Court Limits Award of Wallace Damages
Legal Affairs - Workplace Today®
Since the Supreme
Court of Canada ruled in 1997 that an employer’s bad faith conduct when terminating an employee should be taken into consideration when awarding wrongful dismissal damages, courts throughout the country have been applying this Wallace decision in such suits against employers.
But a recent Ontario Court of Appeal decision seems to have put a limit on the award of Wallace damages.
A municipal amalgamation forced all departments to restructure, and many managers had to compete for a smaller number of jobs. The manager in question was an engineer with 20 years’ service with the city. At the time of amalgamation, he was managing a budget of $25 million and a staff of 100 employees. He applied for five jobs, including his own, but lost all the competitions and was terminated. The hiring committee told him that his management style did not suit the merged city.
The city offered him a package that included 80 weeks' pay (based on the employer’s formula of four weeks per year of employment to a maximum of 96 weeks), benefits, and job counselling.
The man was not satisfied with the outcome of the competition, turned down the severance package, and sued his employer for wrongful dismissal. He argued he was a “statutory officer” whose position “went beyond the normal employer/employee relationship” and was thus deserving of fairer treatment. He sought reinstatement.
When the case originally went to trial, the judge found flaws in the city’s job competition process. The man’s references and performance reviews were not reviewed by the hiring committee, which did hold an informal discussion with the referee of the successful candidate. The upper managers who were most familiar with the engineer’s work had retired before the competitions.
The judge found that the man was “effectively, but not purposely treated in a manner different from other candidates.” The city had “lost control” of the competitive process and failed to apply its own “fair, open, and equitable hiring criteria uniformly across the board.”
Still, the judge said the city’s actions were “probably well intentioned” but awarded the man 116 weeks’ pay according to the Wallace formula, stating that the city’s severance policy should not cap the notice at 96 but go up to 120 depending on individual cases.
The trial judge said that Wallace damages applied to “the employer’s conduct pre- and post-termination…and the conduct of the employer in its aftermath.”
The city appealed, and the Court of Appeal overturned the lower court ruling, agreeing with the employer that none of its conduct was serious enough to warrant using the Wallace decision to increase damages.
The Court of Appeal agreed that the “Wallace damages are not limited to acts of the employer at the very moment of dismissal” but must relate to conduct that is a component of the manner of dismissal.
The court clarified that in order for Wallace to apply, the alleged conduct must be “something akin to intent, malice, or blatant disregard for the employee” and “could be characterized as ‘callous and insensitive treatment.’”
Referring to the municipal case in particular, the court said the city’s actions were “not egregious” but instead were “sloppy” and “non-malevolent” and fell short of the Wallace test.
The court reduced the notice period to 80 weeks—what the city originally offered the man—saying that 116 weeks was “outside the acceptable range.” The appeal court noted that 104 weeks is what the Wallace decision considered to be "at the high end of the scale.”
The court rejected the man’s attempt to be reinstated, determining he was not a statutory officer but was a middle manager.
“This case is a very positive development in the wrongful dismissal caselaw,” say employment lawyers Hicks Morley. “It clarifies that mere ‘sloppy’ handling of an employee termination is insufficient to ground a claim for Wallace damages and that ‘something akin to intent, malice, or blatant disregard for the employee’ is required.”
Hicks Morley hopes this decision will limit the “widespread and sometimes unjustified” use of the Wallace formula.
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