)

RECENT TRENDS IN WRONGFUL DISMISSAL LAW

I. INTRODUCTION .....................................•....•........•........•.••..•.•........•..•...............•.......... 1

II. BACKGROUND ................•.•.....•.•..•..•....••......•............•....................•....•..................•...... 1

A. BARDAL v. GLOBE AND MAIL LTD• ••••••••.••••...••...••..•••••......••••••••••••.•.•.••••.•...•..•..•••... 1

B. VORVIS v. INSURANCE CORPORATION OF BRITISH COLUMBIA............••••.•... 2

C. SYLVESTER JI: BRITISH COLUMBIA ••.•••••••••••.••••.•••.•••••......••.•••.•.•••.••.••••••...••.•........ 2

D. WALLACE v. UNITED GRAIN GROWERS..•.•.•..•••.•••.••.•....•.••••.•••••••••••••••......•..••........ 3

III. CALCULATION OF DAMAGES .........•.•..............................•..•...•....•.......................... 5

III. THE ELEMENT OF "BAD FAITH" .....••.......•......................•..•....•.....•.•...................... 7

A. INSENSITIVITY ON BEHALF OF EMPLOYERS 8

B. UNDULY INSENSITIVE TREATMENT ••.•.•...•..•..............•...•.•......••........................ 10

C. INDUCEMENT TO LEAVE PREVIOUS SECURE EMPLOYMENT .......•.......... 11

D. FALSE ALLEGATIONS .............................•.......................•.•...••••............................... 13

E. UNREASONABLE FAILURE TO PROVIDE REFERENCES 18

F. FAILURE TO ALLOW EMPLOYEE TO ADDRESS COMPLAINTS 19

V. "INTENTIONAL INFLICTION OF MENTAL SUFFERING" 20

VI. CONCLUSION ............................•.....................................•........••••••.•........................... 24

)

I.

RECENT TRENDS IN WRONGFUL DISMISSAL LAW

INTRODUCTION

In October, 1997 the Supreme Court of Canada set new standards to be met by employers when

dismissing employees. The general effect of Wallace v. United Grain Grower Ltd.] has been to

expand the existing compensation that was available to employees who are wrongfully dismissed

by recognizing the necessity of "good faith" and "fair dealing" on the part of employers. More

recently, the Ontario Court of Appeal has expanded the potential for compensation even more by

reviving the possibility that dismissed employees may be eligible for damages for the tort of

intentional infliction of mental suffering. Prinzo v. Baycrest Centre for Geriatric Cari was

released on July 9, 2002 and has sparked speculation that the floodgates to such claims has now

been opened.

II. BACKGROUND

A. BARDAL v. GLOBE AND MAIL LTD.

Prior to the Wallace decision, the long-standing leading case in the area of wrongful dismissal

was Bardal v. Globe and Mail Ltd.3 In Bardal, the Supreme Court set out the factors to be

considered in determining the appropriate notice period for an employee who had been

wrongfully dismissed. These traditional factors include: the nature of employment, the age and

length of service of the employee, the availability ofother similar employment "having regard to

the experience, training and qualifications of the [employee]".4 In subsequent cases other factors

such as inducement to leave secure employment with another employer have been added to

accommodate the "reliance interest" that employees may have. These factors continue to have

great importance, but are expanded post-Wallace.

1 [1997] 3 S.C.R. 701, S.C.J. No. 94 (S.C.c.).2 [2002] O.J. No. 2712 (Ont. c.A.).3 (1960), D.L.R. (2d) 140 (Ont. H.C.)4 Ibid. at 145.

2

B. VORVIS v. INSURANCE CORPORATION OF BRITISH COLUMBIA

Also of note in the pre-Wallace employment context is Vorvis v. Insurance Corporation of

British Columbia. 5 In Vorvis, an employee successfully sued his employer for mental distress

caused by the employer's failure to give reasonable notice upon termination of his employment.

The damages were awarded under the head of aggravated damages on the basis that the

employer's conduct was a separate and independent wrong arising from the dismissal. Supreme

Court Justice Iacobucci, speaking for the majority ofthe court in Wallace, approved the approach

in Vorvis, but noted that other recourse exists for those employees suffer mental distress where

no independently actionable wrong exists.

C. SYLVESTER Ji: BRITISH COLUMBIA6

This case was released in the year previous to Wallace and dealt with the calculation ofwrongful

dismissal damages where disability benefits were paid out to an employee. In the case, a

government contract employee was terminated while off of work and receiving disability

benefits. As severance, he was offered 12.5 months salary, less the disability benefits he might

receive during that time. The Supreme Court of Canada determined that the fact that an

employee could not have worked during the notice period is irrelevant to the assessment of

damages. Accordingly, the employee would be entitled to damages consisting of the salary that

the employee would have earned had he or she worked during the notice period.

The issue before the court was whether disability payments received by an employee during a

notice period should be deducted from damages awarded for wrongful dismissal. Major, J.,

speaking for the court, determined that disability benefits are contractual and the question of

their deductibility, therefore, turns on the terms of the employment contract and the intention of

the parties. The benefits in question in Sylvester were intended to be a substitute for the

Respondent's regular salary, as evidenced by the fact that they were calculated as a percentage of

the employee's salary. Also indicative of this finding was the fact that the benefits were reduced

by other income received by the employee during the time of disability. The court also stated

that, in this case, the benefits were not contracts which were distinct from the employment

contract, but were components of the employment contract. Accordingly, the court held that

5 [1989] 1 S.C.R. 1085.

)

3

simultaneous payment of benefits and damages for wrongful dismissal would be inconsistent

with the terms of the contract. Major, J. stated:

The Respondent's contractual right to damages for wrongful dismissal and hiscontractual right to disability benefits are based on opposite assumptions about hisability to work and it is incompatible with the employment contract for theRespondent to receive both amounts. The damages are based on the premise thathe would have worked during the notice period. The disability payments are onlypayable because he could not work. It makes no sense to pay damages based onthe assumption that he would have worked in addition to disability benefits whicharose solely because he could not work. This suggests that the parties did notintend the Respondent to receive both damages and disability benefits.

Major, J. went on to say that while in this circumstance disability benefits were to be deducted

from damages, the parties to an employment contract could agree that the employee is to receive

both disability benefits and damages for wrongful dismissal. He further stated that there may be

cases in which this intention can be inferred. He also noted that there may be cases where an

employee will seek benefits in addition to damages for wrongful dismissal on the basis that the

disability benefits are akin to benefits from a private insurance plan paid for by the insured

employee.

D. WALLACE v. UNITED GRAIN GROWERS

When Wallace was hired by the Public Press, a wholly owned subsidiary of the Defendant,

United Grain Growers, he was 45 years old and employed by a competitor company. He made it

clear during the employment interview that in order to leave his present employer, he would

require guaranteed job security. He was assured of such security and of fair remuneration. He

was hired in 1972 and spent several successful years with the company before being summarily

discharged, with absolutely no explanation or warning, in August, 1986. Approximately one

week later, he was informed by letter that his work had been unsatisfactory - a complete surprise

in light of the positive feedback and success he had enjoyed at Public Press throughout the years.

Following his dismissal, Wallace became severely depressed and suffered emotional difficulties.

He sought psychiatric help. He was unable to find similar employment. He was 59 years old at

the time of his dismissal. On October 23, 1986, he issues a statement of claim against United

Grain Growers alleging wrongful dismissal.

6 [1997] 2 S.C.R. 315, [1997] S.c.J. No. 58 (S.C.C.)

4

At trial, the Manitoba Court of Queen's Bench held that the appropriate notice period under the

circumstances was 24 months. The Court also found the Defendant liable for aggravated

damages in the amount of $15,000 resulting from mental distress in both tort and contract.

Lockwood, J. applied the principles enunciated in Vorvis in determining that a separate,

actionable wrong had occurred. Lockwood, J. also applied Vorvis in determining that Wallace

did not have a supportable claim for punitive damages.

At the Court of Appeal, the notice period was reduced to 15 months. The Court also found no

independent, actionable wrong and overturned the aggravated damages award.

The Supreme Court of Canada restored the trial judge's award of 24 months, that period being

representative of both damages for wrongful dismissal and compensation for mental distress.

The Court also agreed with the lower courts that punitive damages are an "exception" and were

not warranted in this case.

Iacobucci, J., speaking for the majority of the Supreme Court, agreed with the Court ofAppeal's

application of Vorvis. Specifically, Iacobucci, J. stated:

Relying upon the principles enunciated in Vorvis, supra, the Court ofAppeal heldthat any award ofdamages beyond compensation for breach of contract for failureto give reasonable notice of termination "must be founded on a separatelyactionable course of conduct" (p. 184). Although there has been criticism ofVorvis ... this is an accurate statement of the law. The court of Appeal also notedthat this requirement necessarily negates the trial judge's reliance on concepts offoreseeability and matters in the contemplation of the parties. An employmentcontract is not one in which peace of mind is the very matter contracted for (seee.g. Jarvis v. Swans Tours Ltd., [1973] 1 Q.B. 233 (C.A.» and so, absent anindependently actionable wrong, the foreseeability of mental distress or the factthat the parties contemplated its occurrence is of no consequence, subject to whatI say on the employer conduct be10w.7

The Court of Appeal concluded that there was insufficient evidence to support afinding that the actions of UGG constituted a separate actionable wrong either intort or in contract. I agree with these findings and see no reason to disturb them.I note, however, that in circumstances where the manner of dismissal has causedmental distress but falls short of an independent actionable wrong, the employeeis not without recourse. Rather, the trial judge has discretion in thesecircumstances to extend the period of reasonable notice to which an employee is

7 Wallace, supra note 1 at QL para. 73.

)

5

entitled. Thus, although recovery for mental distress might not be available undera separate head ofdamages, the possibility of recovery still remains....

Iacobucci, J. went on to find that employers have an obligation of "good faith" in dealing with

employees. In this regard, he stated:

The point at which the employment relationship ruptures is the time when theemployee is most vulnerable and hence, most in need of protection. Inrecognition of this need, the law ought to encourage conduct that minimizes thedamage and dislocation (both economic and personal) that result from dismissal.In [Machtinger v. HOJ Industries Ltd., [1992] 1 S.C.R. 986 (S.C.C.)] it was notedthat the manner in which employment can be terminated is equally important toan individual's identity as the work itself (at p. 1002). By way of expanding uponthis statement, I note that the loss of one's job is always a traumatic event.However, when termination is accompanied by acts of bad faith in the manner ofdischarge, the results can be especially devastating. In my opinion, to ensure thatemployees receive adequate protection, employers ought to be held to anobligation of good faith and fair dealing in the manner of dismissal, the breach ofwhich will be compensated for by adding to the length ofthe notice period.8

Iacobucci noted that although this obligation lacks precise definition, it minimally includes that

employers be "candid, reasonable, honest and forthright" and not be "untruthful, misleading or

unduly insensitive".9

Thus, Wallace adds to the scope of compensable damages that may be awarded to a wrongfully

dismissed employee by allowing courts to add to the notice period in situations where the

employer has failed to act in good faith and deal fairly with a dismissed employee. As well, it

leaves open the possibility, in certain circumstances, of an independent actionable wrong

pursuant to Vorvis, which is precisely the situation that arose in Prinzo, supra.

III. CALCULATION OF DAMAGES

One ofthe more germane considerations arising in wrongful dismissal cases, which contemplates

mainly the principles arising from Sylvester, is the calculation ofdamages. Once the appropriate

notice period has been determined, it is necessary to consider whether any deductions need be

taken from the total damages. Generally, such deductions arise out of disability payments

received by the dismissed employee.

8 Ibid. at QL para. 95.9 Ibid. at QL para. 98.

6

In Sills v. Children's Aid Society ofthe City ofBelleville et al. 10 the dismissed employee became

disabled during a working notice period and collected disability benefits from the employer's

group insurance, which she had indirectly contributed to. The Ontario Court of Appeal noted

that Major, J. had clearly approved the concept that a disabled employee remains entitled to

damages ofwrongful dismissal. They also noted that it was clear that the Supreme Court did not

intend their conclusions to govern where an employee had contributed to a disability benefits

plan.

The Court also looked to the case of Cunningham v. Wheelerll, which contemplates the

insurance exception that exempts private insurance plan payments paid for by an injured party

from the rule against double recovery in tort cases. While noting the important distinction

between damages in tort and damages in contract, the Court stated that absent an express

provision precluding double recovery, an intention of double recovery could be inferred in the

event ofa wrongful dismissal. In this regard, Simmons, J.A. stated:

I consider it reasonable to assume that an employee would not willingly negotiateand pay for a benefit that would allow her employer to avoid responsibility for awrongful act. I consider it reasonable to infer that parties would agree that anemployee would retain disability benefits in addition to damages for wrongfuldismissal where the employee has effectively paid for the benefits in question.

The same reasoning applies to the suggestion in Sylvester that a disabledemployee who receives adequate notice should not be treated differently [from] adisabled employee who is wrongfully dismissed - and an employer should not berelieved of the obligation to pay damages for a wrongful act because of a benefitplan provided by the employee. Moreover, the concern expressed in Sylvester,that disabled employees who are wrongfully dismissed be treated the same asworking employees who are wrongfully dismissed, simply does not arise wherethe employee has paid for the plan that provides a disability income. 12

Accordingly, the Court held that the disability payments should not be deducted as the employee

had contributed to the plan.

In McNamara v. Alexander Centre Industries Ltd. 13 the Ontario Court ofAppeal had opportunity

to contemplate the exceptional circumstances noted in Sylvester. The original employment

10 (2001), 53 O.R. (3d) 577, [2001] O.J. No. 1577 (Ont. c.A.).11 [1994] 1 S.C.R. 359 (S.C.C.).12 Ibid. at QL para. 45-46.13 (2001), 53 O.R. (3d) 481, [2001] O.J. No.1574 (Ont. C.A.).

7

) contract had been negotiated in 1971. At that time, the employee was concerned about having

disability benefits as his wife was ill. It was accepted as fact by the trial judge that there was a

"trade-off' between salary and the benefits package negotiated at that time and that that trade-off

was still reflected in the employee's current salary. Twenty-four years later, the employee had

risen to the position ofPresident of the company. He was fired after informing the company that

he required medical leave.

The Court of Appeal determined that they could infer that a reasonable employer and a

reasonable prospective employee, at the time of original negotiations, could have agreed that the

employee should receive salary plus disability payments in the circumstance that the company

fired the employee the immediately upon becoming disabled. If this conclusion is inferred, then

the company is required to pay "precisely what the law requires it to pay - damages in lieu of

reasonable notice for wrongful dismissal.,,14 Otherwise, the company derives a windfall from the

deductibility of the benefits.

III. THE ELEMENT OF "BAD FAITH"

Wallace has received significant judicial attention in the years since it was released. The

question most often considered in the lower courts is whether a particular set of circumstances

falls within the imprecise definition of "bad faith". Because of the fact-based nature of this

query, it is difficult to discern hard and fast principles arising from the jurisprudence. What does

seem clear is that a finding of "bad faith" will require something greater that mere insensitivity

on the part of employers. However, there are certain situations in which bad faith will tend to be

found and will precipitate Wallace damages. These include circumstances where:

i. the dismissed employee is subjected to "unduly insensitive" treatment;

11. the dismissed employee is induced to leave previous secure employment and then

summarily dismissed;

111. unfounded and unsustainable allegations are made against the dismissed

employee;

IV. the employer unreasonably refuses to provide references for the dismissed

employee; and

14 Ibid. at QL para. 33.

8

v. the dismissed employee is not pennitted to respond to complaints made against

him or herself.

As will be demonstrated by the cases reviewed in this paper, these factors are often found

in combination with one another. In many cases, one cause alone will not suffice to

warrant Wallace damages.

A. INSENSITIVITY ON BEHALF OF EMPLOYERS

As previously mentioned, mere insensitivity will not give rise to an extended notice period. In

fact, it would appear that, while Wallace damages are often plead, they are rarely awarded.

Oftentimes, this results in nothing more than a brief statement by the trial judge that Wallace

damages are not applicable on the facts of the case. A brief review of cases arising in

Saskatchewan courts is illustrative of this point.

In Hassler v. Moose Mountain District Health Board15 the Plaintiff employee was employed by

the Defendant health district from June 1994 to January 1997. She began as a General Nurse in

1982, prior to the advent of health districts, and rose through the position of Assistance Director

of Care in the Grenfell Health District to Director of Care. She was wrongfully dismissed and

proper notice was assessed at 9 months. Wallace damages were not applicable as the employer

did not breach the obligation of"good faith".

Again in Ryder v. Carry the Kettle16 the Court of Queen's Bench held that Wallace damages did

not apply. The Plaintiff was employed by the Federal Government from 1975 to 1986. In 1986,

due to reorganization, the Plaintiff remained in same position, but was employed by the Band.

The Plaintiff remained in the Band's employ until 1998. The Plaintiff refused to accept a change

in position or severance package. The Court held that it was appropriate to detennine notice

period on basis of entire length of service. Accordingly, notice period set at 12 months with no

extension for bad faith on the part of the employer.

IS 2001 SKQB 359.16 2002 SKQB 32

9

In Levesque v. Sherwood Credit Union 17 the Plaintiff was employed by the Defendant in various

capacities between 1989 and 1999. The Defendant implemented technological changes that

plaintiff had trouble adjusting to. The Plaintiff perceived criticisms to be calling her judgment

into question and felt that employer wished "to get rid of her". During discussion regarding the

issue, the Plaintiff felt that she was being given the option to resign, which she did. The Court

noted that resignation does not foreclose a claim for wrongful dismissal. The Court further held

that the introduction of a major technological change is a fundamental change in employment.

As the defendant did not implement effective change management strategy for employees who

were unable to adapt to the changes, they were found to have constructively dismissed the

plaintiff. Nonetheless Wallace damages were not appropriate.

Similarly, the Alberta Court of Queen's Bench has taken a strict approach to the bad faith

argument. For example, in Kuny v. Owens-Corning Canada Inc. 18[1999] AJ. No. 722. The

Plaintiff worked for the Defendant and its predecessor company for a total of 33 years, the last

20 of which were in the capacity of production shift supervisor. His dismissal was the result of

corporate downsizing. The Defendant company was instructed by their U.S. Head Office to

downsize by 10 employees in the management and supervisory positions. The Defendant

company employed an analysis of a number of criteria and then subjected each management

employee to a rating. The Plaintiff received a "C" rating, despite the fact that he had always

received excellent performance reviews in the past.

The Plaintiff was advised of his termination on February 18, 1998. He was paid his normal

salary through to the end of March 1998, and thereafter offered several severance options, the

acceptance of which would require him to sign a release. The Plaintiff felt that the severance

options were inadequate and refused to sign the release. The court held that a notice period of22

months was entirely appropriate. The court did not accept on the evidence that any bad faith was

established. They noted that a rational process was followed in proceeding with the staff

reduction, that there had never been any alleged cause or misconduct on the part of the Plaintiff,

and that the Defendant had offered a severance package representing a good faith attempt to deal

17 (2000), 196 Sask. R. 176 (Sask. Q.B.)18 [1999] A.I. No. 722 (Alta. Q.B.).

10

with the dismissal as well as assistance through a consulting finn to find alternative employment,

and a letter ofreference.

B. UNDULY INSENSITIVE TREATMENT

Despite the strict approach to bad faith taken by Saskatchewan courts, Wallace damages have

been awarded where warranted by the evidence. In McGeady v.Saskatchewan Wheat POOZ19 the

Plaintiff had been employed by the Saskatchewan Wheat Pool for approximately 19 years. She

was dismissed from her employment without cause. The trial judge found the period ofnotice of

termination required by the common law was 14 months. Both parties. accepted this notice

period, for the purposes of appeal. However, the trial judge went on to find that the Appellant

had acted in a "callous and unduly sensitive manner" and ordered Wallace damages in the

amount of an extended notice period of 6 months. The Court of Appeal found that the conduct

of the Appellant, although callous and insensitive, must be considered "borderline". In

particular, they noted that the emotional consequences to Ms. McGeady arising from the conduct

were not that grave. Accordingly, the Court ofAppeal reduced the extension of the notice period

to one month.

In Zimmerman v. KindersZey Transport Ltd.2o an agreed term of the employment contract was the

entitlement to receive at least 4 weeks pay in lieu of notice upon termination of employment.

The Plaintiff did not receive such notice. She was given no notice or pay in lieu of notice. She

was treated in a "shabby and humiliating manner, including an abrupt firing without explanation,

being told to clear out her desk immediately an being hovered over as she did so, as if she were a

thiefwho could not be trusted to take only that which belonged to her".21 The court further noted

that the Defendant persistently alleged incompetence. The court noted the following passage

from Wallace v. UGG as being particularly pertinent in the circumstances:

Bad faith conduct in the manner of dismissal is another factor that is properlycompensated for by an addition to the notice period. The contract of employmenthas many characteristics that set it apart from the ordinary commercial contract.Individual employees on the whole lack both the bargaining power and theinformation necessary to achieve more favorable contract provisions than thoseoffered by the employer, particularly with regard to tenure, this power in balanceis not limited to the employment contract itself, but infonns virtually all facets of

19 (1999), 180 Sask. R. 309 (Sask. c.A.).20 [1998] SJ. No. 415 (Sask. Provo Ct.).21 Ibid. at para. 4.

)

)

11

the employment relationship. The point at which the employment relationshipraptures is the time when the employee is most vulnerable and hence most in needofprotection. In recognition of this need the law ought to encourage conduct thatminimizes the damage and dislocations (both economic and personal) that resultfrom dismissal. To ensure that employees receive adequate protection, employersought to be held to an obligation of good faith and fair dealing in the manner ofdismissal, breach of which will be compensated for by adding to the length or thenotice period. While the obligation of good faith and fair dealing is incapable ofprecise definition, at a minimum in the course of dismissal employers ought to becandid, reasonable, honest and forthright with their employees and should refrainfrom engaging in conduct that is unfair or is in bad faith by being, for example,untruthful, misleading or unduly insensitive.

Where a dismissed employee is not entitled to compensation for injuries flowingfrom the fact of the dismissal itself, where an employee can establish that anemployer engaged in bad faith conduct or unfair dealing in the course ofdismissal, injuries such as humiliation, embarrassment and damage to one's senseof self worth and self esteem might all be worthy of compensation dependingupon the circumstances ofthe case,zz

The court applied these principles and determined that the period of reasonable notice to which

the Plaintiffwas entitled should be extended from 4 weeks to 8 weeks.

C. INDUCEMENT TO LEAVE PREVIOUS SECURE EMPLOYMENT

One of the most obvious situations where Wallace damages will apply is the situation where an

employee is induced to leave previous secure employment, which was directly contemplated in

Wallace.

In Cassady v. Wyeth-Ayerst Canada Inc. 23 the Plaintiff worked for the employer for only 10

weeks or so. She was hired as a sales representative. Although unemployed at the time of the

interview, she made clear her desire for a stable long-term employment and was of the

understanding that she was being hired as a permanent employee. In Wallace, Iacobucci J., for

the majority, noted that one of the factors to be considered in applying the Bardal formula was

whether the dismissed employee had been induced to leave previous secure employment. The

B.C. Court ofAppeal stated in this regard:

This is of course, not a case in which the employee was induced to leave previoussecured employment. But her evidence is that she had the prospect, before

22 Ibid. at para. 8.23 (1998), 163 D.L.R. (4th

) 1, [1998] B.C.J. No. 1876 (B.C.c.A.)

12

accepting the Defendants offer of employment, of secure employment with one ofthe Defendant's competitors in the pharmaceutical field and was encouraged byMr. Menassas to tell the competitor to "stuffit".24

The Court of Appeal went on to note that in Nevin v. B.C. Hazardous Waste, [1994] B.C. J. No.

524, the B.C. Supreme Court stated at page 203:

The reasonable expectations of and employee such as the Plaintiffmust betaken into account whereas here, those expectations are known to theemployer at the time of hiring. That is particularly so where the employerhas, by conduct of it's agents, incurred such expectations.

On the facts of the case, the court noted that the employer's behavior was "harsh, reprehensible,

clumsy, and inconsiderate" and most certainly fit within the language used by the Supreme Court

in Wallace. Accordingly, they upheld the jury's award of a notice period of eight and one-third

months.

However, apart from the notice period, the jury had also awarded $10,000.00 in damages for

negligent infliction of mental distress. ill this regard the Court of Appeal again considered the

Wallace decision. They noted that in applying the principals of Wallace courts must consider the

Bardal factors along with the conduct of the employer and the resulting mental distress.

Particularly, they stated:

There is no express guidance in Wallace on the question of the scale to be appliedin fixing the extended period of notice. Indeed, there is no specific breakdownbetween the Bardal damages and the extended period. In that case, the trial judgefixed the period based on the Bardal factors at 24 months. The Supreme Courtrestored that period treating the bad faith factors as an element justifying thatperiod. There is, in the language of the majority reasons, nothing to indicate thatin arriving at an appropriate period which includes compensation for bad faith, thecourt should fix the notice period with the generosity applied to punitive damagesin Hill v. Church of Scientology and some later cases. Therefore, it would beinappropriate to take punitive damage award as a guide for fixing the extendedperiod ofnotice.

In the end result the Court of Appeal determined that the jury's award of $10,000.00 under the

heading of negligent infliction of mental distress was a value which reasonably reflected the

24 Ibid. at QL para. 19.)

13

) Defendant's conduct and the adverse consequences suffered by the Plaintiff. However, this was

also a value that was ultimately reflected in the notice period of eight and one-third months.

It would appear however, that the inducement to leave previous secure employment may not

necessarily sufficient in and of itself to warrant Wallace damages. In Goering v. Mayfair Golf

and Country Club CO. 25 the Alberta Court of Queen's Bench determined that Wallace damages

did not apply. Although the Plaintiff had left previous secure employment, there had been

lengthy negotiations between the parties prior to his acceptance of employment. The parties

signed a 5 year employment contract which included a termination clause that was discretionary

in nature. The Defendant company paid the dismissed employee in accordance with the

severance formula in the termination clause in the employment contract and did not attempt to

allege cause or criticize the employee. Park, J., determined that in such circumstances the

Defendant company did not have to abide by an objective standard of reasonable, fair, honest

and good faith action. Nonetheless, he also noted that the Defendant company did act on such

standard. He noted in particular the words ofMr. Justice Iacobucci in Wallace:

... the law has long recognized the mutual right ofboth employers and employeesto terminate employment contract at any time provided there are no expressprovisions to the contrary.

. . . a requirement of "good faith" reasons for dismissal would, in effect,contravene these principals and deprive employers of the ability to determine thecomposition of their work force. In the context of the accepted theory on theemployment relationship, such law would, in my opinion, be overly intrusive andinconsistent with established principals of employment law, and moreappropriately, should be left to legislative enactment rather than judicialpronouncement.26

D. FALSE ALLEGATIONS

Another situation where courts will commonly award Wallace damages is where an employer

makes false allegations against the dismissed employee, The severity of the allegations and the

time period over which such allegations are sustained appear to have an effect on the award of

Wallace damages.

) 2S (2001), 285 A.R. 46, [2001] A.J. No. 476 (Alta. Q.B.).26 Ibid. at QL para. 51.

14

In Noseworthy v. Riverside Pontiac-Buick Ltd. et al.27 the Plaintiffwas terminated without cause

after 4 years as office manager for the Defendant Company. The trial judgment was rendered

prior to the decision of the Supreme Court in Wallace. The trial judge had held that the

dismissal, which included unsustainable allegations of forgery, was "high handed, repulsive, and

unacceptable by any standard of decency" and He awarded damages based on a period of 10

months extended to 15 months to allow for aggravated damages, as well as punitive damages of

$15,000.00, and damages for mental distress against the employer-owner and sales manager

personally.

On appeal, the Ontario Court ofAppeal held that the awards of aggravated damages and punitive

damages could not stand in light of the Wallace decision, which held that there was a

requirement of an independent actionable wrong. The Court noted that nonetheless, under

Wallace, the Plaintiff was entitled to have the "bad faith" of the Defendant and the impact of

such "bad faith" on him considered as a part of the assessment of reasonable notice. The Court

stated:

Wallace represents a significant new step in the evolution of the way in whichreasonable notice is determined. Speaking for a majority of the Supreme Court ofCanada, Iacobucci J. began his discussion of reasonable notice by making clearthat the principles set out in Bardal, supra, remain centrally relevant to this task.

He reviewed the subsequent common law to demonstrate that Canadian courtshave not treated this list as closed but have build several additional factors intothis foundation. Principal among them is a consideration of whether thedismissed employee had been induced to leave previously secure employment.

He then turned to an analysis of the relevance of bad faith conduct by theemployee in effecting the dismissal. He concluded that, given the specialcharacteristics of the employment relationship and the type of contract governingit, the law must recognize such conduct as a consideration in determining thelength of notice required. Particularly in light of the power imbalance thattypically exists in the employment relationship, the fundamental importance ofwork in a person's life, and the special vulnerability of an employee whentermination occurs, the employer must act fairly and in good faith in carrying outthe dismissal.28

The court noted that in this case:

27 [1998] D.L.R. (4th) 629, [1998] OJ. No. 3920 (Ont. C.A.).

28 Ibid. at QL para. 25-26.

)

)

15

While the employer was found to have acted in bad faith in effecting thedismissal, neither the allegation of forgery nor the threat of criminal chargeswhich grounded this finding appear to have been sustained beyond the initialmeeting. It is, in my view, far from the most egregious example of bad faithconduct. Regrettably, however, the consequences of this conduct to Mr.Noseworthy's mental health were significant.29

In all the circumstances the Court of Appeal decided to vary the trial judgment to provide for

damages in the amount of 10 months salary, which was reflective of the Bardal factors that

applied on the facts of the case, as well as the Wallace factors.

In Smart v. McCall Pontiac Buick Ltd.3o the employer made the "egregious" claim that the

Plaintiff stole a Jeep from his dealership. He went so far as to have his son report the Plaintiff

the R.C.M.P. The court characterized these claims as "pathetic attempts at justification" meant

to "denigrate the plaintiff' and "deserving of the strongest condemnation".31 Based on the

traditional factors, the trial judge set the notice period at 18 months, but extended by six months

on the basis ofthe "outrageous allegations of theft and fraud."

In a similar case, the British Columbia Provincial Court extended a notice period by four months.

In Mitu v. New Century Food and Paper Ltd. 32 the Plaintiff was robbed while driving a delivery

truck for his employer. His claim was challenged by his employer. Following the robbery,

which occurred at knifepoint, Mr. Mitu went on stress leave. He was terminated immediately

upon returning from leave and told that he was "under suspicion". His employer also protested

his application for worker's compensation to cover his stress leave.

In regard to the allegations, the court stated:

When resorting to allegations of theft the employer must be very sure of theirfacts. There is a presumption, and indeed the cases refer to an obligation, thatpeople will deal with each other from a position of good faith and fair dealing.That should result in an avoidance of untruthful, misleading or unduly insensitivecomments. An unfounded allegation of theft can easily lead to embarrassment,humiliation and a sense of loss of self-worth. It is not possible to ignore ordismiss such allegations as trivial and of no consequence, and it is particularlygalling if you have provided otherwise good service to an employer.

29 Ibid. at QL para. 36.30 [1999] B.C.J. No. 2111 (B.C.S.C.).31 Ibid. at para. 101.32 [2001] B.C.J. No. 1184 (B.C. Provo Ct.).

16

This is not a situation where the behaviour of the employer has been outrageouslyreprehensible and there will be no award for punitive damages. However, thecase of Wallace v. United Grain Growers Ltd. instructs me that where theemployer has made a decision to "play hard ball" and continue with an argumentbased on a "deliberate lie" until "the eve of trial" and where there is a causal linkbetWeen that strategy and the inability to find new work there is a basis fordetermining that a longer period ofnotice is justified.33

The Plaintiff had been employed in his position for approximately one year. The trial judge held

that an appropriate notice period was five months.

In Antonacci v. Great Atlantic & Pacific Co. of Canada34 the Plaintiff employee was dismissed

from employment after 33 years of service. The trial judge found there was no cause for

dismissal and that the conduct of the employer justified a longer period of notice in accordance

with Wallace. This finding was based on unfounded allegations of poor performance,

harassment, intimidation, and uttering threats made against the Mr. Antonacci by the employer.

A notice period of24 months was granted by the trial judge and upheld by the Court ofAppeal.

Even where the allegations contain a certain amount of truth, an employer may be held liable for

Wallace damages. In McKinley v. BC Tel35, McKinley took a leave of absence from work on

account of high blood pressure, indicating to his employer that he desired a position with less

responsibility. He worked for BC Tel for almost 17 years. While he was still on leave the

Respondents terminated his employment. The employer stated that there was cause for dismissal

as McKinley had been dishonest in his representations as to the advice he had received from his

physician. Specifically, the Respondents claimed that the McKinley deliberately withheld from

them the possibility that the use of certain medications might enable him to return to his job

without incurring health risks. McKinley, on the other hand, felt that he had not lied. At trial, the

jury found that there was no just cause for McKinley's dismissal. The Court ofAppeal stated:

Dishonesty within the contract of employment, as is the case alleged here, iscause and that cause is not founded on the basis of the "degree" of thedishonesty.36

33 Ibid. at para. 12-13.34 (2000), 48 C.C.E.L. (2d) 294, [2000] O.J. No. 40 (Ont. C.A.).35 [2001] 2 S.C.R. 701, [2001] S.C.J. No. 40 (S.C.c.).36 Ibid. at QL para. 22.

17

) The Supreme Court held that dishonesty should be viewed usmg a contextual approach.

Iacobucci 1., speaking for the court, stated:

... whether an employer was justified in dismissing an employee on the groundsof dishonesty is a question that requires an assessment of the context of thealleged misconduct. More specifically, the test is whether the employee'sdishonesty gave rise to a break down in the employment relationship. This testcan be expressed in different ways. One could say, for example, that just causefor dismissal exists where dishonesty violates an. essential condition of theemployment contract, breaches the faith inherent to the work relationship, or isfundamentally or directly inconsistent with the employee's obligations to his orher employer.37

Iacobucci, 1. noted that this approach is based on the principal of proportionality. When

considered in light of the Wallace decision, which stated that the manner of termination is

equally as important as the work itself and that employment relationships are typically

characterized by unequal bargaining power, Iacobucci, J. held that the context of the dishonesty

must be considered. Specifically, he stated:

Absent and analysis of the surrounding circumstances of the alleged misconduct,it's level of seriousness, and the extent to which it impacted upon the employmentrelationship, dismissal on the ground as morally disreputable as "dishonesty"might well have an overly harsh and far reaching impact for employees. Inaddition, allowing termination for cause wherever an employee's conduct can belabeled "dishonest" would further and justly augment the power employer'swheeled within the employment relationship.

Accordingly, Iacobucci, J. stated:

Thus, where there may not have been any full disclosure of all material facts bythe Appellant, this was not required of him. Rather the question is whether heengaged in dishonesty in a manner that undermined, or was incompatible with hisemployment relationship. An analysis of the record as a whole leads me toconclude that the jury, acting judicially, could have reasonably found that this wasnot the case. For this reason, there is no basis upon which to interfere with thejury's verdict that the Respondents had not proven just cause warrantingdismissal.38

In light of these circumstances, it was appropriate that the notice period be extended by 4

months.

) 37 Ibid. at QL para. 48.38 Ibid. at QL para. 69.

18

E. UNREASONABLE FAILURE TO PROVIDE REFERENCES

In another line of cases, Wallace damages have been awarded where employers have needlessly

failed to provide references. In Delaquis v. College de Saint-Boniface39 the Plaintiffwas abruptly

tenninated after giving notice that he required time off due to illness. The Manitoba Court of

Queen's Bench noted that "despite having been a good employee, who had weeks before his

tennination been offered a five-year contract, the College failed to provide more than a

lukewarm reference for Delaquais".40 This along with a number of other factors led the court to

conclude that the termination had been done in bad faith. The court awarded a notice period of

12 months.

In Barakatt v. Levesque Beaubien Geoffrion Inc. 41 the Respondent, Barakatt, was a preferred

share specialist at a brokerage house. When his employer firm merged with another firm his

position became redundant and he was replaced. The letter of termination offered a severance

package representing 4 months income. Mr. Barakatt did not accept that offer. He was also

promised a letter of recommendation that he never received and was forced to phone his

employer in order to get the balance of the commissions he was owed. Mr. Barakatt attempted

on more than one occasion to arrange for a meeting to discuss his termination, but no such

meeting ever occurred. The court reviewed the Wallace decision as well as the principals

articulated in Bardal, supra.

The Nova Scotia Court of Appeal accepted the trial judges finding that the dismissal was "cold

and impersonal" and that it "devastated and shattered" Mr. Barakatt. In particular, the trial judge

had noted that the circumstances of Mr. Barakatt's position made the termination particularly

distressing. The Court quoted the following statements ofthe trial judge:

[Barakatt] knew there was no market in Canada at that time for the type ofposition he had held and even if there was a market, he would not be considered acandidate as he had been dismissed, was maintaining a law suit against his formeremployer and did not have a letter of recommendation. Given the circumstancesas described to me by Mr. Barakatt and other witnesses, I have no doubt hisassessment of the situation was accurate. There was clearly evidence that themanner of dismissal impacted on his ability to find alternative employment.42

39 [2000] M.J. No. 181 (Man. Q.B.)40 Ibid. at QL para. 22.41 [2001], 12 C.C.E.L. (3d) 24, [2001] N.S.J. No. 426 (N.S.C.A.).42 Ibid. at QL para. 45.

19

) The Court of Appeal noted that Mr. Barakatt deserved a letter of recommendation and that no

evidence was presented as to why he shouldn't have one. This was further evidence of the "bad

faith" of the employer. Accordingly, the Court of Appeal upheld the trial judge's decision to

award a 17 month notice period.

This case is also noteworthy in tenns of its explanation of the appropriate method of applying the

Wallace principles. The court noted that a one step procedure was appropriate.

Wallace does not mandate a two-step assessment of reasonable notice, that is, anevaluation of reasonable notice without regard to the manner of dismissalfollowed by an adjustment to the notice period to reflect the manner of dismissal.In Noseworthy supra, Goudge, J. A. set out the principals to be followed by a trialjudge in assessing reasonable notice when employers tenninating employees fallshort of the standard set by Iacobucci, J. in Wallace. At paragraph 30 heexpressed approval for a one step procedure such as that followed by Gruchy, J. infixing the notice period within a range:

... within this range, the consequence of Wallace is that where bad faithemployer conduct exists, there will be a longer notice period than therewould be in the same case ifthere were no such conduct.

F. FAILURE TO ALLOW EMPLOYEE TO ADDRESS COMPLAINTS

Another fact situation where Wallace damages may arise is where a dismissed employee is not

pennitted to address complaints made against him or herself. In Kapitiny v. Thomson Canada

Ltd. (C.o.B. Winnipeg Free Press)43, the Plaintiff was wrongfully dismissed by the Defendant

after 22 years of employment. The Manitoba Court of Queen's Bench held that aside from the

usual notice period of 15 months required in this circumstance, an additional 8 months was

appropriate in light of the unfair treatment of the Plaintiff. The court determined that the

Plaintiff had been treated unfairly on the basis that he had never been infonned of complaints

made to upper management about him.

In Truong v. The Queen In Right OF British Columbia et a1.44, the Plaintiff was employed as a

Vietnamese Court Interpreter working for Court Services from June 1991 until 1994. After

giving consideration whether or not the Plaintiff was actually an employee, as opposed to an

independent contractor, the British Columbia Court of Appeal held that the Plaintiff was entitled

) 43 (2000), 151 Man. R. (2d) 248, [2000] M.J. No. 602 (Man. Q.B.).44 [1999] 178 D.L.R. (4th

) 644, [1999] B.C.J. No. 2049 (B.C.C.A.).

20

to increased period ofnotice. They increased the notice period by two months on the basis of the

mental distress caused by her unfair treatment. The basis for the finding of bad faith was that the

Plaintiff had been told that there had been complaints about her, but never given an opportunity

to address these complaints. The Court quoted the trial judge regarding the effect that this

treatment had upon the Plaintiff:

The manner of her termination caused her to be depressed and feel persecuted. Itdestroyed her self-esteem and confidence. She was unable to leave her home toseek employment and "lost faith" in her community because of thoseallegations.45

The Court ofAppeal also held that an award of $2,500.00 for job retraining was appropriate.

v. "INTENTIONAL INFLICTION OF MENTAL SUFFERING"

Prior to the release of Prinzo, supra, McKinley v. Be Tel, supra was often lauded as one of the

most important cases in employment law since Wallace. McKinley is important both in respect

to it's consideration of employee dishonesty as just cause for dismissal, and in it's commentary

on the possibility ofan independent, actionable wrong in the context ofwrongful dismissal.

Although the Supreme Court held that it was appropriate on the facts that the notice period be

extended by 4 months, they did not find that the evidence established a separate, actionable

wrong. They noted that the impugned conduct of the employer occurred during negotiations

with the employee in regard to his termination. Iacobucci, J. stated in this regard:

within this bargaining relationship, both sides were entitled to put their strongestcase forward. Consequently, in this setting, clear evidence is required tosubstantiate a claim that the employer's conduct rises to the level of an intentionalinfliction ofharm.

Thus, the Supreme Court struck the original award for aggravated damages and dealt with the

employer's conduct simply in terms of the extended notice period, thus reinforcing the view in

Wallace that an independent, actionable wrong is a rare occurrence.

Prinzo, however, revives this possibility. The Plaintiff worked for the Defendant Company for

17 ~ years in a management position. On November 27, 1997, she received a letter of layoff

indicating that her position was being eliminated because of financial constraints. The letter did

21

) not state an effective date of elimination, but stated that such date would be determined within

the next few weeks. A week prior to this Prinzo had fallen and hurt herself in Baycrest parking

lot. She continued to work, but on November 28th went offwork at the advise of her doctor who

stated that she was medically unfit for any form of work during this time. She remained off of

work until February 9, 1998.

During the period of time in which she was off of work she was continuously called by her

immediate supervisor urging her to return to work and perform modified work. The trial judge

found that these calls were harassing and inferred that Prinzo was dragging out her sick leave.

Further, during that time, the Plaintiff received a letter from her supervisor implying that they

had spoken to her doctor and her doctor had agreed that she return to work. This was absolutely

false. When Prinzo phoned her supervisor in regard to this letter, her supervisor threatened that

if she did not return to work immediately, they would consider her to have refused and would

address such refusal. The conduct resulted in emotional distress, which was documented by a

physician.

When Prinzo did return to work she was not disciplined for failing to return to work previously.

However, a meeting between herself and four representatives ofBaycrest was arranged. A friend

accompanied Prinzo to the meeting, but was told to leave. The Director of Employees Services

stated that he wished to discuss the termination. Although nothing definite was determined at

this meeting, on March 11, 1998, Prinzo was given a letter indicating her last day of employment

would be March 31, 1998. Following termination, Baycrest paid Prinzo until November of 1998.

Several issues were raised upon appeal, including:

1. The date from which reasonable notice was to be calculated;

2. Whether damages for mental distress should have been awarded; and

3. In the alternative, whether the notice period should have been extended due to the

manner of dismissal.

In regard to the date from what reasonable notice should have been calculated, the Ontario Court

ofAppeal determined that the effective date for notice oftermination was March 11, 1998. They

)45 Ibid. at QL para. 49.

22

noted that the B.C. Court ofAppeal stated, in Gibb v. Novacorp International Consulting [1990],

48 RC.L.R. (2d) 28 at 34, that a notice oftennination must lead a reasonable person to conclude

that his or her employment will end at some certain date in the future. Where no effective date of

tennination is indicated, there will be an inference that specific notice has not occurred. The

court also noted that notice cannot be assumed to have been given if an employee is simply

warned that his or her job will probably be eliminated within six months to a year. Notice must

be clear and unambiguous.46 On the facts, considerable confusion would have arisen as to

whether Prinzo still had a job or not when Baycrest was continuously calling her to try to get her

back to work while she was off sick. Accordingly, there was no effective notice of termination

until March 11, 1998.

At trial, Prinzo was awarded 18 months reasonable notice for her dismissal. The Court of

Appeal noted that an appellant court must defer to the decision of a trial judge in such an

instance unless the notice period awarded is unreasonable.47 The Court of Appeal took note of

the applicable Bardal factors as well as the fact that while Prinzo did not have a certain date, she

did know that her position would be terminated. These factors were considerations effecting the

length of notice. Accordingly, the Court of Appeal determined that 12 months was a reasonable

notice period.

In determining whether the Plaintiff was entitled to damages for mental distress, the Court of

Appeal confirmed the Wallace principal that any damages beyond compensation for breach of

contract for failure to give reasonable notice of termination must be founded on separately

actionable wrong. They then went on to examine the requirements of the tort of intentional

infraction of mental suffering. They set out the elements of the tort of intentional infliction of

mental suffering as enunciated by McLachlin, J., as she then was, in Rahemtulla v. Vanfed Credit

Union48• Those elements are:

1. Conduct that is flagrant and outrageous,

2. Conduct that is calculated to produce harm,

3. Conduct that results in a visible and provable injury.

46 Ahmad v. Proctor And Gamble Inc. [1991], 1 O.R. (3d) 491 (C.A.).47 Marshall v. Watson Wyatt and Company [2002], 209 D.L.R. (4th

) 411 (Ont. C. A.).48 [1984],29 C.C.L.T. 78 (B.C.S.C.).

23

In Rahemtulla, McLachlin, J. held that accusations of theft that were without basis amounted to

an act with reckless disregard. There was no requirement of malicious purpose to cause the

harm. In regard to whether the employers conduct was "outrageous", she stated:

While the [employer] has the right to dismiss a suspect employee withoutinvestigation, the proper conduct of its affairs does not require that it be given theright to make reckless and possibly untruthful accusations as to the employeeshonesty which will foreseeably inflict shock and mental suffering.49

At the end of the day, the court upheld the trial judge's award of $15,000.0 for intentional

infliction of harm and determined that the tort of intentional infliction of mental distress is a

separately actionable wrong. However, they noted that the trial judge had characterized this

award as aggravated damages, which it was not. The tort of intentional infliction of harm had

actually occurred prior to dismissal. The damages, therefore, were not aggravated damages, as

they did not arise from the dismissal itself, but rather from the employer's conduct before the

dismissal.

The court also considered the alternative situation, in which, rather than an award for damages

based on the intentional infliction of harm, the Plaintiff would be awarded an extended notice

period on the basis of the Wallace principles. In that regard they stated:

If Baycrest's conduct is, alternatively, viewed as a course of conduct respectingthe manner of dismissal, it would also be a breach of the employer's duty of goodfaith in fair dealing. In addition to the evidence already reviewed, I note also thelack of candidness and forthrightness of Baycrest respecting it's intentions forhaving Prinzo return quickly to modified duties, and the insensitive comment atthe meeting of February 9, 1998 that Prinzo's conduct may cause harm to theresidents.50

On that basis, the court held that Prinzo would have been entitled compensation by way of

extended notice period had the tort of intentional infliction ofmental distress not been made out.

The court also considered the duty to mitigate. They held that no deduction of earned income

should be made from damages awarded in relation to a Wallace extension.

Baycrest only has to make up the difference between her salary level at Baycrestand what she was earning at [her new employment] during the ordinary noticeperiod. If this deduction of earned income were also made from the damagesawarded in relation to a "Wallace extension", Prinzo would not effectively becompensated for the injury done to her. This result would appear incongruent

49 Prinzo, supra note 2 at para. 44.50 Ibid. at para. 68.

24

with the Supreme Court's view in Wallace that the injuries resulting in bad faithconduct on the part of the employer are "sufficient to merit compensation in andof themselves" irrespective of whether the bad faith conduct affects employmentprospects. On the basis that intangible injuries cannot normally and completelybe mitigated by finding other employment, it has been suggested that theextended notice period be treated as akin to a severance payment which is notsubject to mitigation.51

VI. CONCLUSION

The recent release of Prinzo, coupled with the requirement of good faith and fair dealing arising

from Wallace, has considerably raised the bar with respect to the obligations that employers owe

to their employees at the time of tennination. If employers are to avoid liability, they must not

only treat employees with dignity, they must communicate with them openly and candidly.

Employers must also be aware that their obligations to dismissed employees may not be negated

or offset by income that dismissed employees receive pursuant to disability benefits, or even

other employment. As an employer's conduct in the dismissal of employees may well become

the subject ofjudicial consideration, careful considerations of one's actions are required in order

to avoid liability for an increased notice period or direct damages.

51 Ibid. at para. 72.