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Notice extension for bad faith dismissal: “a remedy divorced from the wrong”

The full version of the article was published in the Vancouver Bar Association’s “Advocate”


The effect of the decision of the Supreme Court of Canada in Wallace v. United Grain Growers Ltd. is irrefutably significant in the development of the law of wrongful dismissal in Canada.  In Wallace, the Supreme Court reviewed the law of wrongful dismissal in the context of the manner of dismissal by the employer and chose to recognize both bad faith and unfair treatment on the part of the employer at the time of the termination of employment as factors additional to those traditionally considered in determining and otherwise extending reasonable notice in wrongful dismissal cases.

However, the question the Supreme Court of Canada did not address in the Wallace decision because the facts did not warrant it, but one that will be of interest to many plaintiffs and plaintiffs’ counsel, is whether bad faith dismissal damages are subject to an employee’s obligation to mitigate damages in wrongful dismissal cases. More specifically, if a wrongfully dismissed employee, who otherwise qualifies for bad faith dismissal damages within the meaning of the Wallace decision, secures alternative employment immediately, or within a very brief period thereafter, or fails to take reasonable steps to obtain equivalent employment elsewhere, will such employee’s bad faith dismissal damage claim be limited, curtailed, compromised or perhaps even extinguished? As a preamble to this discussion, it is perhaps instructive to discuss more fully the Supreme Court’s decision in Wallace, as well as the nature and scope of an employee’s duty generally to mitigate in wrongful dismissal cases.

The Supreme Court’s decision in Wallace

In Wallace, the plaintiff, Jack Wallace, had been a long-term employee of United Grain Growers Ltd., who was dismissed from his employment at age 59, purportedly for cause, notwithstanding that a few days before his dismissal his employer’s sales manager, as well as their general manager, had complimented him on his work.  The employer maintained its unjustified allegations of cause for over two years, only withdrawing them shortly before the trial commenced. This allegation of cause caused Mr. Wallace to seek psychiatric help and made his search for alternate employment difficult.

Iacobucci, J., in writing for the majority of the Supreme Court, while confirming the principle that any award of damages beyond compensation for breach of contract for failure to give reasonable notice must be founded on a separately actionable course of conduct, as articulated in Vorvis v. Insurance Corporation of British Columbia, and agreeing with the Manitoba Court of Appeal that there was insufficient evidence to support a finding that the actions of the employer constituted a separately actionable wrong in tort or contract, stated:

I note, however, that in circumstances where the manner of dismissal has caused mental distress but falls short of an independent actionable wrong, the employee is not without recourse.  Rather, the trial judge has discretion in these circumstances to extend the period of reasonable notice to which an employee is entitled.  Thus, although recovery for mental distress might not be available under a separate head of damages, the possibility of recovery still remains.  I will be returning to this point in my discussion of reasonable notice below.

Iacobucci, J. then reviewed the traditional factors in determining reasonable notice articulated in Bardal v. Globe & Mail Ltd. (subsequently adopted by the Supreme Court in Machtinger v. HOJ Industries Ltd) – the character of the employment, the length of service of the servant, the age of the servant and the availability of similar employment, having regard to the experience, training and qualifications of the servant (noting that these factors were not exhaustive):

The appellant urged this Court to recognize the ability of a dismissed employee to sue in contract or alternatively in tort for “bad faith discharge”. Although I have rejected both as avenues for recovery, by no means do I condone the behaviour of employers who subject employees to callous and insensitive treatment in their dismissal, showing no regard for their welfare.  Rather, I believe that such bad faith conduct in the manner of dismissal is another factor that is properly compensated for by an addition to the notice period.

Iacobucci, J., in supporting and including in the mix of considerations to determine reasonable notice, the behaviour of the employer towards the employee at the time the latter is dismissed, relied on the unique characteristics of employment contracts and the special relationship that arises. In particular, Iacobucci J., after reviewing previous decisions of the Supreme Court and academic writings on the subject noted that employment relationships are characterized by unequal bargaining power, which places employees in a vulnerable position relative to their employers, and that such vulnerability remains in place and becomes more pronounced at the time of dismissal:

… I note that the loss of one’s job is always a traumatic event. However, 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.

His Lordship then described the obligation of good faith:

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.

Having briefly reviewed the Wallace decision and the genesis of bad faith dismissal damages, as previously indicated, the question the Supreme Court of Canada did not address in its reasons for judgment is whether bad faith dismissal damages are subject to an employee’s obligation to mitigate damages.  As at the time of the writing this article, the Supreme Court’s decision in Wallace has been cited in more than 700 cases, at all court levels, in all provinces across Canada but there continues to be uncertainty on the issue as to whether bad faith dismissal damages are subject to an employee’s obligation to mitigate damages.  Less than a handful of cases at the lower court levels have directly encountered this question or commented on it. Before examining these few rare cases, it is helpful, in my view, to first examine the nature and scope of the duty to mitigate in wrongful dismissal cases.

The full article can be read here.

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