Labor & Employment Law

Court of Appeal Clarifies Wallace Damages

By Michael Fitzgibbon

The Ontario Court of Appeal in Mulvihill v. City of Ottawa significantly scaled back and clarified those circumstances in which so called Wallace damages for bad faith discharge will be awarded.  This is a welcome decision for employers and, though I am not optimistic, will hopefully curb the tied of plaintiffs pleading Wallace damages in every case. 

This case represents a seeming trend in the caselaw where judges have tried to limit those circumstances in which Wallace damages will be awarded.  As an example, see Yanez v. Canac Kitchens that I wrote about here.  Mr. Justice Echlin in the more recent decision of Laszczewski v. Aluminart Products Limited declined to award Wallace damages in the circumstances of that case and commented that:

I reject the claims for Wallace damages in this case.  While in hindsight, Aluminart could have and should have handled the dismissal in question in a more prudent fashion, in no way do I find that its actions were mean-spirited or meriting this Court?s condemnation.....

And then:

To routinely expose employers to the ?chilling effect on the willingness of employers to allege cause?, as referenced in Damage Control, supra, at p. 23, by imposing Wallace damages would not only be inappropriate but ought not to form part of the fabric of Canadian employment law.

The Court of Appeal in Mulvihill seems to have adopted a similar approach and summarized the Wallace obligation on employers as follows:

.... when dismissing employees, employers are to act fairly.  They should be candid, reasonable, honest and forthright.  If they act otherwise during the dismissal process ? for example, by being untruthful, misleading or unduly insensitive - they may be held to have conducted themselves in an unfair or bad faith manner.  The onus is on the employee to establish that the employer engaged in bad faith conduct or unfair dealing in the course of dismissal, and that the employee?s injuries flow not from the dismissal but from the manner in which dismissal was effected (Wallace at para. 103).

In this case, there were two reasons cited for the trial judge's Wallace award, namely that the employer's dismissal of Ms. Mulvihill for cause was ?not warranted? (this defence was withdrawn after discoveries) and that Ms. Mulvihill was dismissed while she was on sick leave.

The Court made a number of comments that are of value in the determination that Wallacedamages remain an exceptional award including that a mistake will not necessarily give rise to such damages ("A mistake is not conduct that can be said to be unfair or bad faith.")  This is a must read case. 

Full post as published by Thoughts from a Management Lawyer on April 01, 2008 (boomark / email).