Bad Faith Dismissal - Effect On Damages

Just when I thought I had read the last precis on the Wallace v. United Grain Growers decision, there was another one in the Summer 2000 issue of The Litigator, Journal of the Ontario Trial Lawyers Association. It was an excellent precis mind you but not unlike others I’ve read. It carefully went through the facts: Mr. Wallace after 14 years of satisfactory employment was terminated for just cause for the alleged reason of poor performance. This, despite being commended prior to his termination, for good performance. The company maintained its just cause argument until trial and thus offered Mr. Wallace no settlement package. The termination of his employment and the just cause allegations created such emotional turbulence for Mr. Wallace that he sought psychiatric treatment. He was 59 years of age at termination. His efforts to find another job were largely unsuccessful. He filed for bankruptcy.

The trial judge awarded a notice period of 24 months and $15,000 in aggravated damages. The Court of Appeal reduced the notice period to 15 months and struck the claim for aggravated damages. The Supreme Court of Canada restored the trial award of 24 months of notice and justified it by stating that the employment contract was a unique type of commercial contract. Accordingly, its breach could attract additional damages by increasing the notice period without requiring Mr. Wallace having to prove that he was the victim of an independent tort or wrong warranting punitive damages.

While I commend this effort by the Supreme Court of Canada, at the same time I have long felt that this is somewhat of a hollow victory. Why? Because damages for wrongful dismissal are subject to mitigation while punitive damages are not. In other words, regardless of how long the notice period is, even increased by the ‘Wallace’ factor, any amounts of money earned during the notice period by way of alternative employment are at trial, deducted from the award. So all the additional months of notice period tacked on by a Court due to ‘Wallace’ factors are often of little use to the plaintiff who found work during the notice period. Moreover, most matters settle before trial so very few employees even see the extra ‘Wallace’ factor damages.

In my view, if the Supreme Court of Canada really wanted to punish bad employer behavior they should have created a distinct form of punitive damages that would not require medical evidence of actual emotional and/or physical harm. If the Court can call the employment contract unique requiring employer’s good faith during a vulnerable time for an employee, then why not create a unique form of punitive damages that focuses less on provable harm caused to the plaintiff and more on the actual behavior of employers? At least this type of damages would not be subject to mitigation.

Naysayers will argue that it is dangerous to allow punitive damages in the absence of showing provable harm caused by the behavior. That is justifiable. But I argue that a unique type of punitive damages for bad faith dismissals will put the focus where it belongs, on the behavior, which would clearly offend people of decent feelings. At least then, employers will understand that regardless of how weak or strong the plaintiff may be, employers must behave ethically and humanely during dismissal.

If you have been the victim of a bad faith dismissal, please call me to discuss it.