The chronology of claims for what is now known as “aggravated” or “moral” damages starts with the 1997 Supreme Court of Canada decision in Wallace v United Grain Growers. There followed two additional decisions of the same court which were also landmark cases. The first of these two was Honda v Keays in 2008 and the second was Bhasin v Hrynew in October of 2014.

The timeline of these three decisions is important as each one advanced the law on this subject. It is important to be mindful of the chronology of these cases when reviewing precedent decisions.

Pre Wallace

Prior to the Wallace decision below, the law required that the plaintiff prove an “independently actionable wrong” to support an award of aggravated damages. Vorvis v ICBC, the 1989 leading case from the Supreme Court of Canada to this effect, considered the law but did not find the required degree of wrongdoing in the case before the court:

I would not wish to be taken as saying that aggravated damages could never be awarded in a case of wrongful dismissal, particularly where the acts complained of were also independently actionable, a factor not present here…

The Court in Vorvis left the door slightly ajar by noting the possibility that the excepting line of cases dealing with “peace of mind” contracts may possibly arise in an employment context:

I would respectfully reject the narrow approach in Bliss v. South East Thames Regional Health Authority and Hayes and anor v. Dodds not the least because it would categorically exclude the availability of damages for mental distress in the employment contract context since such contracts do not in the normal course have as their object the provision of peace of mind and freedom from distress.

Wallace 1997

The facts of Wallace are important as this context supported two claims which were advanced by Wallace. Wallace had been suddenly terminated after 14 years of service. He had been the company’s top salesperson for many years. The company had asserted just cause for termination which it maintained until shortly prior to the date of trial when it abandoned this defence. Two claims followed from this conduct. Firstly, these allegations caused Wallace to suffer from depression for which he sought psychiatric help. Secondly, this conduct seriously diminished Wallace’s ability to find comparable employment.

To compensate Wallace for the impact upon his emotional state and his ability to find new employment, the Court allowed for an extension of the notice period.

This remained the law until the Supreme Court decision in Honda v Keays, some 17 years later, when it determined that a compensatory monetary award made much more sense to address the issue of emotional harm suffered by the plaintiff. Cases in the intervening time period should then be read with this in mind.

Back to Wallace

Prior to the Supreme Court decision in this instance, the court was required to look for an “independently actionable wrong” to support and award of aggravated and/or punitive damages. The trial judge in Wallace made this finding and awarded the sum of $15,000 as aggravated damages in both contract and tort. ¹ Wallace had been given a generous guarantee of security of employment when he joined the company and a sudden termination was found to be so actionable, in this context. The claim for punitive damages failed.

Wallace was awarded 24 months’ notice, which the Manitoba Court of Appeal reduced to 15. The award of aggravated damages was also set aside as the Court of Appeal saw no independent wrong. The appeal against the refusal to award punitive damages similarly failed.

SCC

The majority in Wallace did not rewrite Vorvis, as many have maintained. In fact, the Court endorsed it. It did add the duty of good faith and fair dealing, as referenced below, however, in a manner to comply with Vorvis, not distinguish it:

Relying upon the principles enunciated in Vorvis, supra, the Court of Appeal held that any award of damages beyond compensation for breach of contract for failure to give reasonable notice of termination “must be founded on a separately actionable course of conduct” (p. 184). Although there has been criticism of Vorvis . . . this is an accurate statement of the law. . . . An employment contract is not one in which peace of mind is the very matter contracted for (see e.g. Jarvis v. Swans Tours Ltd., [1973] 1 Q.B. 233 (C.A.)) and so, absent an independently actionable wrong, the foreseeability of mental distress or the fact that the parties contemplated its occurrence is of no consequence. . .

The most important aspect of the Wallace decision is found in the words of Iacobucci, J., speaking for the majority when he found a duty of good faith owed to the employee at the time of termination:

The obligation of good faith and fair dealing is incapable of precise definition.  However, at a minimum, I believe that in the course of dismissal employers ought to be candid, reasonable, honest and forthright with their employees and should refrain from engaging in conduct that is unfair or is in bad faith by being, for example, untruthful, misleading or unduly insensitive.

The Court considered and rejected the views of the Manitoba Court of Appeal which had found that adverse conduct at the time of termination could be considered only “where it impacts on the future employment prospects of the dismissed employee”.  The Court found this overly restrictive and concluded that the “law must recognize a more expansive list of injuries which may flow from unfair treatment or bad faith in the manner of dismissal.”

The Court examined then two aspects of harm that an employee may suffer, in this context, intangible and tangible. The former are enough alone to be worthy of compensation. The latter may be caused by the former, that is the emotional harm suffered may lead to longer unemployment itself. In addition, the Court noted that bad faith conduct which causes further unemployment may be worthy of “considerably more compensation”:

Often the intangible injuries caused by bad faith conduct or unfair dealing on dismissal will lead to difficulties in finding alternative employment, a tangible loss which the Court of Appeal rightly recognized as warranting an addition to the notice period.  It is likely that the more unfair or in bad faith the manner of dismissal is the more this will have an effect on the ability of the dismissed employee to find new employment.  However, in my view the intangible injuries are sufficient to merit compensation in and of themselves.  I recognize that bad faith conduct which affects employment prospects may be worthy of considerably more compensation than that which does not, but in both cases damage has resulted that should be compensable.

In this instance, the Supreme Court agreed with the trial judge’s finding that the conduct of the employer made it more difficult for Wallace to find new employment. To this end, the trial judge’s award of 24 months was restored:

I agree with the trial judge’s conclusion that the actions of UGG seriously diminished Wallace’s prospects of finding similar employment.  In light of this fact, and the other circumstances of this case, I am not persuaded that the trial judge erred in awarding the equivalent of 24 months’ salary in lieu of notice.  It may be that such an award is at the high end of the scale; however, taking into account all of the relevant factors, this award is not unreasonable and accordingly, I can see no reason to interfere.  Therefore, for the reasons above, I would restore the order of the trial judge with respect to the appropriate period of reasonable notice and allow the appeal on this ground.

The compensation to be provided to the plaintiff was then determined to be an extension of the normal notice period.

The rationale in compensating intangible damages by an incremental notice period made little sense. This was noted by the trial judge in a 2005 Ontario decision: ²

Although I appreciate how it developed, it also seems to me that the approach of awarding damages for Wallace factors by adding to the period of notice is not always fair.  The loss should be assessed by assigning a monetary value before considering how many month’s salary should be awarded.  Further, intangible losses should be objectively assessed.  For example, if the injury is what the court in Wallace categorized as intangible (e.g. humiliation) then simply adding, say, one month, would result in giving a high income employee more compensation for their suffering humiliation than what one month’s salary would award to a lower income employee.  That is not consistent with the awarding of damages for personal injury.  It is the injury not the status of the plaintiff which is supposed to govern.

Notwithstanding this insightful prescient comment of Ferguson, J., this was the law until the Honda v Keays decision. The important feature of Wallace is that the notice period was extended not solely to compensate Wallace for emotional suffering. It was extended also as Wallace’s future employability was adversely impacted. This second aspect of the ratio has been long since forgotten since the advent of Honda. It remains alive and well as a valid plea.

A second important note from Wallace is that the duty of good faith was limited to the time of termination. Later cases have defined and refined this concept, as discussed here. Bhasin also added a further dimension to the law, as reviewed here.