Foundation of Good Faith

The Supreme Court of Canada made it clear in a 1997 case, which many believe no longer has any relevance, that an employer owes a duty of good faith and fair dealing to its employees at the time of termination of employment.

That case is Wallace v. United Grain Growers. The issue in this decision was that the employer had argued just cause to terminate the plaintiff’s employment, an argument which it abandoned immediately prior to trial.

The SCC concluded in this case that a breach of such a duty could give rise to two claims. One is a claim for an economic loss suffered due to the inability to find other employment due, for example, to unfair negative references. The second claim was for emotional anguish, which the SCC, in this case, determined should result in an increased notice period.

Variation of the Theme

That was the law for many years until a second SCC decision in Honda v. Keays in 2008. This was an unusual fact situation. The plaintiff claimed that he was ill and unable to work and that Honda had mistreated him because of this sickness. For this reason, there was no issue addressed about the impact of the mistreatment upon his ability to find other employment. The SCC concluded that the prior case of Wallace was wrong in allowing for an increase in the notice period to compensate for mental anguish. This claim, it determined, should be proven by appropriate evidence and compensated by a specific award for emotional distress or “aggravated damages”.

For this reason, many readers considered that Wallace was overruled and no longer law. That statement is half true. This case had no impact on the second branch of the Wallace case.

Modern Application of Wallace Part 2

This very issue was considered recently in an Ontario decision. The employer had asserted just cause based on the unsuccessful allegation of theft. The result was that the employee successfully proved that these allegations negatively impacted his job search. The court allowed a damage award of $50,000 based on this often forgotten part of the Wallace case for the loss of employment opportunities. A further $15,000 was allowed for aggravated damages. These non-taxable payments were both in addition to the severance sum which was set at 18 months.

Get Advice Before You Act

This is a good illustration that the law is dynamic and that every plaintiff employee requires up to date current legal advice. Contact the offices of Toronto employment and labour lawyers Mallins Law. We regularly advise employees and employers on various employment issues. Contact us online or by phone at 647-792-0310 to schedule a consultation.