law notice of 3 months. A further extension of an additional 3 months was granted due to the hardball tactics of the company. The company maintained allegations of cause on the basis of undocumented performance related complaints. It failed to provide a reference letter. It failed or refused to provide insurance claims forms. It delayed in providing for the ESA payments. It created legal obstacles by asserting the plaintiff was employed only by a related company which no longer had any substantive existence. This award was expressly determined to be not subject to a mitigation offset, quoting the Prinzo obiter dicta.

Cautionary Words for the Wallace plea - Yanez v Canac Kitchens [2004] OJ 5238
Justice Echlin issues words of warning to plaintiffs in making unwarranted assertions of unfair conduct. Such claims, the court concluded, seriously impede resolution, and take excessive amounts of court time, increase the costs and polarize the parties. Possible contemplated sanctions to dissuade litigants included a costs reduction, or a lower severance award. In the case at bar, the plaintiff’s plea for such a claim was based on the employer’s request for a release in exchange for a sum less than the ESA requirement ( which had been later remedied ) and the manner in which the severance offer had been presented.

Correspondence between Counsel
It is to be noted that the privilege typically asserted in settlement offers between solicitors may not be maintained where the settlement offer is determined to be made in bad faith. Offers made to provide a letter of reference, or other sums of compensation clearly due such as a statutory payment or a commission sum due and owing conditional on the settlement of the contentious severance claim may well be compelled to be produced where the pleading is made that the employer, even through legal counsel, has so acted in bad faith. ( Adey v. Stratos Global Corp [2000] N.J. No. 285 Newl SC, Barry, J. and Intercontinental Precious Metals Inc. V. Cooke [1993] 88 BCLR (2d) 101 )

Standard of Cause for Dismissal
The foundation of the Wallace decision, namely the recognition given to the fact that work is integral to the lives and identities of society at large, care, the Court stated, must be taken in developing rules and principles by which employment may be terminated without notice. This was in the context of determining whether the employer may have an absolute right of termination for cause due to allegations of dishonesty in the Supreme Court decision of McKinley v BC Tel [2001] 2 SCR 161; [2001] S.C.J. No. 40; 2001 SCC 38; June 2001. This led the court to consider a contextual approach to such assertions, rather than a dictated conclusion. ( par 51 - 57)
The court in McKinley also noted that the employer should be permitted to impose other forms of discipline short of termination to deal with misconduct which is not of such a degree to warrant summary termination, as mentioned previously by the Ontario Court of Appeal in Haldane, supra, without direct reference. (Par 52)

Wallace remains a mainstay of employment litigation. Its presence has been a compelling force requiring employers to do the right thing.

(C) 2005 David Harris LL.B. Barrister & Solicitor

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