‘Wallace damages are not dead’

Many employment lawyers saw the Supreme Court of Canada’s 2008 decision in Honda Canada Inc. v. Keays as the death knell, or something close to it, for damages outlined in the case of Wallace v. United Grain Growers Ltd.

But if Keays poured water on the Wallace fire, the Ontario Court of Appeal’s recent decision in Slepenkova v. Ivanov has at the very least turned the water pressure down.

Justice Frank Iacobucci’s 1997 decision in Wallace made employers liable for bad faith and unfair dealing over the way in which they dismissed employees.

Where the employer engaged in such conduct, which could include untruthful, misleading or unduly insensitive behaviour, the courts could add to the length of the reasonable notice period.

Since 1997, Wallace pleadings have been a staple of wrongful dismissal cases.
But in 2008, Justice Michel Bastarache’s majority ruling in Keays stated that Wallace damages don’t apply to normal distress and hurt feelings resulting from dismissal.

Rather, employees would receive redress only if they could show that the manner of dismissal caused mental distress that was in the contemplation of the parties.

According to Bastarache, conduct capable of attracting such awards included “declarations made at the time of dismissal, misrepresentation regarding the reason for the decision or dismissal meant to deprive the employee of a pension benefit or other right, permanent status, for instance.”

Furthermore, such awards couldn’t be arbitrary but had to reflect the actual damages.
In Slepenkova, however, the Ontario Court of Appeal upheld the trial judge’s award of two months’ pay in Wallace damages.

“The trial judge made a specific finding that the appellant’s pager message to other agents informing them ‘that [Slepenkova] failed to adequately perform her duties was unfounded and damaging to her reputation,’” the court stated.

“In our view, this finding of fact was sufficient to sustain the Wallace award, even in light of the Supreme Court of Canada’s decision in Honda Canada v. Keays . . . which was rendered after the trial judge’s decision in this case.”

On its face, Slepenkova appears to challenge Keays in two respects: firstly, there is no mention of any evidence advanced by the plaintiff to show the extent of the damage to her reputation; and secondly, the record discloses no specific reason as to how the trial judge arrived at the “two months’ pay” figure that constituted the Wallace element of the award.

Sue Sorensen of Borden Ladner Gervais LLP is surprised by the Slepenkova ruling.
“It’s shocking,” she tells Law Times. “Since when does stare decisis not apply?”

According to Mark Josselyn of Gowling Lafleur Henderson LLP, the fact that the trial judge decided the case before the high court released Keays may account for the Court of Appeal’s refusal to interfere with the extension of the notice period.

“It would have been easy enough for the Court of Appeal to say that the trial judge should have made a specific dollar award related to the actual damages rather than just adding on two months’ pay,” he says.

“But that’s exactly what he did, because two months of pay were worth about $10,000 to the plaintiff.”
The point is that regardless of how you express the award, the appeal court clearly believed the employer’s behaviour merited it.

“The judge said the allegations about [Ilona] Slepenkova’s performance were unfounded and that the termination was a tool by which the company hoped to persuade its agents to sign certain agreements,” Josselyn says.

Jeff Goodman of Heenan Blaikie LLP is of similar mind.
“The court in Keays didn’t say that employers shouldn’t be punished for bad faith behaviour,” he says. “It merely changed the basis on which damages for such behaviour could be awarded by tying it to the plaintiff’s actual damages.”

“The Slepenkova court probably felt that it wasn’t worth going through the mechanics of converting from months to dollars given that the trial decision preceded [Keays] and that from a practical perspective the result would have been virtually the same.”
The “actual damages,”

according to the appeal court, came out of the trial judge’s finding of injury to Slepenkova’s reputation. By contrast, in Nikolova v. Ivanov, which involved Slepenkova’s co-worker, the court refused to uphold the Wallace damages because there was no similar message in her case “nor was there any other evidence that she suffered harm, mental distress or actual damage.”

Still, Josselyn expects the courts will be harder on plaintiffs from now on.
“Once the appeals of trial decisions that predate [Keays] work their way through the system, judges will not be tacking on months arbitrarily but will be seeking evidence of real mental distress,” he says.

The need to prove actual damages, Josselyn adds, could well complicate wrongful dismissal cases.
“It wouldn’t surprise me if plaintiffs’ lawyers started sending their clients off for medical opinions. But that will make the litigation more expensive, and I’m not sure it will help plaintiffs overall.”

For his part, Goodman doesn’t believe medical evidence will always be necessary.
“Where there’s an intentional infliction of mental suffering, I don’t think courts will hesitate to award damages without testimony from doctors,” he says.

Arguably, that’s precisely what happened in Slepenkova.
“I think some people on the defence side were too optimistic about [Keays’] impact,” Goodman says. “We’ll still see Wallace damages but expressed in different terms and requiring proof of something that amounts to actual damage.”

The difficulty with Wallace, according to Goodman, is that it created a two-tier system.
“A two-month extension of a notice period is worth a lot more to a senior executive than to an assembly line worker where both have suffered roughly the same amount of harm. Wallace damages are not dead.

It’s just that we won’t be seeing the extraordinary awards that have benefited some big earners.”
Meanwhile, Sorensen says she has recently received two statements of claim that reflect little appreciation of any change in the law.

“The claims aren’t based on actual damages,” she says. “They’re just thinly veiled Wallace claims with hurt feelings as their basis.”
Indeed, as a matter of practice, it’s not at all clear that Keays will change much.

“Employers always have to ask themselves whether it’s worth going to trial in employment cases,” Sorensen says. “And you can never tell what the judge is going to do because employment cases are always crapshoots where sympathetic judges have enough leeway to fit the facts around the law.”

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