“Off the Beaten Path” Damages in Employment law: How … · “Off the Beaten Path” Damages...

CBA Administrative Law/Labour and Employment Law Conference

“Off the Beaten Path” Damages in Employment law: How

to Stay on the Trail

Philippe C. Vachon

Telephone: (514) 954-3134

Facsimile: (514) 954-1905

Michael P. Fitzgibbon

Telephone: (416) 367-6140

Facsimile: (416) 361-7365

November 24, 2006


The methodology that the courts have adopted when determining the notional period of

reasonable notice in wrongful dismissal cases has remained relatively uniform since 1960 and

the seminal case of Bardal v. Globe & Mail Ltd.1 That is not to say, of course, that the law has

remained constant and unchanging over nearly a half-century. The reality, of course, is that the

law has evolved and continues to do so. The post-Wallace 2 era has seen a greater judicial

willingness to look “behind” the termination and examine the circumstances, context and

manner of the termination and, where appropriate, censure, through appropriate damages,

employer conduct that the court views as offensive, heavy-handed or otherwise unreasonable.

Whether the court expresses its disapproval through, for example, an extension of the notice

period3 or the awarding of significant punitive damages,4 they are scrutinizing employer conduct

as never before. The “optics” of the termination, while always important, have taken on greater

significance over the past decade.

At the same time, the post-Wallace era has seen something of a judicial backlash against “as of

course” pleadings, with a concomitant lengthening of the trial,5 as well as a general

unwillingness to be constrained by rules or principles of general application that would,

effectively, fetter the courts’ ability to determine what is fair and reasonable in the

circumstances. For example, courts, to the frustration of many clients, have continued to reject

the “month-per-year-of-service” rule of thumb6 as well as a “hard-cap” on reasonable notice.7

This paper will review some of the more salient recent developments in employment law

damages in Québec and the common law provinces.

1 (1960), 24 d.l.r. (2D) 140 2 Wallace v. United Grain Growers Ltd., [1997] 3 S.C.R. 701 3 Wallace, supra, at note 24 Keays v. Honda Canada (September 29, 2006, Ont. C.A.) 5 Yanez v. Canac Kitchens et al. (December 16, 2004, Echlin, J.) 6 Minott v. O’Shanter Development Co., (1999), 42 O.R. (3d) 321 7 Lowndes v. Summit Ford Sales Ltd. [2006] O.J. No. 13 (ONCA)

BORDEN LADNER GERVAIS LLP November 24, 2006 - 1 -


I. THE ONLY RULE IS THAT THERE ARE NO RULES

(a) Determining the Period of Reasonable Notice of Termination - Generally

In the absence of a contractual provision to the contrary an employee can be terminated for just

cause or in the absence of just cause upon being provided with reasonable notice or pay in lieu

of reasonable notice at common law.8 Although determining the period of reasonable notice is

said to be more art than science,9 from the earliest times our courts have tried to provide some

guidance on the factors that should be taken into consideration in making this determination.

The most often cited case in this area is Bardal v. Globe & Mail Ltd.10 where McCruer, C.J.H.C.,

stated as follows:

There can be no catalogue laid down as to what is reasonable notice in particular classes of cases. The reasonableness of the notice must be decided with reference to each particular case, having regard to the character of the employment, the length of service of the servant, the age of the servant and the availability of similar employment, having regard to the experience, training and qualifications of the servant.

New criteria have crept into the mix, while others have fallen out of favour. In fact, one author

outlines 105 different factors that have been considered by the courts in determining the

notional period of reasonable notice.11 In the end, all things being equal, the object of the

damage assessment is compensatory, that is, to restore the employee to the financial position

he or she would have been in had the employer provided the appropriate notice.

The Ontario Court of Appeal in the case of Minott v. O’Shanter Development Co.12 in reviewing

the trial judges determination regarding reasonable notice, held, among other things, that:

no two cases are identical;

ordinarily, there is no one "right" figure for reasonable notice. Instead, most cases yield a range of reasonableness;

8 Machtinger v. HOJ Industries Ltd. [1992] 1 S.C.R. 986 and, more recently, Lloyd v. Oracle Corporation Canada Inc. (April 30, 2004, S.C.J.)

9 Lowndes supra, note 7 10 (1960), 24 D.L.R. (2d) 140 11 H. Levitt, The Law of Dismissal in Canada, Third Edition (2003) at chapter 8:70 12 Minott, supra, note 6 at pp. 343-44


http://www.ontariocourts.on.ca/decisions/2006/january/C42746.pdf


in each case, trial judges must “weigh and balance a catalogue of relevant factors”; and

that “there is no one ‘right’ figure for reasonable notice”.

This being the case, a court of appeal should only intervene where the trial judges assessment

falls outside of the “acceptable range or unless, in arriving at the figure, the trial judge erred in

principle or made an unreasonable finding of fact”.

(b) Is there a “Rule of Thumb”?

On occasion employers (and employees) looking for some formulaic basis for determining the

period of reasonable notice, raise the “month-per-year-of-service” rule of thumb. They argue

that an employee is entitled to one month of notice of termination per year of service. The issue

has been considered by a number of Courts who have, with some exceptions, generally

rejected the “rule of thumb” approach to notice determination. This should not be surprising

since, as mentioned previously, “no two cases are identical” and, further, determining the period

of reasonable notice is more “art than science”.

But “certainty” and “predictability” are not easy to shake off and, the “rule of thumb” continues to

be discussed from time to time. While there are cases where a month (or more) per year of

service represents the appropriate period of reasonable notice of termination, the Courts have

clearly said that this determination is to be made having regard to the particular circumstances of

each case and that rules of general application are, by their very nature, contrary to the long-

standing principles upon which the reasonable notice determination is based.

The Ontario Court of Appeal, for example, in Minott squarely considered the following issue:

… should courts calculate the period of reasonable notice to which an employee is entitled if dismissed without cause by using the rule of thumb that one year's service equals one month's notice?

The Court held that the “rule of thumb” approach is deficient and inappropriate and is contrary to,

for example, the more fluid and flexible approach first enunciated in Bardal. In fact, the Court held

that the trial judge erred by using the month per year of service “rule” as a starting point for

determining the appropriate period of reasonable notice.



While some courts have indicated and sometimes continue to suggest 13 that there might be a

“rule of thumb” for reasonable notice of one month per year of service, the vast majority of

common law courts have rejected this view, preferring the “tried and true”, though unscientific

and uncertain, assessment based on the traditional Bardal criteria.14 This latter view was

reinforced by empirical study, which revealed that in fact junior employees tended to receive in

excess of one month per year of service, and senior employees tended to receive less than one

month per year of service. That being the case, the practice of providing one month per year of

service was in fact accurate only for mid-service employees.

The “rule of thumb” approach should be abandoned. As the Court states in Minott, it is

defective in that it puts unwarranted emphasis on one of the Bardal factors (“length of service”)

at the expense of all of the others, while, at the same time, introducing a measure of rigidity into

an exercise that should be fluid and flexible having regard to the particular circumstances.

Although, it might be argued (with some merit) that this undermines the goals of predictability,

certainty and consistency, it can also be argued that the very nature of the period of reasonable

notice requires an approach that is neither predictable, certain or consistent.

(c) Is there a Reasonable Notice Cap?

On occasion, particularly when terminating the longer service employee, questions are raised

about whether there is a reasonable notice “cap” or “upper limit”. The Ontario Court of Appeal

recently discussed this issue at some length in the Lowndes case. This case involved a

termination of a 59-year-old general manager of a car dealership with some 28 years service.

The trial judge determined that the appropriate period of reasonable notice of termination was

13 De Guzman v. Marine Drive Golf Club, 2003 BCPC 284 (CanLII); Restauronics Services Ltd. v. Forster (June 22, 2001, Vancouver Registry, S005210);

14 Bustos v. Celestica International Inc., 2005 CanLII 24598 (ON S.C.); Crisall v. Western Pontiac Buick GMC (1999) Ltd., 2003 ABQB 255 (CanLII); Pelech v. Hyundai Auto Canada Inc., 1991 CanLII 920 (BC C.A.); Milsom v. Corporate Computers Inc., 2003 ABQB 296 (CanLII); Law v. Truro International Inc., 1997 CanLII 1639 (NS S.C.); Coppin v. MPR Teltech Ltd., 1997 CanLII 2090 (BC S.C.)



30 months. The employer appealed arguing that the trial judge’s determination of the period of

reasonable notice was excessive and ought to be overturned.15

The Court of Appeal agreed with the employer. Although the Court of Appeal found that the trial

judge had identified the correct legal principles for determining the period of reasonable notice

(including that it was an "art not a science"), the Court disagreed with the judge’s application of

those principles to the facts. Specifically, the Court of Appeal reduced the notice period noting

that:

Although it is true that reasonable notice of employment termination must be determined on a case-specific basis and there is no absolute upper limit or ‘cap’ on what constitutes reasonable notice, generally only exceptional circumstances will support a base notice period in excess of 24 months: see Baranowski v. Binks Manufacturing Co., [2000] O.J. No. 49 (S.C.J.) at para. 277 and Rienzo v. Washington Mills Electro Minerals Corp., [2005] O.J. No. 5126 (C.A.).

The judge did not consider whether such "exceptional circumstances" were present and the

Court reduced the notice period from 30 months to 24 months.

To draw a sports analogy, there doesn't seem to be a reasonable notice "hard cap" but, rather,

a "soft cap". The Lowndes case emphasizes what Canadian courts have generally accepted as

a governing principle, namely that the maximum notice period that should be awarded in the

“run-of-the-mill” wrongful dismissal case is 24 months.16

(d) Inducement and its Effect on Reasonable Notice

There are a few recent cases that discuss the issue of inducement in employment law and the

implications on the period of reasonable notice of termination.

15 Fitzgibbon, M.P., Determining the period of reasonable notice of termination (CBA National Magazine Addendum, April, 2006)

16 see also Ansari v. BC Hydro (1986), 2 B.C.L.R. (2d) 33; Veer v. Dover Corp. (Canada) Ltd. (1997), 31 C.C.E.L. (2d) 119, affirmed by the Ontario Court of Appeal (1999), 88 A.C.W.S.J. (3d) 391; Suttie v. Metro Transit Operating Company (1985), 28 D.L.R. (4th) 36 (B.C.C.A); In Selick v. 149244 Canada Inc., [1994] R.J.Q. 2822 (C.A.) the Quebec Court of Appeal upheld 30 months' compensation as damages in lieu of notice for an employee who had been promised employment for as long as she wanted.



In assessing the period of reasonable notice of termination, especially for "short-service"

employees, consideration is sometimes given to whether the employer "induced", "enticed" or

"allured" the employee away from a secure position with a former employer. The theory being

that, if the employee gave up secure employment because of statements made by the new

employer (or its agent), and is terminated within a short time after commencing employment, the

employee should be credited with some of the service with the former employer for purposes of

determining the common law period of reasonable notice. In other words, in general terms,

inducement offsets short service when determining the employees’ entitlement on termination

(i.e. the period of reasonable notice).

In Pereira v. Bailey Toyota Ltd.17 the Court found that the "new" employer had induced the

employee to leave prior employment (i.e. it had "talked up" its business, though denied making

any guarantees). Specifically, the Court said that the employee "was led to believe that he

could expect secure employment with the defendant" and saddled the "new" employer with the

terminated employees prior service with the previous employer.

The effect of all this was that the period of reasonable notice for an employee with less than 7

months service with the "new" employer was determined to be 6 months salary and benefits.

This is a short judgment, and it is not entirely clear on what evidence the judge relied upon in

reaching the conclusion that "inducement" was present. It must be emphasized that not every

statement will attract a finding of inducement.

Mr. Justice Echlin in the thoughtful decision of McCullouch v. Iplatform Inc. et al18 considered

the circumstances under which "inducement" or "allurement" will apply to increase the notice

period.

In this case, Paul McCulloch had been working for Shawk Herzig Somerville Limited for nearly a

decade. He reported to Fred Nurnberger. As a result of the loss of a key customer, Nurnberger

entered into discussions with Iplatform Inc. with a view to moving over to them. McCulloch also

17 (2005) CanLII 47092 (ON S.C.) 18 (December 16, 2004, Ont. S.C.J)



began talking with Iplatform who told both Nuremberger and McCulloch that "they were

expanding and wanted to grow their business and develop a packaging division".

On October 26, 2001 McCullouch received a one page fax outlining the terms of Iplatform's offer

of employment and, the following day, he received a 9 page Employment Agreement with a note

saying that "we would like to wrap this up tomorrow". McCullouch signed the Agreement,

resigned his employment with Shawk Herzig Somerville Limited and started working for

Iplatform on December 3, 2001.

So far so good, except that Iplatform experienced financial difficulties and terminated

McCullouch's employment on March 15, 2002 (105 days after his start date). Iplatform offered

McCullouch salary and benefits continuation for one (1) month in return for a signed release.

Iplatform did not allege (until its statement of defence) that it was terminating McCullouch's

employment for just cause.

Following his dismissal, McCulloch sought medical attention for a stress-related illness.

Although McCullouch's counsel asked for the disability claim forms, none were forthcoming.

McCulloch did not secure another job until August 12, 2002 (about 5 months after the

termination). McCulloch sought a reasonable notice period of 18 months relying on what he

claimed was the inducement/allurement by the defendants. The evidence on this point was

mixed.

The Court commented that:

Clearly the defendants were interested in attracting the clientele that Mr. Nurnberger hoped to bring with him. In doing so, they would need to service it and felt they could use someone like Mr. McCulloch to do the pre-press work.

Interestingly, Mr. McCulloch was able to negotiate upwards a salary offer of $65,000 to $68,000 plus a maximum $30,000 bonus, plus car expenses, business expenses, and options to purchase 24,000 shares at the senior executive/directors' strike price. This undoubtedly looked very appealing to an individual who had previously been earning about $52,500 and was now being offered a raise of nearly $20,000, all in.

Mr. Justice Echlin analogizes "recruitment" to a "dating game" where "employers and

employees both preen themselves, put on their best faces, sometimes overstate themselves,

and try to look attractive to the other. "



But it is not every move from one employer to another that will attract a longer notice period by

reason of the doctrine of inducement. When will the principle apply? The Court stated as

follows:

What determines when allurement/enticement should apply? In Wallace v. United Grain Growers Ltd., [1997] 3 S.C.R. 701, Mr. Justice Iacobucci pointed to the reliance and expectation interests involved where the new employer makes strong promises of security in the new employment relationship. He adopted the comments of Goldie, J.A. in Robertson v. Weavexx Corp., (1997), 25 C.C.E.L. (2d) 264 B.C.C.A.) at p.271-272:

Also part of the inducement to the respondent in making the move he did was, no doubt the discussions as to long term employment. As I have concluded, those discussions lacked contractual force in terms of the respondent's assertion of a fixed term contract but nevertheless, they were and are, in my opinion, significant on the issue of reasonable notice.

In my opinion, such incidents are properly included among the considerations which tend to lengthen the amount of notice required (Wallace, supra at para. 85)

In the McCulloch case, no evidence was led to indicate that assurances of long tenure were

given. In fact, the evidence was such that McCulloch was able to negotiate himself a lucrative

increase in remuneration and confirmed that "it was a good offer". Justice Echlin found that:

In this case, Paul McCulloch changed employers to obtain a higher current pay package and to continue to work with his friend, Fred Nurnberger. At the age of 54, his focus was not on job security. Accordingly, I find little or no reliance or expectation interest relating to promises of longevity.

In reading the decision, it seems that there was some "uncertainty" at the previous employment

by reason of the loss of a customer, and that both Nurnberger and McCullouch were looking at

their options, including a move to Iplatform. McCulloch was able to negotiate favourable

compensation for himself, and he moved. There was no inducement present here.

The Court determined that the applicable period of reasonable notice was three (3) months

having regard to "McCulloch’s age (54); position (Production Manager-Packaging); total annual

compensation (agreed by both counsel to be $72,000 per year) and length of service (slightly

over three months-105 days) combined with the inducements alleged ...." The payments on

account of termination pay under the Employment Standards Act, 2000 were to be deducted

from this amount.



It is unclear what the "inducements alleged" were and whether there was something beyond the

"allurement" that was found not to exist that influenced the court in arriving at the three (3)

month notice period.

In addition, the Court extended the notice period by three (3) months under the Wallace doctrine

(discussed below). In doing so the Court considered the following:

The defendants maintained just cause allegations throughout the trial of this matter on the basis of undocumented performance-related complaints. They failed to provide a letter of reference. They failed or refused to provide insurance claims forms to him. They delayed in paying statutory entitlements. They created hurdles regarding their own identity by only conceding that Mr. McCulloch was an employee of a corporate entity that Mr. Ricketts testified no longer existed, except on paper, iPlatform Inc.

The Court further held that the "Wallace Damages" were not to be reduced by the mitigation

income earned by McCullouch on the basis of Prinzo v. Baycrest Centre for Geriatric Care.19

Clearly, as this case confirms, not every employment move to a new employer will result in an

extended notice period. Where the employee accepts the position because it represents a

"better deal", a more lucrative arrangement or because he or she is unhappy and is looking for a

change, then there is a good argument that allurement/inducement is not present.

Most recently, the Ontario Court of Appeal discussed the effect of inducement on the notice

period in Egan v. Alcatel Canada Ltd. 20 In this case, Ms. Egan had worked for Bell Canada for

approximately 20 years, most recently in a senior marketing position, earning an annual salary

of $85,000, plus benefits. She resigned her employment with Bell Canada to accept a director

level and senior management position with Alcatel. She asked for and received a base annual

salary of $125,000 from Alcatel, which she felt she needed to make up for her pension loss at

Bell Canada. She also received a $5,000 signing bonus.

19 [2002] 60 O.R. (3d) 474 (C.A.). See a contrary decision regarding mitigation and Wallace damagers at Jessen v. CHC Helicopters International Inc., (2005) NSSC 241 (CanLII)

20 [2006] O.J. No. 34 (QL)



Two of Ms. Egan’s colleagues at Bell Canada had previously transferred to Alcatel and were

instrumental in her resigning her employment with Bell Canada. The trial judge made the

following findings with respect to Ms. Egan’s hiring:

The trial judge made the following findings:

When Ms. Egan decided to resign from Bell Canada, her future prospects with Bell Canada were very good and her future was relatively secure;

She had no particular interest in leaving Bell Canada;

She was encouraged to give serious consideration to seeking employment with Alcatel by Alcatel's employees, Ms. Stott and Ms. Espinosa;

Both Ms. Stott and Ms. Espinosa submitted Ms. Egan's C.V. (although she had originally declined to give it to Ms. Espinosa) and recommended her to James Guillet, Assistant Vice-President-Product Marketing of Alcatel;

Mr. Guillet spoke in positive terms of Alcatel during the negotiations;

On all the evidence, it could reasonably be inferred that both sides anticipated and expected a lengthy term of employment;

Ms Egan had been encouraged by Alcatel and its employees to leave longstanding secure employment of some twenty years to hire on with Alcatel at a very significant increase in salary, plus a bonus and stock options;

Unbeknownst to Ms. Egan at the time of hiring, Ms. Stott and Ms. Espinosa shared an $8,000 bonus paid by Alcatel for their efforts upon the hiring of Ms. Egan.

Ms. Egan’s employment was terminated by Alcatel after only 21 months after it began, without

cause or notice.

In determining the applicable period of reasonable notice to which Ms. Egan was entitled, the

trial judge concluded she had been "encouraged" by Alcatel and its employees to leave Bell

Canada and hire on with Alcatel. The issue for the Court of Appeal was whether Ms. Egan had

been “induced” by Alcatel or its representatives from secure employment with Bell Canada.

The Court of Appeal held that:

It was open to the trial judge to find that the statements made by Alcatel fell within this concept of inducement. Ms. Egan was given a substantial increase in salary, a signing bonus and stock options. She left a secure position with the Bell family of companies where she held a senior marketing position to become "Director of Global Marketing Programs, Broadband Networking Division". Ms. Stott told her that Alcatel was a large company that was entering into new global markets with much larger sales and that a



large company like Alcatel provided security. Mr. Guillet told Ms. Egan about the "tremendous opportunities facing the company". He told her that it was an extremely large organization and "talked about the security that it offered employees".

The Court upheld the trial judge’s decision to award Ms. Egan a 9-month reasonable notice

period, despite the fact that she had only been employed by Alcatel for less than 21 months.

Where an employee has been induced to leave a secure job to move to a new employer on the

basis of a reasonable expectation of long-term employment and then dismissed shortly

thereafter, Canadian courts have shown a propensity to award significant damages in lieu of

notice despite the short employment tenure.21

II. WHAT’S HAPPENING WITH WALLACE DAMAGES?

At last year’s CBA National Administrative Law and Labour/Employment CLE conference held in

Ottawa in November 2005 two papers were presented on the Wallace damages in Quebec and

the common law provinces.22 We will attempt to update some of the developments in the case

law over the past year.

When the Supreme Court of Canada issued Wallace v. United Grain Growers 23 (“Wallace”),

employers scrambled to understand their new obligations. In Wallace, the Court held that

employers owed employees an obligation of good faith. Expressed in the negative, the Court

held that employers who acted in bad faith at the time of discharge or termination – the time

when the employee was at his or her most vulnerable – would be required to provide employees

with notice that is in addition to that which the employer would otherwise be required to provide.

While Wallace was new law, its impact, after 8 years, has not been as devastating to employers

as some had speculated. Lower courts have adopted a more or less principled approach to

awarding the so-called Wallace bump up. Employers who do not take hard lines with

21 Robertson v. Weavexx Corp. (1997), 68 A.C.W.S.J. (3d) 876 (B.C.C.A) and Murphy v. Rolland Inc. (1991), 29 A.C.W.S.J. (3d) 815

22 Gume, G. and Wong, D. Wallace Damages: What Constitutes Bad Faith (Annual CBA National Administrative Law and Labour/Employment CLE conference held in Ottawa in November 2005) and Lavoie, G. and Dandurand, V., Larret Wallace huit ans plus tard: Y a T’il eu un impact au Quebec (Annual CBA National Administrative Law and Labour/Employment CLE conference held in Ottawa in November 2005)

23 supra, note 2



employees but continue to treat them with dignity and respect, have not been affected by

Wallace.

(a) Some Recent Cases

In Wilde v. Welland (City)24 an employee was informed that he would be retiring, in accordance

with the City’s long-standing policy, when he was 65 years of age which was the “normal

retirement age” contained in the City’s by-laws. Mr. Wilde complained, stating that the Ontario

government had introduced a bill that would, effectively, abolish “mandatory retirement” in the

province by removing the “age cap” from the Human Rights Code.25 He sought an injunction

“restraining the respondent from terminating or purporting to terminate the employment of the

applicant prior to the hearing of this application and any appeals there from”. The Court granted

an interim and permanent injunction and the City sought leave to appeal to the Divisional Court.

The Court granted leave to appeal. In doing so, it held that the City had not engaged in “bad

faith” in the manner in which it dealt with Mr. Wilde’s retirement.

The Ontario Court of Appeal will rarely disturb a jury verdict in a wrongful dismissal case, but

that's exactly what they recently did in Sommerard v. IBM Canada 26.

In this case, an employee commenced an action for wrongful dismissal against IBM. He also

sued Great West Life Assurance Company as a result of its denial of his disability claim and

refusal to provide him with disability benefits.

In brief, the plaintiff, who was 42 years of age at the relevant time, had been employed by IBM

for less than 4 years, earning $33,600.00, in a non-managerial role. He had not been recruited

by IBM and "IBM made him no promises whatsoever including no assurances in respect to job

security, the expectation of long employment or the possibility of advancement."

24 (2006) CanLII 18738 (ON S.C.) 25 Mandatory Retirement Statute Law Amendment Act, 2005 announced in 2005 (“Bill 211”) which

comes into force on December 16, 2006 26 March 30, 2006, Ont. C.A.



The Court of Appeal indicated that "during his employment, there were a number of documented

incidents of angry outbursts by" the employee. He went on short term disability benefits for

medical reasons and applied for long term disability benefits, IBM's LTD benefits insurer, who

denied his claim. He appealed Great West's denial of his claim.

In the course of a discussion that the plaintiff had with a nurse employed by IBM he indicated

that, according to the Court of Appeal, "he did not feel that he could return to work because he

thought he might “thump somebody”. The nurse asked him to clarify the comment and Mr.

Sommerard said that he would hurt or hit someone at work." IBM terminated his employment

for just cause "because of your threat to hurt someone if you returned to work at IBM”.

The employee sued and alleged that he was terminated because he was a:

"... difficult employee "and that it seized on the telephone call as an excuse justifying dismissal. He contended that IBM ought to have known that the threat was not real and, in light of his illness, that it rushed the decision to terminate his employment with inadequate investigation into the incident, his illness or alternatives to termination."

At trial, the jury concluded that IBM did not have just cause and determined that the period of

reasonable notice was 9 months in the circumstances. Furthermore, the jury awarded a further

four (4) months on the basis of the Wallace principles, $1,000 in aggravated damages and

$22,000 in punitive damages. IBM appealed.

The Court of Appeal upheld the juries conclusion that just cause was not present in the

circumstances. However, the Court reduced the reasonable notice award from 9 months to 5

months on the basis of the usual Bardal factors.

The Court summarized the Wallace principles as follows:

"A dismissed employee is not entitled to compensation for injuries flowing from the fact of dismissal. However, employers are held to an obligation of good faith and fair dealing in the manner of dismissal. The breach of an employer’s obligation in this regard may be compensated by adding to the length of the reasonable notice period. Compensation in these situations flows not from the dismissal itself but from the manner of dismissal."

The Court refused to disturb the jury award on this point (though it sympathized with IBM who, it

said, was "in a difficult position").



In Clairmont v. Quetico Centre27 the employee claimed Wallace damages because “the

termination was abrupt, that the Plaintiff was not allowed to respond to the allegations and that

the Defendant relied on conduct that was not serious in the context of 22½ years of

employment”. The Court rejected the Wallace claim since there was “…not sufficient evidence

to hold that the Defendant was untruthful, misleading or unduly [in]sensitive in the manner of

dismissal in the context of Wallace and United Grain Growers”.

The Ontario Court of Appeal in Manoni v. Powell28 overturned a decision where significant

Wallace damages were awarded to an employee because the employer had failed to provide a

promised reference letter. The Court stated that:

In our view, while the failure to provide a reference letter warranted some increase in the length of notice to which the respondent was entitled, in these circumstances, it did not justify the significant extension contended for by the respondent of fourteen months. We consider that award to be manifestly excessive.

The Court reduced the notice period from 14 months to 7 months and, in doing so, maintained

that this was “generous” though reasonable. The circumstances involved a younger employee

with 2.5 years employment at the middle-management level.

The plaintiff’s claim for Wallace damages was dismissed in Gallagher v. John Bear Pontiac

Buick Cadillac Ltd.29 In this case, while plaintiff’s counsel, in early correspondence, had

requested a letter of reference for the employee, and, although one was not immediately

forthcoming, the Court concluded that “there was never a specific refusal to provide a letter of

reference nor was the request for such letter ever further pursued.” The plaintiff’s claims for

punitive damages and mental distress damages were similarly dismissed.

An important case is Lowndes,30 discussed above. The plaintiff sought Wallace damages and

the trial judge made the following material findings of fact:

27 2006 CanLII 28733 (ON S.C.) 28 2006 CanLII 13758 (ON C.A.) 29 2006 CanLII 1190 (ON S.C.) 30 supra., note 7



1. [the president of the employer] embarked on a lengthy campaign to provoke the voluntary

resignation of the respondent;

2. [the president of the employer’s] behaviour and treatment of the respondent over five years

“verged on being cruel”;

3. at the time of his dismissal and to the knowledge of the appellants, the respondent had been

diagnosed with prostate cancer and was awaiting treatment;

4. behaviour of [the president of the employer] in carrying out the termination of the

respondent’s employment was insensitive and indifferent to the respondent;

5. after presenting the respondent with two different severance options, [the president of the

employer] essentially declined to discuss these options with the respondent; and

6. the written version of the severance options presented to the respondent could be construed

as suggesting an offer based on 24 months notice when, in fact, the options contemplated, at

most, the monetized value of 8.5 months notice, payable over 24 months.

While the Court of Appeal found that “this was not a strong case for Wallace damages”, it

refused to intervene with the trial judge’s finding that the notice period should be extended by

four (4) months. In doing so, the Court observed that, while, many of these items “predate the

actual dismissal” they nonetheless “form part of the context that fuelled and eventually

surrounded the dismissal itself” and are material to the Wallace determination. This approach

appears consistent with the trend in the case law.

Another recent case is Evangelista v. Number 7 Sales31 which involved a long-service used

sales manager for car dealership, Number 7 Sales. In April 2003, the employer decided to

change its compensation formula with the effect that Mr. Evangelista’s commission was reduced

from 30% to 18% effective December 2003. Mr. Evangelista was upset, angry, disappointed

and hurt by this change in compensation. According to the Court:

“… after discussing the matter with his wife and taking into consideration, among other things, his age, income and realistic alternative employment prospects, he reluctantly accepted the new compensation formula, not, however, before communicating to Mr. Corridore his sense of hurt and his perception of the change as being unfair.”

31 2006 CanLII 22933 (ON S.C.)



Matters proceeded under this new compensation model until March 10, 2004 when the

employer announced that Mr. Evangelista’s compensation would again be reduced, this time

from 18% to 9%. Mr. Evangelista conveyed that this was not acceptable and, the employer,

allegedly suggested that Mr. Evangelista was “making too much money”.

Although the April 2003 change in compensation was not the subject of the litigation, the Court

found that it was “a relevant circumstance” to be taken into consideration, and noted, somewhat

poetically, that “any contrary conclusion would be tantamount to writing a dissertation on

democracy without ever mentioning the Magna Carta.”

The employer required an “immediate” response to its proposal. Mr. Evangelista reiterated that

the proposal was not acceptable to which the employer advised that, in that case, he could no

longer be employed. Mr. Evangelista informed the employer that he had to see a doctor and

would be taking some time off.

On March 17, 2004, Mr. Evangelista was contacted by the employer and invited to a meeting at

which it tabled the 9% formula. Mr. Evangelista again refused at which time a “20-22 week

‘buy-out’” was proposed. Mr. Evangelista presented the employer with a doctors’ note from his

psychiatrist which the employer refused stating that “a doctor’s note was not necessary”.

The employer next contacted Mr. Evangelista on April 1, 2004 and inquired about his health as

well as whether he had considered the 9% compensation proposal. Mr. Evangelista indicated

that he was still seeing a doctor and reiterated his consistent rejection of the proposal. A

number of months passed with the next meeting taking place on July 19, 2004 by which time

Mr. Evangelista had retained counsel.

At this meeting, Mr. Evangelista was asked what he “really wanted” to which he responded that

he “wanted to work to retirement”. The meeting concluded with the employer, informally,

offering a buy-out of between $40,000 and $50,000. He was told to keep the van that he had

been driving and told to respond in short order. Mr. Evangelista maintained his rejection of the

compensation proposal and sued.

The central issue in the case was whether Mr. Evangelista had been constructively dismissed.

The court concluded that Mr. Evangelista had been constructively dismissed, and, in the

circumstances, determined that the period of reasonable notice was 15 months.



It then went on to review the plaintiff’s claim for Wallace damages. In determining that a

Wallace-bump was warranted, the court considered, among other things:

The earlier reduction in his compensation formula had already left him wounded and the events subsequent to that only served to exacerbate that wound

The plaintiff felt that the entire circumstances surrounding the termination of his employment left him feeling that he had a gun at his head and was left with the impression that this was a “take-it-or-leave-it” situation

At the time that “pressure” was being exerted by the employer on the plaintiff to accept the proposal, they were aware of his health problems

The plaintiff presented the employer with a doctor’s note indicating that he was under the physicians care until further notice and, if there were any questions, to contact the doctor. The note was “rejected” because “it was not [the employer’s] practice to look at such notes; which he took at face value”

A memorandum critical of Mr. Evangelista’s leadership qualities was presented in evidence

The Court reached the following conclusions:

[28] The defendant, in my view, demonstrated palpable insensitivity in the manner in which they dealt with the plaintiff in the events leading up to his constructive dismissal. Although the plaintiff acquiesced (which, in my opinion is what it was) in the formula reducing his compensation to 18% from 30% of gross profits, that fact and the related circumstances may not reasonably be isolated from those relating to the events precipitating his constructive dismissal.

[29] Coming close on the heels of the first reduction, it is perfectly credible, as the plaintiff testified, that he was humiliated, and felt let down by the conduct of the defendant. It must be remembered that the action taken by the defendant was unrelated to any performance appraisal or the failure on the part of the plaintiff to meet any goals, reasonably established and agreed upon.

[30] There was a lack of candour on the part of the defendant in its dealing with the plaintiff. The plaintiff’s evidence that Mr. Corridore said he was making too much money carries with it the ring of truth in contrast to much of Mr. Corridore’s evidence, much characterized by sophistry, the most patent of which is that the proposal offered to the plaintiff was an invitation to negotiate. Mr. Zanchin’s evidence to the same effect was equally disingenuous. The defendant had moved into spanking new quarters and it is perfectly believable that, in the overall scheme, the plaintiff’s compensation package may have been “too rich”. Were that the case, one of many options open to the defendant, was it truly in a negotiating mood, would have been to guarantee the plaintiff a base income of his average income over, say, the last three or five years, topped up with a newly negotiated commission, predicated on the old base or on some newly agreed upon base. The April 15, 2004 e-mail from Mr. Corridore to Ms. Bain, Exhibit 1, Tab 8, supra, simply fortifies me in my conclusion that the good-faith dealing demanded by Wallace was sadly lacking.



[31] There is, finally, the circumstances of the plaintiff’s health and the defendant’s response at the material time. I resist the temptation to invoke the term “hard ball”, but the defendant ought to have shown more sensitivity to the health concerns of the plaintiff when, instead, they were subjecting him to undue pressure.

The Court awarded a 3 month extension of the notice period on the basis of the Wallace

principles.

The British Columbia Supreme Court in Stant v. Elaho Logging Ltd.,32 considered whether

Wallace damages should be awarded in a rather unusual case where an employee was

terminated and then, one month later, re-offered his former position on exactly the same terms

of employment. The central question was whether Mr. Stant failed to mitigate by accepting the

offer of re-employment, though he also sought an extension of the notice period based on the

Wallace factors.

Mr. Stant commenced employment with Elaho Logging Ltd. in 1984 as a logging

superintendent. His employment was terminated in 1994 for reasons that were not put into

evidence. The trial judge commented that:

“I did hear evidence that Brian Welch, now the president of Elaho, and Mr. Stant met at Troll's Restaurant at Horseshoe Bay and over lunch they "arm wrestled" until they negotiated a severance payment of $20,000.”

He worked for another employer, then was rehired by Elaho in a unionized position and laid off

for the winter shutdown in November 1996. He was re-hired as a logging superintendent in

February 1997 and remained in that position until his termination on December 13, 2005.

He had commenced a medical leave of absence in September 2005 because of depression and

hypertension. He was in receipt of STD benefits until they were terminated by the insurer on

November 21, 2005. Contrary to his physicians advice, Mr. Stant approached his supervisor

and asked to return to work in a “modified position”.

A meeting was held on December 13, 2005 which, Mr. Stant believed, was to discuss his return

to work. In fact, he was laid off for the winter shutdown. He took this to be an attempt to “get

him” and to punish him “for getting sick”.

32 2006 BCSC 718 (CanLII)



He sought legal advice and his lawyer wrote to Elano seeking a severance payment. Mr. Welch

sought legal advice and, on January 13, 2006, advised, through counsel, that Mr. Stant “could

return to his position as logging superintendent on the same terms and conditions as he had

been employed when he went on his medical disability.” Mr. Stant refused because he believed

the company “would hang me out to dry, they would put together an opportunity to fire me.”

In opening, Elano’s counsel indicated that in laying Mr. Stant off Mr. Welch had made a

“mistake” which was corrected as soon as Mr. Welch received legal advice. In evidence,

however, Mr. Welch resiled from that position. The court found that Mr. Stant had been

terminated, without cause.

The Court concluded that Mr. Stant was not required to accept the offer of re-employment, in

the circumstances, which the court described as:

The issue is whether a reasonable employee in Mr. Stant's position would have recovered from the brow-beating he received on December 13, 2005, followed by an allegation of theft and failure to pay his salary and incentive pay sufficiently to enable him to perform his previous duties. It must also be remember that Mr. Stant was already suffering from stress and hypertension and had been diagnosed with depression. He had not by December 13, 2005, completely recovered from those conditions. I infer from the evidence of Dr. Jaimeson and from the evidence of Mr. Stant that his medical condition weakened his resilience and self-confidence. I conclude also that Mr. Welch made no effort to accommodate or temper his criticism of Mr. Stant in consideration of this medical condition. I do not think any reasonable employee in Mr. Stant's circumstances should be expected to have returned to work for Elaho. I do note that Elaho Logging may not have been historically a gentle place to work and that Mr. Stant would have been accustomed to plain talk and perhaps some criticism, but not to the degree to which he was subjected on December 13, 2005.

Despite this rather harsh description of the treatment that Mr. Stant was subjected to, and the

circumstances, the Court declined to award any extension of the period of reasonable notice,

which it determined to be 13 months in the circumstances. In coming to this conclusion, the

Court appears to have been influenced by Elano’s post-termination “genuine attempt to make

amends”.

The Saskatchewan Court of Appeal overturned a jury award of Wallace damages in Thompson

v. Consolidated Fastfrate Inc.33 The jury concluded that Mr. Thompson had been constructively

dismissed following a reorganization of the business and that he was not required to mitigate his

33 2006 SKCA 75 (CanLII)



damages by accepting the restructured position. The jury determined that the reasonable notice

period was 15 months in the circumstances and extended this by a further 5 months following

Wallace.

The employer immediately brought a motion to have the verdict set aside because of

“inflammatory and inappropriate comments” made to the jury by employee’s counsel and

because “the verdict was perverse, bad in law, devoid of evidentiary support and unreasonable

and unjust”. The judge dismissed the motion and the employer appealed.

Following a review of the comments made by counsel for Mr. Thompson to the jury and the test

for appellate intervention of a jury verdict, the Court of Appeal sent the matter back for a new

trial. With respect to the Wallace-bump the Court concluded that:

On any interpretation of the evidence, these circumstances fall considerably short of the circumstances that prevailed in Wallace and call into question whether a jury, uninfluenced by the inappropriate address of the respondent’s counsel, would have found that the Company had acted in bad faith. Certainly, this Court is far from confident that the result would have been the same absent such influence.

The Supreme Court of British Columbia declined to award Wallace damages in Coupe v.

Malone's Restaurant Ltd.34 in circumstances where a manager of a restaurant was terminated,

ostensibly for cause. The Court commented that while the employer did not succeed in its

allegation of cause, and should have known that it would not succeed by the start of the trial its

conduct “did not rise to the level to merit Wallace damages”. Specifically, the employer acted

appropriately at the termination meeting and “there is no evidence of the plaintiff being

embarrassed or humiliated”.

Wallace damages were sought before the Provincial Court of British Columbia in Crasmariu v.

West Van Florist Ltd.35 based on the following alleged factors:

The Defendant’s refusal to provide a letter of reference,

The fact the dismissal occurred just prior to Christmas,

34 2006 BCSC 1350 (CanLII) 35 (2006) BCPC 291 (CanLII)



The manner of the dismissal on December 22, namely that the employer accompanied the terminated employee “to retrieve her personal effects and then escorted her off the property”. The employer, allegedly, “then told the [employee] never to set foot on the property again”.

The employee claimed that the dismissal was callous, insensitive and without warning and that she had to “attend the hospital to seek medical assistance for chest pains”.

The Court noted that some of the employer’s conduct was “concerning”, but did not trigger a

Wallace-bump. It concluded that the timing of the termination “was not deliberate” and that

there was no evidence that the termination was carried out “in front of other persons nor in a

particularly humiliating manner”. In addition, the cause of the “chest pains” was unclear (i.e.

whether it was due to simply the stress of employment or some cause other than the dismissal).

In Perkins v. Shuen et al.36 the Court considered whether to award Wallace damages based on

an allegation that “at the time of dismissal the defendant failed to pay the plaintiff the full eight

weeks compensation for length of service which she says she was entitled to under the sections

63 and 97 of the Employment Standards Act.” The Court held that a breach of the Employment

Standards Act does not entitle a plaintiff to Wallace damages as a matter of right. What is

important is whether there was additional conduct surrounding the withholding of wages by the

employer “which amounted to bad faith conduct or unfair dealing in the course of the dismissal

of the employee”.37 In the circumstances, the Court declined to award Wallace damages.

The Supreme Court of British Columbia in Poirier v. Wal-Mart Canada Corp.38 considered

whether Mr. Poirier, a long-service employee, had been terminated for just cause or was

wrongfully dismissed. It concluded that Mr. Poirier had been terminated for cause and was not

entitled to a Wallace bump.

The issue of Wallace damages was also recently considered in the context of a complaint under

Division XIV, Part III of the Canada Labour Code in Zikman v. Canadian Pacific Railway.39 This

was a lengthy decision, including a detailed recapitulation of the evidence relating to the

“manner of termination” and the Wallace claim.

36 2006 BCSC 121 (CanLII) 37 Stolle v. Daishipan (Canada) Inc., (1998), 37 C.C.E.L. (2d) 18 (B.C.S.C.) and Black v. Robinson

Group Ltd., [2002] O.J. No. 4011 (QL) (Ont. S.C.J.), aff’d (2004) 32 C.C.E.L. (3d) 278. 38 2006 BCSC 1138 (CanLII)



Mr. Zikman worked for CP Rail for 19 years, most recently as an operations specialist, with

national responsibility. He underwent some minor knee surgery in December 2002 with a six (6)

week recovery period. Unfortunately, Mr. Zikman developed “neurological deficits in his lower

extremities” which, at times, made it difficult for him to even get out of bed. Ultimately, this

resulted in a situation where he was unable to work for prolonged periods of time. He was in

receipt of short-term disability benefits and his physician wrote in March 2003 that "he

unfortunately continues to have significant problems preventing him from working at this time". It

was expected that this would last until at least until the end of June. Mr. Zikman’s STD benefits

were to expire at the end of June 2003 and it was suggested that he file an application for long-

term disability benefits.

He filed an application for LTD benefits which was declined. He was given 60 days to appeal

during which time CP Rail placed him on an “unpaid personal leave” and asked him to submit

post-dated cheques if he wanted his benefit coverage to continue (which he did). Mr. Zikman

received correspondence from CP Rail advising that:

“… in the event of his returning to work, he would need to contact his manager to discuss his return, would also have to provide a doctor’s note indicating that he was fit to return and the date, and that the manager would have to contact human resources to reactivate his pay and benefits. In addition, the correspondence went on to advise that if the Company did not hear from him within ten days it would assume that he had chosen neither to appeal his claim, nor to return to work, and that after ninety days “your personnel record with CPR will be closed”.

Mr. Zikman indicated that he continued to experience significant difficulties and was unable to

work. He continued to attend at medical treatment, and cooperate in that process and

submitted reports to the insurer in support of his LTD appeal. The insurer denied the appeal

stating, in part, that:

“We recognize that you are experiencing some symptoms, however, your restrictions and limitations are within the physical demands of your position with CPR. The information provided is supportive of your abilities to perform your own occupation.”

His pay stub for the week ending January 15 indicated that his status was “unpaid personal

leave – unauthorized”. He submitted further medical information inviting anyone who had any

questions to contact the physician directly. No one did.

39 [2006] C.L.A.D. No. 306 (QL)



Mr. Zikman advised the company that his condition was “worsening and that other medications

and limitations had been prescribed, that he was appealing the LTD decision, and that his

doctor had authorized him to soon try returning to work 2-3 hours per day based on his

condition until further notice.” The person designated as the “point of contact” by the company

did not provide Mr. Zikman with any real assistance and did not respond promptly to Mr.

Zikman’s e-mails inquiring about the possibility of returning to work.

He eventually received a letter, not from the designated “point of contact” but from his

immediate supervisor, advising that:

You are therefore deemed “fit” to return to work into your current position of Spec. S&C Operations, NMC. As a result, you are required to contact Kent Law, or in his absence Gary Zukowski, by no later than the close of the business day Monday, February 16, 2004, in order to discuss the details of your full return to work on Monday, February 23, 2004 at 0700 hour.

In the end, Mr. Zikman was instructed to return to work on March 2, 2004, at reduced hours and

that he would be compensated at an average rate for the hours worked, rather than on the basis

of his actual salary. He returned to work and was given a spare desk close to where his co-

workers were working. Mr. Zikman felt that he was not welcome. Furthermore, his supervisor

mistakenly copied him on an email sent to his co-workers stating that:

Over the past week and a half I have had the opportunity to speak with the majority of you on a one to one basis regarding Doug’s return to work…..

I have been made aware, through conversations that some or you have expressed concerns with Doug returning to work, although as a company CPR has a responsibility to determine whether Doug is able to perform his duties. I would ask that when you are working when Doug is working that you continue working in a professional manner.”

Mr. Zikman was confused by this email.

Further complicating matters was that, unknown to Mr. Zikman, one of his co-workers had

written an email to the Signals and Communications Director to the effect that Mr. Zikman

displayed a “long and “almost legendary” history of using confrontational tactics at work” and

that his co-workers reluctantly worked with him in those days, nothing has changed. When he

was in the office, there was always a hostile environment. That’s not a good scene for anyone”.

The co-worker advised that Mr. Zikman was a hunter and inquired about “what protection will

there be if he goes postal”. Security measures were instituted. After Mr. Zikman complained



about the email from his supervisor to his co-workers, he was moved to a spare office on the

same floor as his co-workers.

In frustration, on March 8, 2004 Zikman wrote that "[b]ased on what you are proposing I find this

totally unacceptable. Based on all events you leave me no choice but to request a severance

package so I can get on with my life." He received a reply the following day advising that "[w]e

have made every reasonable attempt to accommodate you within the framework of your

restrictions, as outlined by your physician. Due to your lack of cooperation with these attempts,

the decision has been made to close your employment record."

In support of his unjust dismissal complaint and Wallace claim, Mr. Zikman suggested that the

employer’s approach to the accommodation obligation was “unseemly, reprehensible, and

indicating a degree of bad faith.” CP Rail countered that Mr. Zikman by way of his email of

March 8, 2004 had clearly and unequivocally resigned, and that there was no basis for his

complaint under section 240 of the Canada Labour Code. Further, the company argued that

Mr. Zikman was “not in a mood to accept the accommodation program provided to him in good

faith, leading to him resigning his employment.”

The Adjudicator concluded that, while Mr. Zikman was frustrated and was looking at options for

ending the relationship with the employer, including a severance package, he did not resign.

The Adjudicator noted that:

“I would say that the Company’s position that it had accommodated him, was willing to work with him to address his concerns, and saw him to be unwilling to return to his work in his current position with accommodated restrictions, simply belies the reality of the situation he faced, and had faced for some time. The evidence indicates that the Company only reluctantly came to the view by late February 2004 that the Complainant required an accommodated work plan. It showed little willingness to work with him to address the concerns he had, including the fact of the Company apparently being comfortable enough with returning him to a hostile workplace that it declined to raise or discuss the issue with him. It had no plan which went any further than placing him in a back room where he would be able to study text material for a few days, then return him to the main operations area alongside his co-workers where they, or he, would for a time be protected by an on-site police officer. At the same time, I am satisfied, the evidence does not disclose that the Complainant was unwilling to cooperate with any reasonable efforts, albeit he obviously for some had been seriously interested in having his employer address the reality of his situation, including the significance of his medications, his physical limitations, and eventually some apparent co-worker hostility.”

He went on to conclude that Mr. Zikman had been



“… unjustly dismissed by a Company which showed a far too insufficient approach towards its workplace requirement to assess and then accommodate the Complainant’s disability driven needs. I accept that it was more interested in providing obstructionist road blocks, witness the part played throughout by Human Resources advisor Price, who on taking up his duties as the “point man” in dealing with the Complainant’s disability driven long term absence was, at the same time, following instructions not to communicate with him. His belated e-mails to the grievor were confusing, misinformed, insulting and ultimately destructive as was the February 6 letter signed by Mr. Law. I accept that the enormity of the frustrating situation created for the Complainant is obvious for anyone reading through the totality of the facts presented at hearing.”

Furthermore, he was left, for many months, without any income, and his claim for LTD benefits

was denied under the company’s self-insured plan, “without so much as sending him for an

independent medical examination, coupled with the extended benefits debacle.”

Communication from the company fell woefully short from the company who “was more

interested in maintaining a certain distance and providing him with ultimatums than sitting down

to examine and assess the available medical information and reach some plan for returning him

to work, at least not until he literally was reduced to begging the Company for its cooperation.”

The Adjudicator found that the company had acted in a “decidedly cavalier and uncaring fashion

towards the Complainant with respect to its duty to accommodate his ongoing disability, from

which he was in the process of recovering, and eventually in its attempt to manufacture his

resignation.”

All of this “easily” brought the complainant within the ambit of Wallace:

Its approach to the grievor’s temporary disability predicament and the termination it imposed on him fall within the general category of having acted in reprehensible fashion towards this employee. Frankly the evidence from the Company’s three witnesses, together with the documentary record, speak volumes on the Company’s failure to have dealt fairly with the Complainant which left him having to beg for its co-operation.

In the end, the complainant was awarded loss of full earnings, bonus and benefits, less

mitigation income and applicable taxes from the date of termination (March 9, 2004) to the date

of the decision (July 20, 2006). The Adjudicator concluded that he had the discretion to award

Wallace damages, and did so, in the amount of 12 months earnings, less statutory deductions.

Finally, he awarded reimbursement of the complainant’s legal fees on a solicitor-client basis.

(b) The “Matter of Course” Wallace Claim

Our courts are taking notice of litigants (and their lawyers) who can’t resist the temptation to

raise every claim or defence in the hopes that "something with stick" (or not, if you're the



defendant). Most recently, Mr. Justice Echlin in Yanez v. Canac Kitchens et al. 40 voiced his

concerns regarding this approach and with plaintiffs who "can't deliver the [Wallace] goods" at

trial.

As Mr. Justice Echlin stated in Yanez "some plaintiffs and their counsel appear not to have

appreciated or willfully ignored the fact that "the Wallace bump up" does not occur automatically

in every dismissal." It should not be a “matter of course” pleading.

When are Wallace damages to be awarded? Citing Mr. Justice Iaccobucci's judgment in

Wallace:

[W]here an employee can establish that an employer engaged in bad faith conduct or unfair dealing in the course of dismissal, injuries such as humiliation, embarrassment and damage to one’s sense of self-worth and self-esteem might all be worthy of compensation depending upon the circumstances of the case. In these situations, compensation does not flow from the fact of dismissal itself, but rather from the manner in which the dismissal was effected by the employer.

In the Yanez case, the plaintiff sought Wallace damages on the basis of:

• the way in which the severance offer was presented; and

• the fact that Canac initially offered less than the statutory minimum and asked Mr. Yanez

to sign a release.

Justice Echlin commented, "more than half of the total trial time was dedicated to the plaintiff's

claim for Wallace damages." This is not uncommon given what a plaintiff must prove to

establish an entitlement to Wallace damages.

The Court specifically found that Canac did not intentionally try to "short change" Yanez.

Granted, that there were mistakes made, but the Court went out of its way to praise Canac for

the care it took in planning the termination (including taking managers through a "dress

rehearsal") and rectifying mistakes when they became aware of them. The Court stated:

This employer, while misguided as to the quantum offered, was within its legal rights to propose a payment equal to slightly higher than the statutory minimum. While such an approach is potentially inappropriate and exposes the employer to a common law action

40 (December 16, 2004, Echlin, J.)



for damages for wrongful dismissal, alone, it does not create the proper foundation for "Wallace damages".

Similarly, while asking for a release for payment of statutory entitlements may expose the employer to the argument that the release must fail for want of consideration based upon the Ontario Court of Appeal’s recent decision in Hobbs v. TDI Canada Ltd. (released earlier this month on December 1, 2004: docket: C39836), it does not create a “Wallace bump up” circumstance, in and of itself.

Finally, the use of the words "more than fair" and "in excess of" [in the termination letter] by themselves do not form the basis for an additional Wallace damage award.

The Yanez case sends a clear signal to employees, employers and their counsel. What are the

consequences to plaintiffs in raising specious Wallace claims:

While these comments are not, in any way, intended to discourage meritorious "Wallace damage claims", thought must be given in future cases to appropriate deterrents against plaintiffs who assert "Wallace claims" which are clearly without merit and should not have been advanced. Sanctions could include a diminution of either the costs award or the amount awarded for such dismissal claims. Unmeritorious "Wallace claims" for bad faith firings ought not to be an apparently automatic inclusion in every plaintiff's prayer for relief.

Mr. Justice Echlin notes, that employers who allege just cause through trial and who are unable

to prove cause risk being exposed to heightened damages, including punitive damages. Why

should employees not be subjected to similar or analogous consequences? While the Court

neither reduced the amount awarded or the costs, it did indicate that it might well do so in the

future cases.

It remains to be seen whether a court will endorse Justice Echlin’s obiter views and apply

financial consequences to plaintiffs in circumstances where specious Wallace claims are

advanced.

(c) Are Wallace Damages Available Where there is No Wrongful Dismissal?

This interesting issue was considered by the British Columbia Supreme Court in the Lane v.

Board of School Trustees of School District 68 (Nanaimo- Ladysmith).41 Ms. Lane had a lengthy

and impressive career in education, culminating in a position as superintendent with School

District 68 in Nanaimo, B.C.

41 [2006] B.C.J. No. 154 (QL)



Under the terms of Ms. Lane's employment contract with the Board, her employment could be

terminated without cause upon an affirmative vote of two-thirds of the members of the board of

trustees, provided that she was first given the opportunity to attend a meeting of the board at

which her dismissal was to be considered. The contract also provided that, if her employment

was terminated without cause, the school board had to offer her another position in the school

district. If Ms. Lane did not accept the other position, the board, in its discretion, could either

provide her with 12 months' working notice or continue to pay her salary and benefits for a

period of 12 months.

The board at a meeting on December 11 passed two motions. The first was to give Ms. Lane

notice pursuant to her employment contract that (i) the Board was considering her dismissal

without cause as the Board wished a change in leadership and to establish a new direction for

School District 68 and (ii) Ms. Lane would have an opportunity to meet with the Board before it

made its final decision. The second motion authorized the Chair and Vice-Chair of the Board to

have discussions with Ms. Lane with the view of achieving an amicable resolution with her.

Commencing on approximately January 22, the media began to speculate as to whether Ms.

Lane's job was in jeopardy. Eventually, the board offered Ms. Lane a position as a school

principal or, in the alternative, payment of her salary and benefits for 12 months. She chose the

payment option, which the board subsequently duly fulfilled. On February 10, 2003, the board

issued a press release announcing her dismissal and quoting its chair as saying, "that the

district is at a crossroads and trustees felt the need for new leadership to deal with issues such

as financial pressures and staff morale."

Ms. Lane sued for defamation arising, she claimed, out of various public statements made by

trustees and from the board's statement regarding her dismissal. In addition, Ms. Lane also

claimed an additional 6 months notice beyond the 12 months provided in her contract on the

basis of Wallace.

The Court considered whether an extended notice period is available in a case where the

contract of employment specifies the amount of notice to which an employee is entitled on

termination. It held that Ms. Lane was not entitled to Wallace damages for three (3) reasons:



1. Wallace damages are only available when the employee has been wrongly dismissed. In the

Lane case, Ms. Lane “was not wrongfully dismissed and I am not determining an appropriate

notice period for the purposes of assessing damages for wrongful dismissal.”

2. Ms. Lane’s contract of employment specified that the Board had the ability to dismiss her

without cause and, at its discretion, so long as it provided Ms. Lane with 12 months’ notice of

termination or pay her salary and benefits for 12 months. Where there is an employment

contract containing an express term regarding notice of termination or payment in lieu

thereof, the law does not imply a term providing for reasonable notice which is different from

the express term. 42 According to the Court in Lane, “even if the School Board had acted with

bad faith in terminating Ms. Lane’s employment, the maximum amount of damages she is

entitled to receive under her contract of employment is the equivalent of 12 months’ salary

and benefits. She has already been paid this amount, and she is not entitled to be paid any

further damages.”

3. The Board did, in any event, not act unfairly or in bad faith in its treatment of Ms. Lane.

The Court dismissed Ms. Lane’s claims in their entirety.

(d) Are Wallace Damages Subject to Mitigation

This issue has been considered in a number of recent cases. Though there was, for a brief

time, some debate over the matter, the Courts, including at least two courts of appeal, have now

reached consistent decisions on the point.

The leading case is Prinzo v. Baycrest Centre for Geriatric Care,43 where the employer

dismissed a 17½-year employee. At the time of the termination the employee had been on a

disability leave and, it was found, the employer made harassing telephone calls to her inferring

that she was malingering. The employer also wrote a letter to the plaintiff falsely implying that

her physician had said she was fit to return to work. When the plaintiff did return to work she

was told she was terminated and that the employer was concerned that her conduct not cause

harm to the residents of the geriatric centre. These events led to the plaintiff suffering emotional

upset, increased blood pressure, weight gain and return of diabetes symptoms. The trial judge

42 see Barnard v. Testori America Corp., (2001), 11 C.C.E.L. (3d) 42 (PEICA) 43 (2002), 60 O.R. (3d) 474 (C.A.)



found that the plaintiff suffered a loss of self-esteem and distress on a disabling basis for

months after her dismissal. Weiler J.A. speaking for the Court of Appeal upheld the award

made by the trial judge for mental suffering, but overturned the award of damages for the

independent tort of intentional infliction of mental suffering.

Weiler, J.A. then went on to discuss the alternative argument that if the actions of the employer

were not a separate actionable wrong, then the appropriate length of notice should be extended

by six months based on the “Wallace factor”. She indicated that given her conclusion on the

“independent actionable wrong”, she “need not address this alternative submission”.

Nonetheless, Weiler, J.A. went on to make some “brief comments” in obiter. In that regard, she

indicated that the “lack of candidness and forthrightness of Baycrest respecting its intentions for

having Prinzo return quickly to modified duties, and the insensitive comment at the meeting of

February 9, 1998 that Prinzo’s conduct may cause harm to the residents …. caused more than

injured feelings and emotional upset; it was humiliating and damaging to the self-esteem of a

long-term employee" and that Wallace damages were warranted.

The Court then turned to the question of whether mitigation income should be deducted from

the Wallace notice extension and observed that:

“If this deduction of earned income were also made from the damages awarded in relation to a “Wallace extension”, Prinzo would not effectively be compensated for the injury done to her. This result would appear incongruent with the Supreme Court’s view in Wallace that the injuries resulting from bad faith conduct on the part of the employer are “sufficient to merit compensation in and of themselves” irrespective of whether the bad faith conduct affects employment prospects. On the basis that intangible injuries cannot normally and completely be mitigated by finding other employment, it has been suggested that the extended notice period be treated as akin to a severance payment which is not subject to mitigation. This issue was not, however, argued before us, and having regard to my earlier conclusion upholding the trial judge, I need not resolve it. “ [Emphasis added]

Although obiter, other courts have picked up on this view.. In McCullouch v. Iplatform Inc.,44

discussed above, Mr. Justice Echlin concluded, on the authority of Prinzo v. Baycrest Centre for

44 supra, see also Carscallen v. FRI Corp. (2005), 42 C.C.E.L. (3d) 196



Geriatric Care45 that Wallace damages were not to be reduced by the mitigation income earned

by Mr. McCullouch.

In Bouma v. Flex-N-Gate-Canada Company46 counsel, following the delivery of the original

reasons for judgment, sought clarification of a couple of matters, including whether mitigation

income ought to be deducted from the 4-month Wallace extension awarded. The Court

clarified that on the basis of Prinzo, mitigation income earned by the plaintiff ought not to be

used to offset the Wallace damages. To hold otherwise would “appear incongruent with the

Supreme Court of Canada’s view in the Wallace case that the injuries resulting from bad faith

conduct on the part of the employer are “sufficient to merit compensation in and of themselves”.

The Nova Scotia Court of Appeal considered the issue in Jenssen v. CHC Helicopters

International Inc.47 In this wrongful dismissal case, a jury determined that the period of

reasonable notice of termination was 4 months and then went on to extend the notice period by

a colossal 48 months based on the Wallace factors.

Not surprisingly, the employer appealed the Wallace award, arguing that it was a "wholly

erroneous estimate of the damages suffered by the plaintiff". It seems that, pending the appeal,

the parties tried to agree on the wording of the Order that would reflect the jury’s award. They

could not do so, as they disagreed about whether mitigation income earned by the plaintiff could

be used to offset the damages during the "extended notice period" (48-months) as well on the

issue of costs.

The plaintiff argued that mitigation income earned by her could only be set-off against damages

for the period of reasonable notice (4 months in this case), but not against the Wallace extended

notice period (48 months, in this case). The employer took a different view. The Court

disagreed with the plaintiff and held that:

Any extension to the period of reasonable notice arising out of the bad faith conduct of the employer at the time of dismissal is not a separate head of damages that would be subject to new or different rules regarding mitigation. As such, the plaintiff is required to

45 [2002] 60 O.R. (3d) 474 (C.A.) 46 (2005), 40 C.C.E.L. (3d) 2 (Ont. S.C.J.) (Supplementary Reasons) 47 (2006) NSCA 81 (CanLII) overturning (2005) NSSC 241 (CanLII)



mitigate her damages throughout the period of reasonable notice which should include the additional notice period awarded by the jury.

The matter came before the Court of Appeal who set aside the trial decision. On the issue of

Wallace damages, the Court noted that the trial judge pointed out two matters to the jury as

possibly supporting the Wallace claim namely the delay in providing a record of employment

and the employer’s failure or refusal to provide a letter of reference. The Court of Appeal noted

that “the courts have not considered these two forms of bad faith conduct of themselves as

particularly egregious”. Even when combined with other factors, the Court observed that the

notice period would not have approached the 48 months notice awarded in this case, which, it

observed, was the largest Wallace award in any decided case. The circumstances of this case

were neither “strikingly egregious” or “particularly exceptional”. Rather than sending the matter

back for a new trial, the Court ordered the employer to pay the equivalent of nine (9) months

pay, less applicable deductions, based on Wallace.

The Court went on to consider the issue of mitigation. While noting that an argument could be

made that the mitigation income ought to be applied to the Wallace damages just as it would be

to the damages in respect of reasonable notice, it decided to follow the Prinzo approach.

Specifically, it concluded that reducing the Wallace damages award by the amount of earned

income would not accord with the Supreme Court of Canada’s view in Wallace that an

employee should be fully compensated for bad faith conduct.

III. PUNITIVE DAMAGES

Keays v. Honda Motor Company - Is the Sky Really Falling?

When the trial judgment in Keays v. Honda Motor Company48 was released, an audible gasp

could be heard by employment law lawyers across the country, followed shortly thereafter by a

louder gasp emanating from their clients. The question remains whether the Keays case will

have the devastating effect that many have predicted.

48 2005 CanLII 8730 (ON S.C.)



The Trial Judgment

Kevin Keays (“Keays”) commenced employment with Honda Canada Inc. (“Honda”) in 1986

working on the production line at the assembly plant in Alliston, Ontario. After approximately

twenty months working on the production line Keays joined the Quality Engineering Department.

Keays was selected to receive training on a new computer system, created for the

implementation of newly designed components into Honda vehicles, after which he was

expected to instruct his fellow employees in the department on using the system.

Shortly after commencing work at Honda, Keays began experiencing absences from work as a

result of health problems, which culminated in his going on a disability leave in October of 1996.

Honda’s business philosophy mandated a “lean” operation such that Keays’ absences required

his already busy co-workers to undertake his responsibilities. While on leave Keays was

diagnosed as suffering from Chronic Fatigue Syndrome (‘CFS”). Keays returned to work in

December of 1998, under protest from both Keays and his physician, following the termination

of his benefits by Honda’s long term disability insurer.

Within a month of returning to work Keays began to, once again, experience absences from

work, and, in August of 1999, received a written report from Honda with respect to his

absenteeism. “Coaching”, by way of such a written report, was the first step in Honda’s

progressive discipline process. Upon complaining that he was unable to live up to Honda’s

attendance expectations, Keays was advised of a Honda program exempting employees from

attendance-related progressive discipline based on a disability. Keays’ physician completed the

necessary form and informed Honda that Keays suffered from CFS and would probably miss

about four days of work per month as a result.

Honda subsequently provided some accommodation for Keays’ absences, but Keays was

required to provide a doctor’s note for each absence, a requirement not imposed on other

employees with “mainstream” illnesses. Following six days of absence in October of 1999,

Honda asked Keays to see the company doctor. When Keays later complained to his

supervisors that the doctor threatened to move Keays’ back to the production line, the

supervisors told Keays that there was no intention to move him “at that time”.

In January and February of 2000 Keays requested that the written “absenteeism” report be

removed from his record and that Honda reconsider the requirement that he provide a doctor’s



note for each absence. Keays retained counsel who wrote Honda in March of that year both

outlining Keays’ concerns and extending an offer to attempt to resolve their differences. Honda

had an unwritten policy discouraging third parties advocating on behalf of employees. Honda

did not respond to this letter and instead informed Keays on March 21st that Honda no longer

accepted that he had a disability requiring him to be absent, and directed him to meet with

Honda’s occupational medicine specialist.

Keays’ informed Honda that, on the advice of his lawyer, he would not meet with the

occupational medicine specialist unless provided with clarification of the “purpose, methodology

and the parameters of the assessment”. Honda, by a letter dated March 28th, refused to

elaborate on the purpose of the meeting and warned Keays that if he did not meet with the

doctor he would be terminated.

Keays did not meet with the doctor and was dismissed. Subsequent to his dismissal, Keays

suffered from post-traumatic adjustment disorder, was unable to work, and qualified for a total

disability pension.

At trial, Justice McIsaac criticized Honda, in pointed terms, for its treatment of Keays. Among

other things, he found that Honda’s direction for Keays to meet with the occupational medicine

specialist was unreasonable, not made in good faith and was done to subsequently terminate

Keays and avoid accommodating his disability. The trial judge determined that Keays had good

reasons not to comply with the direction, and his refusal to see the doctor was not a repudiation

of his contract of employment. Justice McIsaac held that Honda’s reaction to Keays’ refusal to

meet with its doctor was disproportionate. Not only did Honda not have just cause to terminate

Keays, the trial judge also found that Honda had failed to fulfill its obligations to Keays under the

Human Rights Code.

Among other things, the court described the company’s conduct as “outrageous” and deserving

of significant denunciation.

As a result, Justice McIassac awarded punitive damages in the unprecedented amount of

$500,000 for Honda’s “outrageous and high-handed” conduct that amounted to discrimination

and harassment in employment. He also determined that the period of reasonable notice, in

the circumstances, was 15 months’ salary which was extended by 9 months because of the



“egregious bad faith displayed by Honda” in the manner in which Keays’ employment was

terminated and “the medical consequences flowing therefrom”.

In a supplementary decision, Justice McIssac awarded costs on a substantial indemnity basis.

Keays’ costs were fixed at $610,000, inclusive of disbursements and G.S.T. Included in the

costs calculation were the costs of a first attempt at trial, which ended in a mistrial as a result

the judge falling ill, together with a 25% premium for Keays’ tenuous economic circumstances

and the risk undertaken by counsel with respect to payment for fees and disbursements.

Punitive Damages – in brief

It is important to note the purpose of punitive damages and how they are typically awarded.

Where aggravated damages are designed to compensate, punitive damages are designed to

punish. The conduct must be, in the words of the Supreme Court of Canada in Hill v. Church of

Scientology of Toronto,49 “so malicious, oppressive and high-handed that it offends the court’s

sense of decency… It is the means by which the jury or judge expresses its outrage at the

egregious conduct of the defendant.” In addition to the requirement of an independent

actionable wrong, punitive damages will not be awarded unless they serve a rational purpose.

In Whiten v. Pilot Insurance Co.50, the Supreme Court clarified the rules governing whether an

award of punitive damages should be made:

“…the incantation of the time-honoured pejoratives (‘high-handed’, ‘oppressive’, ‘vindictive’, etc.) provides insufficient guidance (or discipline) to the judge or jury setting the amount…. A more principled and less exhortatory approach is desirable.

…all jurisdictions seek to promote rationality… the court should relate the facts of the particular case to the underlying purposes of punitive damages and ask itself how, in particular, an award would further one or other of the objectives of the law, and what is the lowest award that would serve the purpose, i.e., because any higher award would be irrational.

…the governing rule for quantum is proportionality. The overall award, that is to say compensatory damages plus punitive damages plus any other punishment related to the same misconduct, should be rationally related to the objective for which the punitive damages are awarded…” [emphasis added]

49 [1995] 2 S.C.R. 1130 50 (2002), 209 D.L.R. (4th) 257 (S.C.C.),



The Supreme Court has held that appellate courts have an obligation to ensure that the punitive

damages award is the product of reason and rationality. “Rationality” applies to both the

question of whether an award of punitive damages should be made at all, and to the question of

its quantum. The majority held:

“If the award of punitive damages, when added to the compensatory damages, produces a total sum that is so ‘inordinately large’ that it exceeds what is ‘rationally’ required to punish the defendant, it will be reduced or set aside on appeal.

Retribution, denunciation and deterrence are the recognized justification for punitive damages, and the means must be rationally proportionate to the end sought to be achieved. A disproportionate award overshoots its purpose and becomes irrational. A less than proportionate award fails to achieve its purpose.”

The court in Keays examined the factors considered by the Supreme Court in Whiten, supra in

determining the level of the company’s blameworthiness. The court found that an award of

punitive damages was a “rational” and necessary response to the company’s “outrageous

mistreatment of their long-time employee”. Although the award of punitive damages in Keays

may be rational with respect to whether the award ought to have been made, it was uncertain

whether the award would withstand appellate scrutiny regarding the quantum.

The Court of Appeal

In a 2-1 decision, the Ontario Court of Appeal allowed Honda Canada’s appeal with respect to

the quantum of punitive damages awarded and on the issue of the cost premium awarded by

the trial judge.

Goudge, J.A. (dissenting) would have upheld the punitive damages award of $500,000. In

disposing of Honda’s argument that the trial judgment flies in the face of Seneca College of

Applied Arts and Technology v. Bhaduria, 51 Mr. Justice Goudge found that:

I do not agree. Bhadauria determined that a civil action could not be based directly on a breach of the Ontario Human Rights Code. Indeed, in this case the respondent made just such a claim, which the trial judge dismissed, albeit reluctantly, by applying both Bhadauria and this court’s recent application of that decision in Taylor v. Bank of Nova Scotia, [2005] O.J. No. 838.

51 [1981] 2 S.C.R. 181



The conduct, in the context of a claim for punitive damages, was not being advanced in support

of a breach of the Code but as an “independent actionable wrong” and, on the evidence, an

award of punitive damages was warranted. In terms of the quantum, Goudge, J.A. considered

the following:

The level of blameworthiness of the employer’s conduct;

The degree of vulnerability of the employee;

The harm to the employee; and

The need for deterrence.

In the end, Mr. Justice Goudge would have upheld the $500,000 punitive damages award.

Rosenberg, J.A. writing on behalf of himself and Feldman, J.A., agreed with Goudge, J.A. in all

respects except with respect to punitive damages. The majority reduced the award from

$500,000 to $100,000, in the circumstances, because the trial judge relied on findings of fact

that were not supported by the evidence and because the award failed to accord with the

fundamental principle of proportionality, discussed above.

In terms of the erroneous findings made by the trial judge were the following:

The trial judge found that the appellant’s misconduct was “planned and deliberate and formed a protracted corporate conspiracy”. The majority found that there was no evidence to support this allegation of a broad-based conspiracy.

The trial judge found that the appellant’s “outrageous conduct has persisted over a period of five years without a hint of modification of their position that Mr. Keays was the one in the wrong”. The majority characterized this as a “gross distortion of the circumstances and amounts to a palpable and overriding error”.

The trial judge found that there was misconduct by the insurer in the decision to terminate Mr. Keys’ long-term disability benefits. There was no evidence that Honda had anything to do with the insurer’s decision to terminate the benefits.

Furthermore, there was no evidence to support the trial judge’s view that the “outrageous conduct” persisted over a “period of five years”. The majority concluded that “this case concerns a period of seven months not five years”.

The trial judge found that the appellant “clearly benefited from their misconduct because they rid themselves of an irritation that they viewed as a ‘problem’ associate”. The majority found that there was nothing in the record to support this finding. Although Honda was sceptical of Mr. Keays’ disability and was taking steps to confirm the veracity of the disability, there was no evidence to support the conclusion that Mr. Keays was viewed as a problem employee.



The trial judge held that “Honda ran amok as a result of their blind insistence on production ‘efficiency’ at the expense of their obligation to provide a long-time employee reasonable accommodation that included his own physician’s participation”. The majority found that this was “a distortion of the circumstances” and that there was nothing in the record to support that Honda “ran amok”. Though, relying on expert advice, some of Honda’s employees in positions of responsibility “made decisions that were clearly wrong”, that is not the same as “corporate malfeasance levelled at the appellant by the trial judge”.

The trial judge found that Honda’s in-house counsel “breached the Rules of Professional Conduct of the Law Society of Upper Canada when she participated in the ‘scrum’ to attempt to persuade Mr. Keay’s to abandon his request for clarification of Dr. Brennan’s mandate”. Again, the majority found that, even on Mr. Keays’ evidence, that counsel’s attendance was mere coincidence and, in any event, that if it was a breach of the Rules, which the court provided no opinion, it was merely a technical breach, and would not serve to increase punitive damages. It is difficult to see where the trial judge came up with this, having regard to the timeline of events.

When the erroneous findings of fact are disregarded, the quantum of punitive damages could

only be supported by the following:

The employer’s intent to intimidate and eventually terminate the employee was for the purpose of depriving him of the accommodation he had earned.

The employer did not reveal an extremely damaging letter from the occupational medicine specialist until late in the trial.

The employer was aware of its obligation to accommodate and must have known it was wrong to terminate the accommodation without just cause and terminate him as an act of retaliation.

The employer knew that the employee valued his employment and that he was dependent upon it for disability benefits.

The employer knew that the employee was a victim of particular vulnerability because of his precarious medical condition.

The employer’s refusal to deal with the employee’s counsel who made a reasonable request to discuss accommodation

The Court observed that punitive damages awards are far more modest than was awarded by

the trial judge even in “the face of serious misconduct such as slander of the employee” which

were in the “range of $15,000 to $50,000 and, rarely, up to $75,000.”

In fixing the quantum, the Court highlighted a number of guiding principles gleaned from Mr.

Justice Binnie’s reasons in Whiten:



In considering the need for deterrence, the Court emphasized, as did Binnie, J. in Whiten, that the relative size of the corporate defendant is “a factor of limited importance” in determining the quantum of the award.52

In considering the proportionality of the award, regard must he had to “the totality of all other penalties including compensatory damages imposed on the defendant”.

The duration of the impugned misconduct

Whether the conduct towards the victim was malicious and high-handed.

The need for the punitive damage award must be proportional to the advantage wrongfully gained. Specifically, a “traditional function of punitive damages is to ensure that the defendant does not treat compensatory damages merely as a licence to get its way irrespective of the legal or other rights of the plaintiff”.

The Court significantly reduced the award from $500,000 to $100,000 and concurred with

Goudge, J.A., that the “cost premium” should be reduced. There is talk of a possible appeal to

the Supreme Court of Canada and this may not be the end of the matter.

A number of important lessons can be discerned from the case law including that employers:

should not disregard medical evidence submitted by employees’ treating physicians without a reasonable basis and without providing the employee and his/her doctor the opportunity to address any employer concerns;

should ensure that requests for medical information are reasonable and realistic having regard to the state of medical science and the reality of the experienced disability, particularly when dealing with “invisible” disabilities such as CFS;

should not insist upon medical evidence which does not exist and cannot simply disregard medical evidence produced because it does not rise to a level of objective scientific proof in circumstances where such objective evidence is not available because of the nature of the condition

must be careful not to denigrate, demean and belittle employees by characterizing their medical conditions in pejorative terms;

should strive for neutral, impartial and unbiased third party experts and should not rely upon so-called “hired guns” who are known to hold a particular point of view; and

must ascertain the nature of the medical impairment, a function carried out primarily by the employee’s treating physicians, prior to implementing accommodations.

52 Whiten, supra per Binnie, J. at paras. 118-120



The Court of Appeal’s decision reinforces an employer’s obligation to be proactive and act in

good faith during the accommodation process. The process should be, to the extent

practicable, open and transparent, rather than adversarial. Where an employer acts hastily or in

“bad faith” in the accommodation process, they clearly run the risk of extensive liability. The

Court of Appeal seems to accept that while a breach of Ontario’s Human Rights Code cannot

form the basis of a civil action, discriminatory conduct, if proven, can serve as a separate

actionable wrong giving rise to significant punitive damages.

Having regard to the above, it is unlikely that the “sky will fall”. Though employers should take

heed of the Honda case, it remains that punitive damages will only be awarded in the most

exceptional of cases applying principles that have a relatively lengthy judicial history. While it is

unlikely that Honda will open the “punitive damages” floodgates, it is reasonably certain that

more attempts will be made to litigate what have historically been human rights issues.

IV. CONCLUSION

This paper attempts to provide an overview of some recent legal developments in damages in

Canada. We can anticipate more interesting times ahead, including the possible appeal of

Keays v. Honda Canada. There are also a number of important labour and employment cases

scheduled for hearing by various Courts of Appeal as well as by the Supreme Court of Canada.

What seems evident is that labour and employment lawyers will have to remain alive to the

many changes that have taken place and those that are looming on the horizon, and respond to

these in a practical way to meet our clients needs and objectives. Recent cases have provided

us with some much needed guidance in many important areas, while, recognizing, that a “one

size fits all” approach is to be avoided. The courts have provided some direction on how to stay

on the path and avoid developing damages claims though there has been some inconsistency

in the quantum of the recent awards, particularly, though not exclusively, when comparing those

emanating from a judge as compared to a jury.



Moral and Punitive Damages in Wrongful Dismissal Cases

under Québec law

I. DAMAGES UNDER THE CIVIL CODE OF QUÉBEC.

(a) Moral damages

In addition to the financial consequences resulting from a dismissal, an employee may suffer

additional prejudice from the attitude of his employer prior to and during dismissal.

The rules pertaining to contracts of employment are found in the Civil Code of Québec53 (“Civil

Code” or “CCQ”). Sections 2091 and 2092 CCQ enunciate the principles that apply to

dismissals without cause:

2091. Either party to a contract with an indeterminate term may terminate it by giving notice of termination to the other party.

The notice of termination shall be given in reasonable time, taking into account, in particular, the nature of the employment, the special circumstances in which it is carried on and the duration of the period of work.

2092. The employee may not renounce his right to obtain compensation for any injury he suffers where insufficient notice of termination is given or where the manner of resiliation is abusive.

Dismissal with reasonable notice is entirely within the employer’s rights, as stipulated in section

2091 CCQ. Even though, under normal circumstances, such a dismissal often causes pain and

anxiety to the dismissed employee, it is settled law that the employer will be liable to pay moral

damages only if the dismissal was made in a malicious or reprehensible manner. Section 2092

CCQ grants an employee the right to seek compensation in such circumstances.

53 S.Q. 1991, c.64



Québec’s civil courts recognize the general principles outlined in Wallace vs United Grain

Growers Ltd54. As Justice Baudouin, of the Quebec Court of Appeal, concludes in Standard

Broadcasting vs Stewart55, dismissal in itself does not constitute a civil fault, even if it causes a

certain prejudice to the employee. However, dismissing en employee in a humiliating,

degrading, hurtful or disrespectful manner does constitute a fault subject to compensation by

the Court.

Under the Civil Code, the duty to act in good faith is an explicit obligation of all parties to a

contract. In this respect, the Civil Code provides the following:

6. Every person is bound to exercise his civil rights in good faith.

7. No right may be exercised with the intent of injuring another or in an excessive and unreasonable manner which is contrary to the requirements of good faith.

1375. The parties shall conduct themselves in good faith both at the time the obligation is created and at the time it is performed or extinguished.

Indemnification for abuse of rights in the context of a dismissal will only occur in cases where

the employer is of bad faith, negligent or otherwise at fault.

If the Wallace principles echo within Québec’s law and jurisprudence, their application is

nevertheless different than at Common Law. As a general rule, the normal troubles and

inconveniences experienced as a result of a dismissal are compensated by a sum awarded in

the form of an indemnity in lieu of notice. The Courts have been careful to avoid double

compensation in cases of dismissal where the period for which compensation is attributed is

determined by taking into account the gravity of the inconveniences caused to the employee.

Compensation for abuses in the exercise of a right to dismiss should be awarded with

parsimony, as the prejudice from such abuse should already have been compensated by the

damages awarded in lieu of reasonable notice.56

Where there is evidence of damages exceeding the normal consequences of a dismissal which

result from the dismissal having been made in a reprehensible or abusive manner, moral

54 supra, note 2 55 Standard Broadcasting vs Stewart J.E. 94-1199 (C.A.) 56 Idem.



damages may be awarded in addition to the indemnity in lieu of notice. In order to avoid double

compensation, Québec Courts evaluate moral damages separately from the indemnity in lieu of

notice. Interestingly, this is the practice that the judges subscribing to the minority opinion in

Wallace would also have adopted.

The Wallace approach, by which the notice period is increased in light of the bad faith of the

employer (as opposed to the granting of separate moral damages), had been adopted only in a

few cases in Québec.57 However, the Québec Court of Appeal reminded the lower courts that

moral damages should be awarded under a separate heading. Otherwise, there may be double-

compensation for the same dismissal. While the vast majority of trial judges have adopted this

approach, Justice Nuss, of the Québec Court of Appeal, recently reaffirmed this view:

«The parties to proceedings and the Appeal Court should not be in doubt or have to resort to conjecture as to whether the trial judge has already included an amount as indemnity for abusive dismissal in the compensation granted in lieu of notice. The claimant should not be deprived of indemnity, if he or she is entitled to it, because it is erroneously believed that the indemnity may have been included in the compensation in lieu of notice. On the other hand the employer should not be condemned to pay twice when the items comprising the moral damages have, in fact, already been included in compensation in lieu of notice (the Common Law approach). Justice Proulx in Sauvé clearly stated, when he awarded an amount of 35,000$ for moral damages, that he had in mind the avoidance of duplication. I would respectfully suggest that trial court judges consider following the same or a similar approach, so that if moral damages for abuse of right are awarded, the judgment clearly indicates that the items constituting those damages are not included in the compensation in lieu of notice.»58

Justice Nuss also mentioned a practical reason for awarding moral damages under a separate

heading. Pursuant to fiscal laws, the compensation in lieu of notice is regarded as taxable

revenue while damages for physical or moral injury are not.59

Many situations can lead to indemnification for moral damages. The Courts have held that the

failure to give notice or to offer an indemnity constitutes an abuse by the employer of the right to

57 Karasseferian vs Bell Canada inc. [2000] R.J.Q. 1452 (C.S.), Campeau vs Au Royaume Ford inc., J.E. 2004-1661 (C.Q.) 58 Bristol-Myers Squibb Canada Inc. vs LeGros [2005] R.J.Q. 383 (C.A.) Justice Nuss is dissenting. In his opinion, the trial judge correctly granted moral damages. 59 Idem.



dismiss an employee. In Encres d’imprimerie Schmidt ltée/Schmidt Printing Inks Ltd. vs Agence

de ventes Bill Sayer/Bill Sayer agency Inc, the employer abruptly dismissed an employee with

almost 36 years of seniority after the arrival of a new sales director, without any notice or

indemnity. The employee subsequently suffered from a severe depression. An amount of

$30,000 was granted as moral damages by the Court.60

Dismissing an employee in an open space, in front of his colleagues61 or shortly after

recognizing his good work62 has also been found to constitute a fault. The employee must be

given time to gather his personal belongings and to leave the workplace with dignity63. The

employer must execute his right of dismissal with civility, discretion and respect.

Generally in Quebec, the amounts granted as compensation for moral damages are relatively

low. Depending on the specific circumstances of the dismissal and proof of moral damages,

Courts will seldom grant more than $35,000 in moral damages. The few cases granting greater

awards are currently under appeal or have been settled out of Court.

In a recent decision64, the Superior Court granted an employee who was constructively

dismissed $25,000 in moral damages. The Court took into account the circumstances leading to

the constructive dismissal, which lasted for more than 18 months.

(b) Punitive damages

Under the Civil Code, punitive damages may only be awarded where they are provided for by

law:

1621. Where the awarding of punitive damages is provided for by law, the amount of such damages may not exceed what is sufficient to fulfil their preventive purpose.

Punitive damages are assessed in the light of all the appropriate circumstances, in particular the gravity of the debtor's fault, his patrimonial situation, the extent of the

60. J.E. 2004-849 (C.A.) 61 Bélanger vs Garderie chez Rolande inc. D.T.E. 2005T-654 (C.Q.) 62 Dellekian vs Sun Life du Canada, compagnie d’assurance-vie, J.E. 2001-1542 (C.S.) 63 Aganier vs Compensation B.N.C. Inc. J.E. 2001-2109 (C.Q.) 64 Drolet vs Re/Max Québec inc., D.T.E. 2006T-423 (C.S.)



reparation for which he is already liable to the creditor and, where such is the case, the fact that the payment of the damages is wholly or partly assumed by a third person.

In the context of a dismissal, punitive damages will be awarded only if the employer infringes

section 49 of the Charter of human rights and freedoms65:

49. Any unlawful interference with any right or freedom recognized by this Charter entitles the victim to obtain the cessation of such interference and compensation for the moral or material prejudice resulting therefrom.

Such damages result from the illicit and intentional infringement to one’s rights, such as his right

to dignity, honor or reputation.

In Langlois vs Action chômage Kamouraska66, the plaintiff was awarded $5,000 in punitive

damages resulting from an infringement to her reputation. The employer circulated false

information in the plaintiff’s small community, thereby forcing her to move to another city in order

to find employment.

In Amziane vs Bell Mobilité67, an amount of $5,000 was granted as damages resulting from the

infringement to the plaintiff’s right to privacy. In the course of a fraud enquiry, the employee was

filmed without her knowledge. The Court held that the employer would have achieved the same

results by asking the employee or her colleagues a simple question.

Generally, amounts granted as punitive damages are less than $10,000. However, our Courts

have provided higher punitive awards in cases involving one’s reputation. The Superior Court

recently granted $75,000 to an orchestra conductor following a constructive dismissal. His

employer made defamatory remarks during a press conference and also sent letters to all of its

musicians. The Court of Appeal upheld the award, stating that it was reasonable considering the

public nature of the position, the small size of the classical music community and the impact on

the conductor’s career.

65 R.S.Q. c. C-12 66 J.E. 2004-1660 (C.Q.) 67 J.E. 2004-1702 (C.S.)



The Superior Court granted a similar amount in 2001 to an electrical engineer whose work and

efforts were openly criticized by his employer.68

(c) Reimbursement of legal fees

Given the rise in the cost of legal services, plaintiffs will often claim the reimbursement of the

legal expenses which they have incurred in order to obtain a reasonable indemnity in lieu of

notice and moral damages. Case law sets out strict criteria for situations in which such damages

will be granted.

Justice Rochon of the Québec Court of Appeal summarized the applicable principles in Viel vs

Entreprises immobilières du Terroir ltée69. Damages for legal fees will only be awarded in cases

of procedural abuse, for example, where the employer frivolously and deliberately multiplies or

lengthens the procedures.

The Superior Court granted such damages in a case where the employer multiplied

postponements and failed to attend examinations.70

Abuse of procedure can also arise from libelous allegations. To avoid such damages, the

employer must demonstrate that 1) the allegations are true or that he reasonably believes them

to be true, and 2) that they are pertinent to the case.71

II. DAMAGES UNDER THE ACT RESPECTING LABOUR STANDARDS.

The Act respecting labour standards (“Act”)72 contains special recourses against unjust or illegal

dismissals (sections 122 and following of the Act).

68 Orchestre métropolitain du Grand Montréal vs Rescigno J.E. 2006-190 (C.A.)

Marquis vs Auxilium Technologies inc., D.T.E. 2001T-940 (C.S.) (appeal allowed on other grounds) 69 [2002] REJB 2002-31662 70 Op. cit. note 10 71 Lecavalier vs United Parcel Service of Canada ltd J.E. 2003-1926 (C.S.) 72 R.S.Q. c. C-12



The complaints are heard by the Quebec Labour Relations Commission (“Commission”) which

has extensive powers including, but not limited to, the power to reinstate employees and to

awarding moral and punitive damages.

(a) Moral and punitive damages

Compared to the Superior Court, the Commission differs in its approach in that it does not

require the plaintiff to make proof of abuse of the employer’s rights or bad faith on his part in

order to award moral damages. The proof of moral damages suffices in and of itself. In Couture

vs Les Centres jeunesse de la Montérégie73, Commissioner St-Georges made the following

distinction :

«[TRANSLATION] It is important to dispel a misunderstanding concerning the competence of employment commissioners called to grant moral damages when they receive a complaint under section 124 of the Act respecting labour standards. Under the Civil Code of Québec, an employer only has to grant moral damages to an unjustly dismissed employee in the case that he has abused his rights. The reason being that the employer has the right to terminate an employment with a reasonable term of notice. To condemn him further, for example under moral damages, one has to prove abuse on his part.

The Act respecting labour standards differs from the Civil Code in that an employer cannot simply dismiss a salaried employee with more than (two) years of service without just and sufficient cause. If an employer is found to have done so, he could be compelled to reinstate the salaried employee, a remedy that a Superior Court Judge – called to manage the litigation according to the Civil Code- cannot order. Moreover, it is the duty of the commissioner, according to article 128 of the Act respecting labour standards, to determine, beyond the reinstatement and lost salary, all other equitable measures appropriate to the circumstances of the case.

The complaining party under section 124 thus does not necessarily have to prove bad faith on the part of the employer to receive moral damages. It is understood, however, that the damages itself must be proven.»

The Commission has referred to the Wallace case and reiterated the principle that any dismissal

brings certain inconveniences:

«[TRANSLATION] One must not forget that all dismissals bring with them their share of troubles, concerns and anguishes. If the dismissal of Mr. Brandwein had a devastating impact on him as he lets on, he would certainly have manifested certain symptoms, if not looked for help to get out of it. There are no such symptoms, according to the proof he

73 Couture vs. Les centres Jeunesse de la Montérégie D.T.E. 2000T-924 (commissaire André St-Georges)



submitted in this case. In the absence of demonstrable damage, there cannot be compensation. This demand is rejected.»74

The plaintiff is required to prove that his dismissal has caused damages to his physical or

psychological health.75 Employees may be compensated for such things as stress, difficulty to

sleep and depression resulting from an unjust dismissal. In Castonguay vs 9151-1675 Québec

inc.76, the plaintiff was granted $1,000 in compensation for stress, anxiety and an eight weeks

absence owing to depression. In another case, the Commission granted $5,000 to an employee

who suffered several months of anxiety.77

Special circumstances may justify granting more substantive amounts. In Ranger et Clinique

chiropratique St-Eustache78, the plaintiff was awarded $15,000 for moral damages after she

suffered from a severe depression following her dismissal without cause.

As is the case before civil Courts, punitive damages are granted in dismissal cases where there

is an illicit and intentional infringement of the employee’s fundamental rights. The Commission

rarely awards more than $5,000 in damages under this heading.

(b) Reimbursement of legal fees.

The Commission’s approach is very different from that which is adopted by the civil Courts.

Employees who file complaints for unjust or illegal dismissals under the Act have access to free

legal representation by an attorney appointed by the Labour Standards Commission.

Nevertheless, an employee always has the right to be represented by an attorney of his choice

and should not be penalized for doing so.79 If the employee’s complaint is granted, the

74 Brandwein vs. Congrégation Beth-El, D.T.E. 2003T-92 (commissaire Louise Côté-Desbiolles) 75 Idem. 76 2006 QCCRT 0293 (Commissioner Jean Paquette) 77 Benabidi and Laboratoires de friction Fasa inc. D.T.E. 2003-1012 78 Ranger and Clinique chiropratique St-Eustache D.T.E. 2003T-1013 79 Lavoie vs. Bon L. Canada inc. D.T.E. 2001T-512 (commissioner Gilberte Béchara), Pablo Majdaniw vs SNC Lavallin inc. B.C.G.T. dossier 115482, case CM-1011-0736 (commissioner Huguette Vaillancourt), Sarah Kekmi vs. 2809630 Canada inc., B.G.C.T., dossier 12735, case CM-1009 (commissioner Pierre Cloutier), Brandwein vs Congrégation Beth-El, D.T.E. 2003T-92 (commissioner Louise Côté-Desbiolles)



Commission will usually award damages to cover his legal fees, even if access to a free

attorney was provided. On this subject, Commissioner Côté-Desbiolles stated the following:

«[TRANSLATION] The reimbursement of expenses of this nature is generally granted when the behavior of the employer at the time of the dismissal is marked by malice, lack of seriousness or, more simply, awkwardness of even where, after the dismissal, he abused procedures, prolonged the debate or displayed bad faith in the administration of his proof.»80

The Commission has followed certain guidelines for the calculation of the attorney’s fees. The

Commission will typically allow a maximum of $1,500 per day of hearing plus $1,500 per day of

preparation for each day of hearing.

Special circumstances may justify higher compensation under this heading. For example, in

Hétu vs Notre-Dame-de-Lourdes (Municipalité de), the Commissioner considered that the length

and abuse of procedures increased the amount of the employee’s legal fees by approximately

$20 000.81 In the same case, a motion for judicial review was dismissed by the Superior Court,

and an additional $25 000 was granted to the plaintiff to cover the supplemental legal fees on

account of the judicial review.82

III. CONCLUSION

Quebec courts and tribunals generally follow the principle established in the Wallace case in so

far as the conduct of the employer in dismissing an employee is concerned. The Courts

distinguish moral from punitive damages, since the legal basis and objectives for such damages

are different.

The approach taken by the Commission is more favorable to the plaintiff. Moral damages may

be granted even in the absence of bad faith on the part of the employer. A reasonable amount

for the reimbursement of lawyer’s fees is also often granted.

Roy and Comité paritaire de l’industrie de l’automobile de Montréal D.T.E. 2002T-584 (commissioner Hélène Bélanger) 80 Tremblay and G. Riendeau et Fils inc. D.T.E.2005T-48 (commissioner Louise Côté-Desbiolles), motion for judicial review continued sine die, 500-17-028461-054. 81 Hétu and Notre-Dame-de-Lourdes (Municipalité de ) (commissioner Jacquelin Couture) D.T.E. 2004T-1133 82 Hétu and Notre-Dame-de-Lourdes (Municipalité de ) J.E. 2006-246 (C.S.)



However, to this day, Courts and tribunals in Quebec remain reluctant to award large amounts

for moral and punitive damages.

::ODMA\PCDOCS\MTL01\1385814\1


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