Damages Chapter — Explore All Sections
This chapter explores exceptional damage awards in Canadian wrongful dismissal law, including moral, aggravated, punitive, and other damages arising from bad faith conduct.
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Wallace Part 2: Damages for Tangible Financial Loss
An important and often overlooked feature of Wallace v. United Grain Growers Ltd. is that the notice period was extended not solely to compensate Wallace for emotional suffering. The Court was also concerned that the employer’s conduct had adversely affected his future employability.
This second aspect of Wallace has largely disappeared from view since Honda Canada Inc. v. Keays. It should not have.
Honda changed the manner in which such damages are assessed. It did not eliminate a claim for a proven financial loss caused by the employer’s unfair conduct in the manner of dismissal.
Where an employer’s conduct damages the employee’s reputation, interferes with the ability to obtain alternative employment, or otherwise causes a demonstrable post-dismissal income loss, that loss remains compensable.
Pre-Wallace
A 1984 B.C. Supreme Court decision, delivered by McLachlin J., as she then was, dealt with a similar issue. 1
The plaintiff had been terminated allegedly for theft. The Court noted that such an unjustified allegation could lead directly to difficulties in finding alternate employment:
The employer, having decided to terminate the plaintiff, had two choices open to it. It could terminate her in the usual course, in a fashion which cast no moral cloud upon her character. Or it could terminate her for cause as it did, leaving her with a stigma which would make it much more difficult to find new employment. Having chosen the latter course, and having failed to substantiate the cause, the employer must be held responsible for the longer period of unemployment to which its unjustified conduct contributed.
The plaintiff was a relatively short-service junior employee. She had been employed for 15 months as a teller. She was awarded six months as reasonable notice.
The Court also found:
It is difficult to conceive of an accusation more calculated to cause humiliation and anguish to a dedicated bank employee than that of theft of the bank’s funds. Moreover, the manner in which the plaintiff was dismissed was arbitrary and humiliating. Before her co-workers and family, at the beginning of what she hoped would be her career, she found herself branded as a thief. Not only were the circumstances of the plaintiff’s termination of employment abrupt, harsh and humiliating, but that humiliation continued up to the time of trial. Before this trial there was never an investigation or proceeding in which she was given an opportunity to properly defend herself. The defendant pleaded in its defence that the plaintiff was dismissed from her employment for “just cause”. This plea was maintained to trial, notwithstanding that it became apparent in the course of the trial that the defendant could not establish cause. An allegation that there is cause for termination of employment is a serious one and should not be made lightly. An allegation of theft is particularly grave.
The Court awarded $5,000 for intentional infliction of mental distress. The trial judge also found a contractual basis for damages for emotional distress. This was five years before Vorvis and, somewhat remarkably, foreshadowed the modern approach:
it would appear that for damages for mental suffering to be awarded for breach of contract, it must be established:
(1) that the mental suffering was caused by a breach of contract;
(2) that the breach was of a wanton or reckless character;
(3) that the breach must have been of such a character that mental suffering would have been in the reasonable contemplation of the parties when the contract was made, i.e., that it is not too remote; and
(4) that the mental distress must arise independently of pecuniary loss.
A similar issue arose in the 1997 B.C. Court of Appeal decision in Deildal v. Tod Mountain, prior to the release of Wallace. 2
This was a post-Vorvis decision. Finch J.A. agreed with the trial judge that false allegations of theft met the then-applicable test of “outrageous and reprehensible conduct” giving rise to aggravated damages.
At trial, compensation had been awarded both for the increased difficulty in obtaining employment and for mental distress, in the respective sums of $50,000 and $25,000. Finch J.A. considered both losses properly compensable by aggravated damages. Again, these were concurring reasons rather than those of the majority. 3
On a true analysis of the trial judge’s reasons (see para.62) he awarded $50,000 for the increased difficulty the plaintiff had in finding new employment as a result of the defendant’s false allegation of theft, and $25,000 for the mental distress the plaintiff suffered as a result of the defendant’s “outrageous and reprehensible conduct”. While the latter language might have been more appropriate to an award of punitive damages (see Vorvis), I am satisfied that both aspects of the additional award may properly be considered as awards of aggravated damages.
Post-Wallace
This secondary component of the Wallace ratio was applied in the 2005 Ontario decision of Downham v. Lennox. 4
Ferguson J. found that the employer’s breach of the duty of good faith had caused a further period of unemployment beyond the reasonable notice period:
By generating a substantially false investigation report which was circulated to senior staff and politicians in a small community and by the grossly exaggerated content of the letter of dismissal, the County created a stigma which prevented Mr. Downham from in finding alternate employment. The County must be responsible for this longer period of unemployment and not just the period of notice justified by the Bardal factors: Rahemtulla v. Vanfed Credit Union…
The Court continued:
I conclude that the misconduct of the County prevented the plaintiff from finding alternative employment before October 2003. That means the damage caused to the plaintiff included a loss of salary for an additional 5 months beyond the 15 month notice period I have fixed. I note that I am not basing this on how long it took him to find another position. I am basing it on the fact that the misconduct of the employer prevented him from obtaining such a position for that length of time.
The important point is causation. It was not sufficient that the plaintiff remained unemployed. The additional period of unemployment had to have been caused by the employer’s wrongful conduct.
Honda Changed the Remedy, Not the Loss
Honda Canada Inc. v. Keays fundamentally changed the method by which damages flowing from bad-faith conduct in dismissal are assessed.
Under Wallace, courts had compensated such harm by extending the reasonable notice period. Honda rejected that approach. Damages arising from the manner of dismissal are instead to be compensatory and assessed according to the actual loss proved.
The distinction is critical.
Honda did not hold that financial losses caused by an employer’s conduct in the manner of dismissal are no longer recoverable. It held that compensation should not be determined by an arbitrary addition of months to the notice period.
Indeed, the Supreme Court specifically identified an attack upon the employee’s reputation at the time of dismissal as an example of conduct capable of producing compensable damages.
On the particular facts of Honda, Keays was medically disabled and unable to seek alternate employment. The second aspect of Wallace involving damage to future employability was therefore not in issue.
Post-Honda: Headley v City of Toronto
The continuing vitality of this aspect of Wallace was demonstrated in the 2019 Ontario Superior Court decision in Headley v. City of Toronto. 5
Allegations of theft had been made against the plaintiff and were ultimately found to be unsubstantiated.
By the time of trial, almost seven years had passed and the plaintiff had been unable to obtain comparable employment despite reasonable mitigation efforts. His requests for a letter of reference had gone unanswered.
The Court found that the circumstances of his dismissal had caused a “tangible financial loss of income”. Without the allegations of theft, fraud and dishonesty, the trial judge concluded that the plaintiff would have had little difficulty finding a comparable managerial position.
The Court stated:
Wallace Damages for Loss of Income
[405] Given the guidance given by Iacabucci J. in Wallace that “if the manner of termination affects employment prospects” it may be worth of considerably more compensation” and given the direction of Bastarache J. in Keays that such damages are to be awarded, not by an arbitrary extension of the notice period but through an award that reflects the actual damages, this Court must attempt to assess the actual damages/tangible financial loss caused by the unfair manner of dismissal.
The Court awarded $50,000 for this tangible financial loss, separately from an award of $15,000 for the mental distress caused by the manner of dismissal.
Headley is therefore an important post-Honda authority. It recognizes the continuing Wallace principle while applying the remedial methodology required by Honda.
Wilsher v Olympic Wholesale: The Wallace Bump Returns?
The 2026 Ontario Superior Court decision in Wilsher v. Olympic Wholesale provides striking recent confirmation of the practical problem addressed by this line of authority. 6
Wilsher was a 55-year-old Night Shift Supervisor who had worked for Olympic for 17 years. He was dismissed for cause after being accused of “fraudulent activity” and “time theft”.
The accusations arose from the practice of “topping up” employees’ recorded hours. The Court found that this was not dishonest misconduct. It was a longstanding workplace practice which had existed before Wilsher became a supervisor and continued after his termination.
Following his dismissal, Wilsher unsuccessfully searched for alternative employment.
He testified that the absence of a reference following a 17-year employment history and being labelled a “thief” greatly affected his ability to obtain employment and mitigate his losses.
The employer’s conduct went considerably further.
The Court found that the investigation had specifically targeted Wilsher without attempting to determine the nature or extent of the “topping up” practice. Other supervisors were not interviewed and their timesheet edits were not audited. The termination letter accused Wilsher of fraudulent behaviour and theft of time. His Record of Employment recorded “dismissal/suspension”, which prevented him from obtaining employment insurance benefits. He was also given no reference after 17 years of employment.
Justice Woodley concluded that these circumstances inhibited Wilsher in his search for alternative employment and his ability to mitigate.
The Court fixed the ordinary reasonable notice period at 19 months. It then found bad faith and unfair dealing in the manner of dismissal and extended the notice period by a further 14 months, to the date of judgment, producing a total award equivalent to 33 months’ compensation.
The Court declined to award aggravated or punitive damages.
The Difficulty With Wilsher
The factual findings in Wilsher fit comfortably within the second branch of Wallace.
The remedial analysis is more difficult.
The Court relied upon Wallace and McKinley in extending the notice period. It did not address the Supreme Court’s subsequent direction in Honda that damages resulting from the manner of dismissal are not to be calculated through an arbitrary extension of the notice period, but through an award reflecting the actual damages caused.
In that respect, Headley provides the more conventional post-Honda analysis.
There is a further potential difficulty.
In determining the initial 19-month reasonable notice period, the Court had already referred to the theft and fraud allegations and their impact upon Wilsher’s ability to secure alternative employment. The consequences of the employer’s conduct were then relied upon again in determining that an additional 14 months should be awarded.
This raises at least the possibility of overlap or double compensation, an issue which the compensatory approach mandated by Honda is intended to avoid.
The better interpretation of Wilsher is therefore not that it has resurrected the former Wallace bump.
Its importance lies elsewhere.
It is compelling recent recognition that wrongful accusations of dishonesty, a damaging Record of Employment, the refusal to provide a reference, and other conduct surrounding dismissal may impair an employee’s ability to obtain replacement employment and produce a very real financial loss.
That loss is the essence of Wallace Part 2.
Tangible Financial Loss Remains Compensable
The second branch of Wallace remains good law.
Where unfair or bad-faith conduct in the manner of dismissal interferes with the plaintiff’s ability to obtain alternative employment, the resulting financial loss may be compensable.
The critical issues are proof and causation.
It is not sufficient merely to demonstrate that the plaintiff remained unemployed for a lengthy period. The plaintiff must establish that the employer’s wrongful conduct caused or materially contributed to the inability to obtain alternative employment.
Relevant evidence may include:
- false allegations of theft, fraud, dishonesty or other serious misconduct;
- dissemination of those allegations to prospective employers or within the relevant employment community;
- the refusal to provide a reference where the absence of one itself creates an employment obstacle;
- evidence concerning unsuccessful applications and interviews;
- evidence of an otherwise strong employment history and employability;
- vocational or labour-market evidence where appropriate; and
- proof of the income actually lost because the employee’s employment prospects were impaired.
Rahemtulla, Deildal, Downham, Headley and now Wilsher demonstrate a consistent underlying principle.
An employer which unjustifiably places a serious moral cloud over an employee’s reputation may become responsible for the financial consequences when that cloud follows the employee into the labour market.
After Honda, the proper remedy should ordinarily reflect the actual tangible financial loss caused by that conduct, rather than an arbitrary extension of the reasonable notice period.
The remedy changed.
The loss did not.
Honda is reviewed in more detail here.
📌 Further reading:
See my LinkedIn commentary,
Wallace Part 2 — Damages for Tangible Financial Loss.
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Footnotes
- Rahemtulla v VanFed Credit Union
- These were concurring reasons and not the majority view. Braidwood J.A. came to the same result but for different reasons.
- Deildal v Tod Mountain
- Downham v Lennox at para 249
- Headley v City of Toronto
- Wilsher v Olympic Wholesale, 2026 ONSC 3620, particularly paras. 67-68 and 124-132.