Update on “Wallace Damage” (2008)
Some of you may have heard of “Wallace Damages” that were available within wrongful dismissal cases. They were damages designed to compensate an employee who was subjected to “bad faith dismissal” tactics of their employer. Wallace damages arose out of the 1997 case of Wallace v. United Grain Growers. In that case, the employer terminated Wallace’s employment without notice making serious allegations of fraud and communicating those allegations throughout the industry. As a result of the allegations, Wallace could not replace his income and eventually declared bankruptcy. The company withdrew the allegations when the trial began. The Supreme Court of Canada (“SCC”) when it eventually heard the Wallace case held that the employer used bad faith tactics in the manner of discharging Wallace which affected Wallace’s ability to replace his income. The SCC stated that such conduct could lead to an extension of the reasonable notice period.
Since then, judges consider two aspects when deciding upon “Wallace” damages: 1) the nature of the employer’s bad faith and 2) the impact of this conduct on the employee’s ability to find alternative employment. Since then, “Wallace” damages have been awarded in a variety of circumstances including false allegations that an employee’s termination was due to his/her inability to perform the job or was for cause, the employer persists in its allegations of cause up to the time of trial, spreading throughout the employee’s industry that his or her employment was terminated because of dishonesty or reprehensible conduct and firing an employee immediately following a return from disability leave due to major depression.
A recent decision from the SCC however has now significantly changed the “Wallace” landscape. In Honda Canada Inc. v. Keays, the SCC changed the test for “Wallace” damages. Keays was a 14-year employee of Honda. Keays suffered from chronic fatigue syndrome which led to frequent absences. He was on a company disability programs that permitted employees to take absences if they provided a doctor’s note confirming that the absence related to their disability. The employer eventually requested Keays to meet with the company’s occupational medical specialist to evaluate whether he was missing work due to his disability. When Keays refused, Honda fired him. The trial court said that was “hardball” and awarded Keays nine (9) additional months in notice based on “Wallace”.
The SCC disagreed that Honda’s conduct was “egregious” and set aside the “Wallace” damages. Now, an employee must demonstrate to the Court that he/she suffered actual psychological harm as a result of the bad faith manner in which the employment was terminated. The SCC also reminded the lower courts that punitive damages are restricted to “exceptional” and “egregious” cases and must not duplicate aggravated damages. Punitive damages will only be awarded where the employer engages in acts that are “so malicious and outrageous that they are deserving of punishment on their own”, states the Court. The SCC also overturned $100,000 in punitive damages awarded to Keays.
If you have an employment law case, please call me to review it. Each case is different and must be individually reviewed.
