Case Comment: Wallace v. United Grain Growers Ltd. (1997), 3 SCR 701

Court decisions are a critical source of information about the proper interpretation of the laws and rules that govern so many of our actions. Our goal with comments on case law is to provide you with an accurate summary of the main issues in the case, and to comment on the case's possible relevance. Keep in mind, however, that every case has unique facts and circumstances. Court decisions cannot be relied upon as legal advice because no two situations are exactly the same. Nonetheless, cases can provide valuable insights and taken together, they can offer guidelines for our conduct.

Our case summaries are designed to educate and inform. Occasionally they may even amuse you! Check our web site often, as we will add to it regularly with new case summaries.

Why This Case May Interest You

Organizations hire and fire employees all the time. The manner in which employees are let go, and in particular long-standing employees, is critical. This is an area where a little knowledge beforehand can go a long way to help you avoid costly mistakes and wrongful dismissal litigation.

Summary of Facts

Wallace was 59 years of age when he was dismissed from his job without explanation or notice. He was a top salesman and had worked successfully for the employer for 14 years. When hired, he had been told that he could reasonably expect to work at the same job until he retired. On termination, the employer played "hardball" with Wallace and alleged that since there was "just cause" for his termination no notice was required. The various allegations of insubordination and failure to perform his duties raised by the employer as just cause for dismissal were dropped at the subsequent trial. Wallace was unable to find new work and, largely because of the manner of his termination, became depressed and required medical assistance. He sued the employer for wrongful dismissal and sought damages in lieu of notice plus damages for mental distress.

Issues

Are damages for mental distress available to an employee as a result of a termination? Can the calculation of reasonable notice be extended as a direct result of the employer's conduct in the course of the termination?

Decision

The Supreme Court of Canada awarded Wallace 24 months notice of termination but agreed with the Manitoba Court of Appeal that the additional $15,000.00 granted by the trial judge for mental distress was not appropriate. To obtain damages for mental distress in Canada, the employer must have committed an "independently actionable wrong". This must be conduct on the part of the employer that would support a separate court action by the dismissed employee. In this case, the employer committed no wrong other than its failure to give Wallace the appropriate notice of termination. However, the manner in which the dismissal was conducted was a major focus for the Court.

The Court found that the employer, when terminating Wallace, was guilty of bad faith and made allegations it knew were false. Most interestingly, the Court decided that the method and manner of termination was a factor that could be used to increase the required notice period. The Court stated;

"When termination is accompanied by acts of bad faith in the manner of discharge, the results can be especially devastating. In my opinion, to ensure that employees receive adequate protection, employers ought to be held to an obligation of good faith and fair dealing in the manner of dismissal, the breach of which will be compensated for by adding to the length of the notice period."

The employer was found to have breached its obligation to act in good faith. The Court did not specifically define "fair dealing" or "good faith" but indicated that employers should conduct themselves in a candid, reasonable, honest and forthright manner and should not be untruthful, misleading or insensitive. Employers act this way at their peril.

The Court decided that the increased notice period would be available to employees even if the employer's bad faith conduct had no negative impact on the employee's search for new employment. The Court found that intangible injuries that result from the employer's poor conduct justify the penalty of longer notice periods.

Comment

The Supreme Court has now added "manner of dismissal" to the list of factors that can be relied on to increase the reasonable notice period. Previously, factors such as a promise of job security or an inducement to leave secure employment could result in an increase in the notice period required on termination.

Employers must now be particularly careful alleging just cause for dismissal when the facts to support these allegations will be tough or impossible to prove at trial. In addition, the method of informing the employee of the termination should reflect the trauma of the transition for the employee and be appropriately sensitive. Obviously thoughtless conduct on the part of the employer when terminating staff or negotiating a potential settlement must be discouraged. Some examples include failure to make statutory payments on time, jeopardizing subsequent EI claims, embarrassing the employee by public notification, spreading false rumours or needlessly physically escorting the employee from the work station. All facets of the employer's conduct will be under review - at the risk of facing an increase in the reasonable notice to be paid.

Lawyers and commentators are now openly discussing the effect of the "Wallace factor" when they calculate the required length of the notice period. Mistakes in this area are costly.

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