Another Look at Wallace Damages: Mulvihill v. City of Ottawa (2008)
In my article in September of this year, I reviewed the recent decision on Keays v. Honda Canada Inc. in which the Supreme Court of Canada changed the landscape of damages for bad faith dismissal from employment.
At the same time that the Keays case was making its way to the Supreme Court of Canada, the Ontario Court of Appeal rendered a decision a similar case entitled Mulvihill v. The Corporation of the City of Ottawa. In the fall of 2004 Ms. Mulvihill, an employee of the City of Ottawa, took a stress leave from work claiming she was suffering harassment at the workplace. The City investigated the complaint and found nothing. Ms. Mulvihill was not satisfied with the results of the investigation and refused to return to work unless she was re-assigned to a different department. She complained about her supervisors in an email message addressed to the City Manager and the Mayor. On November 16, 2004, the City terminated Ms. Mulvihill’s employment claiming just cause (insubordination with respect to the email).
Just prior to the trial, the City withdrew its defence of just cause and paid Ms. Mulvihill 3 months of salary in accordance with her employment contract. At the trial, Ms. Mulvihill was awarded 4.5 months of pay in lieu of notice plus 5.5 months salary and benefits on account of “Wallace damages”. The Trial Court awarded “Wallace damages” because the City engaged in bad faith dismissal tactics when it terminated Ms. Mulvihill’s employment during her stress leave and because the City initially terminated her employment with cause but then later withdrew its defence.
The City appealed, inter alia, on the issue of the “Wallace damages”.
The Court of Appeal of Ontario held that in terminating Ms. Mulvihill’s employment with cause for the reason of insubordination, the City was acting on an honest and reasonably held belief that the employee’s insubordination led to the claim of just cause. Secondly, the Court held that Wallace damages could not be awarded merely because Ms. Mulvihill’s employment was terminated during her sick leave. The Court held that the employer made a “mistake” in terminating employment during the leave of absence and that the legal standard for awarding Wallace damages is not whether an employer made a mistake but rather, whether the employer engaged in bad faith.
The upshot of the Mulvihill and Keays cases is that it is now very difficult for an employee to succeed on a claim for Wallace damages. In addition, a successful employee will have to show actual harm caused as a result of the alleged bad faith conduct by the employer.
If your employment has been terminated with or without just cause, please contact me to review your situation. Every situation is different and should be reviewed by a lawyer.
