From "Wallace Damages" to Honda : The Starting Point

Prior to the case of Honda Canada Inc. v. Keays 2008 SCC 39 (CanLII) [hereinafter Honda] an employee seeking damages over and above contractual damages could seek damages for behaviour by the employer during the dismissal which might have been "...unfair or is in bad faith by being, for example, untruthful, misleading or unduly insensitive". This additional damage award was referred to as "Wallace damages" from the employment case in which it arose called Wallace v. United Grain Growers Ltd. [1997] 3 SCR 701.

However, Honda, shifted the assessment of any award for bad faith from extending the notice period to assessing a lump sum amount, in addition to any notice period awarded. The court did so relying on the basis of the foreseeability principle in employment contracts.

Justice Bastarache writing for the majority in Honda, supra paragraph 59:

... there is no reason to retain the distinction between "true aggravated damages" resulting from a separate cause of action and moral damages resulting from conduct in the manner of termination. Damages attributable to conduct in the manner of dismissal are always to be awarded under the Hadley v. Baxendale principle. Moreover, in cases where damages are awarded, no extension of the notice period is to be used to determine the proper amount to be paid. The amount is to be fixed according to the same principles and in the same way as in all other cases dealing with moral damages. Thus, if the employee can prove that the manner of dismissal caused mental distress that was in the contemplation of the parties, those damages will be awarded not through an arbitrary extension of the notice period, but through an award that reflects the actual damages. Examples of conduct in dismissal resulting in compensable damages are attacking the employee's reputation by 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.

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Since Honda, aggravated damages have sometimes, but not always, been referred to in employment law cases as 'moral damages' and/or 'mental distress damages'.

Recent Cases

George v. Cowichan Tribes 2015 BCSC 513

In George v. Cowichan Tribes 2015 BCSC 513 [hereinafter, George], a 55 year old Associate Director who had been employed for 30 years (interrupted service) with a family services agency was awarded 20 months of notice and $35,000 for aggravated damages.

Ms. George was terminated for cause based on a one-time incident which occurred off duty in a pub in which she had an altercation related to a family matter with another pub attendee. She self-reported the incident to her employer and was given a verbal reprimand. However, later, the recipient of her ire filed a complaint with the employer alleging issues in addition to those self-reported and/or different than those reported by Ms. George.

An independent investigator was hired by the employer and based on those findings the employer took the step of terminating Ms. George for cause. However, the court made its own findings with respect to the issues and found that Ms. George was not guilty of the allegations upon which the cause was founded upon.

The court awarded $35,000 in aggravated damages for the following reasons:

• George was dismissed in part for being dishonest without that allegation ever being put to her and without her ever having an opportunity to respond to it;
• The employer compounded the above by failing to give serious consideration to Ms. George's exemplary discipline record or lengthy service and without consideration to its own progressive discipline policy;
• The employer decided to dismiss Ms. George based on inaccurate and incomplete information and did so without giving her proper opportunity to explain or respond. The Court considered this to be "cavalier, reckless and negligent"...and "in breach of the duty of good faith that it owed to Ms. George", George, supra at paragraph 265;
• The allegation of cause meant that Ms. George was ineligible for employment insurance benefits; and,
• Considering the nature of Ms. George's chosen profession and the small, close community in which she lived and worked, the allegations made against her undermined her position in that community and damaged her future employment prospects, George, supra at paragraph 272.

Ensign v. Price's Alarm Systems (2009) Ltd., 2017 BCSC 2137

In Ensign v. Price's Alarm Systems (2009) Ltd., 2017 BCSC 2137 (CanLII) [hereinafter, Ensign] the plaintiff was employed for 12 years as a Medical Alert Advisor with an alarm system company. He was terminated at 63 years of age. The court accepted statements made by Mr. Ensign and his wife in affidavit evidence that he had suffered stress, anxiety, and worry due to the defendant making "sham offers", being dishonest, and "playing games". The court awarded $25,000 for the following conduct:

• Not being truthful and candid with Mr. Ensign about the reasons for his termination;
• Having the benefit of legal counsel before Mr. Ensign's working notice period and still providing "woefully inadequate notice"; and
• "Instead of righting the wrong by reinstatement or offering an alternative position with appropriate encouragement, training and remuneration "top ups" or guarantees for the ensuing 10 months, embarking on aggressive and unmeritorious defence tactics that it must have known would cause financial stress and considerable worry on the part of Mr. Ensign" Ensign, supra at paragraph 67.

Karmel v. Calgary Jewish Academy, 2015 ABQB 731

In Karmel v. Calgary Jewish Academy, 2015 ABQB 731 (CanLII) [hereinafter, Karmel], the plaintiff was awarded $200,000 in aggravated damages for the harm he suffered as a result of "...conduct consistent with the sort of bad faith dealings that aggravated damages are intended to remedy. Indeed, the facts of the case are particularly insidious" Karmel, supra at paragraph 100.

The plaintiff had a five year term contract and the board tasked with oversight of his employment would have had to pay out the entire five years, have cause, or have the plaintiff resign in order to avoid significant costs associated with simply terminating the contract. Ultimately the employer terminated the plaintiff for cause after what was found by the court to be a campaign of sabotage and bad faith using "intentional and calculated actions" by the board to undermine the plaintiff in his position.

Examples of these actions included not inviting the plaintiff to key meetings, inappropriately controlling the flow of information he received, disparaging his efforts despite the fact that the school the plaintiff was tasked with running was achieving high academic results, and predicating performance reviews and his termination for cause on unfounded grounds of negative performance.

Although not explicitly stated by the court, two elements which appear to have driven up the award was the length of time the board waged its campaign against the plaintiff and the small and private community in which the plaintiff carried out his duties, which served to isolate the plaintiff in a way that caused further distress and reputational damage.

Avelin v. Aya Lasers Ltd., 2018 BCSC 2313

A more 'modest' award of $5,000 was provided for moral damages to the plaintiff in Avelin v. Aya Lasers Ltd., 2018 BCSC 2313 (CanLII). This award was based on the defendant terminating the plaintiff in an insensitive manner and for an aggressive and improper litigation strategy. A claim for punitive damages was rejected.

Bailey v. Service Corporation International (Canada) ULC, 2018 BCSC 235

In Bailey v. Service Corporation International (Canada) ULC, 2018 BCSC 235 (CanLII) [hereinafter, Bailey], the court awarded the plaintiff, inter alia, aggravated damages of $25,000 and punitive damages of $110,000. The court would have awarded a higher quantum for aggravated damages; however, found it difficult to parse out the level of damage suffered by the bad faith termination as the employee had a pre-existing mental health condition. The $25,000 award was based on a finding that the plaintiff's pre-existing condition was aggravated by the defendant's breach of the duty of good faith and fair dealing. The court found it breached this duty in a whole host of ways, including:

• Failing to take into account Mr. Bailey's long period of service to SCI during which the company had given him various awards and prizes for good performance;
• Firing him when he was known to be: sick, seeking medical care, likely to need or want to continue on the company's extended medical plan, and costing the company nothing in terms of salary;
• Not giving Mr. Bailey a chance to respond to Mr. Boyle's unfair assumption that he had abandoned his employment;
• Not telling him he was dismissed but leaving it for his wife to discover it accidentally through a denial of medical benefits (and without any notice that the medical benefits would be cut off retroactively); and,
• Falsely alleging and maintaining throughout the course of this lawsuit that there was cause for dismissal. These allegations carried with them the taint of dishonesty on Mr. Bailey's part, by casting doubt on him being ill, suggesting he was working full-time as a real estate agent at the same time as seeking disability benefits, and suggesting that he had been repeatedly asked to return to work but had refused. Anyone reading the RTCC would think that if the pleaded facts were true, Mr. Bailey was not an honest man Bailey, supra at para 206.

Since the court found that the defendant's conduct in this case was harsh, reprehensible and motivated by malicious and vindictive intent, and that aggravated damages "will not meet the goals of retribution, deterrence and denunciation", it determined that an award of punitive damages was "necessary and just" and awarded an additional $110,000 on that basis. Since the court frequently mentioned the enormous size and scope of the defendant and its resources, one has to assume that it played a role in the quantum of punitive damages awarded.

Cases in which Aggravated Damage Claims Overturned or Rejected

Cottrill v Utopia Day Spas and Salons Ltd., 2018 BCCA 383

In the case of Cottrill v Utopia Day Spas and Salons Ltd., 2018 BCCA 383 (CanLII) [hereinafter, Cottrill], the appeal court overturned an aggravated damage award of $15,000 made by the trial judge on the basis there was not enough evidence of actual harm. Specifically, the court found that there:

"...was no evidence from the plaintiff or from family members, friends or third parties concerning the impact of the termination on Ms. Cottrill and her mental state. Although not required, there was no expert evidence, medical or otherwise. The only evidence of mental distress is that Ms. Cottrill cried during the March meeting, following which she had to go home early because she was so upset, and at the June meeting, she went numb and could not take anything in. The evidence of Ms. Cotrrill's reactions at the two meetings at its highest establishes a transient upset. It falls well short of the legal standard that requires a serious and prolonged disruption that transcends ordinary emotional upset or distress" Cottrill, supra at paragraph 19.

Other Cases

Other cases in which claims for aggravated damages have been denied include: Lau v. Royal Bank of Canada 2017 BCCA 253 (CanLII), Fernandez v. The University of British Columbia, 2018 BCSC 1993 (CanLII), Spalti v. MDA Systems LTD., 2018 BCSC 2296 (CanLII), and Kerr v. Arpac Storage Systems Corporation, 2018 BCSC 704 (CanLII).

Although an employee may not always be successful in a claim for moral/mental/aggravated damages, these cases and the increasing number of claims for these type of damages make it clear that that if such a claim is made there will be a high level of scrutiny by the courts into the employer's conduct, intentions, and motivations during any termination period. Such a level of scrutiny makes for an expensive and unpredictable trial.

Note: This a reprint of an article by Sarah Hentschel of Watson Goepel LLP.