RECENT DEVELOPMENTS RELATING TO THE AWARDING OF DAMAGES WITHIN AN EMPLOYMENT LAW CONTEXT:

A UNIFYING THEORY By: Janice B. Payne and Ted J. Murphy

Nelligan O’Brien Payne LLP

I. Introduction Page 1. II. The Efficiency Paradigm Versus the Rights Paradigm Page 2. III. Recent Developments in the Employment Law Damages Jurisprudence Page 8.

(1) Constructive dismissal damages Page 8. (2) The offset of damages for lost disability benefits against wrongful dismissal damages Page 13. (3) Incentive/variable compensation Page 16. (4) Damages relating to human rights violations Page 21. (5) Wallace damages and related issues Page 30.

(a) General observations Page 32. (b) Discrete developments Page 37.

IV. Conclusions Page 40.

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RECENT DEVELOPMENTS RELATING TO THE AWARDING OF DAMAGES WITHIN AN EMPLOYMENT LAW CONTEXT:

A UNIFYING THEORY By: Janice B. Payne and Ted J. Murphy

Nelligan O’Brien Payne LLP

I. Introduction

At first blush, the particularization of employment law damage awards might appear, to the

uninitiated, to be relatively straightforward. After all, wrongful dismissal damage awards simply

focus upon the fixing of a notice period for the affected employee, followed by the determination

of the employee’s various losses during that notice period. This calculatory process is only

mildly complicated by the factoring of any notice-period mitigation on the part of the affected

employee into the mix.

Of course, employment law, and the various damage issues that arise thereunder, are not

nearly so simple and straightforward. The “straightforward” wrongful dismissal damage

calculation is becoming increasingly complicated by various sub-issues, such as how to deal with

lost variable forms of income and the continuing evolution of Wallace damages. In addition,

there are a multiplicity of available employment law heads of damages beyond baseline wrongful

dismissal losses, such as damages for disability benefit losses, mental distress damages, and

aggravated/punitive damages, that differ in analytic approach from the “typical” notice period

mode of damage assessment.

In fact, perhaps the most appropriate means of broadly characterizing current

employment law damage issues is to recognize that there is a multiplicity of such issues in play,

and that the majority of these issues are relatively distinct from one another, structured around

disparate analytical approaches.

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The goal of this paper is to provide some commentary on recent developments with

respect to a number of these various employment law damage issues, and it will do so. However,

a broader consideration of these recent developments suggests that, despite the marked

differences in categorization and approach associated with the topical areas in question, it may

be possible to group these disparate strands of jurisprudential development together under the

umbrella of a unifying theme.

The recent jurisprudential developments highlighted within this paper are all capable,

admittedly to varying degrees, of characterization as illustrative of an increasingly express

recognition on the part of the courts of the relational nature of the employment contract, and that

inequality of bargaining power and employee vulnerability are factors endemic to the typical

employment relationship.1

While such an approach can be said to have marked much of the Supreme Court of

Canada’s big-picture employment law jurisprudence during the 1990s, our analysis of recent

developments referable to employment law damages issues suggests that this approach now

appears to be trickling down into the various provincial trial-level and appellate courts, and into

the more discrete areas of employment law development, such as damage analysis.

II. The Efficiency Paradigm Versus the Rights Paradigm

In the third edition of his employment law text, Geoffrey England developed the theory that,

from the 1950s until the late 1980s, our legislators and courts were operating primarily under a

“rights paradigm” in their approach to the legal regulation of employment.2

1 This analytical approach was inspired by Brian Etherington, Supreme Court of Canada Decisions and the Common Law of Employment in the 1990s: Shifting the Balance Between Rights and Efficiency Concerns (1999), 78 Can. Bar Rev. 200. Much of the following summary descriptions of Professor England’s musings as to the rights and efficiency paradigms is also drawn from this article. 2 England, Christie and Christie, Employment Law in Canada, Third Ed., (Toronto: Lexis Nexis Canada, looseleaf, 1998-), at pars. 1.1-1.36.

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Professor England postulated that, when operating under a rights paradigm, legislators

and courts tend to be much more willing to intervene to protect the rights and interests of

employees, recognizing that, under a pure freedom of contract model, employees will generally

be vulnerable in their dealings with employers who tend to have far greater bargaining power.3

Professor England pointed to the tremendous growth in human rights, employment equity

and employment standards legislation during this time period, as well as to the adopting of the

Charter, the growth of employee-interest based labour arbitration doctrines, and the development

of more employee-friendly contract and tort law doctrines as evidence of an ongoing

commitment to this rights paradigm.4

More specific jurisprudential examples include a generalized increase to notice period

awards, the extension of categories of damages for wrongful dismissal by awarding damages for

mental distress, the interpretation of harsh employment agreement provisions against the interest

of the employer, the gradual heightening of the standard of just cause for summary termination,

and the recognition of potential liability in tort for employer negligent misrepresentations.5

However, Professor England went on to theorize that, by the 1980s, significant social and

economic changes had placed increasing pressure upon regulators and courts to move toward a

new “efficiency” paradigm. England opined that the globalization of capital and industry,

technological change, and new free trade arrangements created significant pressures upon

employers, legislators and courts to develop a new approach to the regulation of the employment

relationship, and that the development of this efficiency paradigm interrupted the advance of the

rights paradigm.6

3 Ibid; Supra, note 1, at 201. 4 Ibid. 5 Supra, note 2, at pars. 1.37-1.52. 6 Ibid.; Supra, note 1, at 201-202.

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The efficiency paradigm placed greater emphasis upon the notions that employment law

should not interfere with the operation of market forces to determine terms and conditions of

employment, and that freedom of contract should generally be allowed to enable employers to

organize their workforces in a manner that provides for the greatest flexibility, efficiency and

productivity. Accordingly, adherents to the efficiency paradigm would, for example, wish to

ensure that wrongful dismissal damage awards not rise too high, so that the cost of terminating

employees would not become prohibitive and interfere with the flexibility of an employer to

downsize to remain competitive.7

Brian Etherington picked up upon Professor England’s paradigm analysis, and examined

the Supreme Court of Canada’s employment law jurisprudence during the 1990s with a view to

trying to discern whether that jurisprudence was more in line with the rights or the efficiency

paradigm.

Professor Etherington ultimately concluded that, despite the paradigm shift of the 1980s,

there appeared, given a series of strong statements made by the Supreme Court as to the

significance of employment and the consequences of termination of employment for the average

employee, to be a renewed support within this Supreme Court jurisprudence for the recognition

of the vulnerability of the average employee and the need to take this into account when

developing the common law to govern the employment relationship and its termination.8

This renewed commitment to the rights paradigm is apparent in one of the more oft-

quoted passages from Justice Iacobucci’s majority judgment in Wallace v.United Grain Growers

Ltd:.

The contract of employment has many characteristics that set it apart from the ordinary commercial contract…As K. Swinton noted…the terms of the

7 Ibid. 8 Supra, note 1, at 202-203 and 217-219.

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employment contract rarely result from an exercise of free bargaining power in the way that the paradigm commercial exchange between two traders does. Individual employees on the whole lack both the bargaining power and the information necessary to achieve more favourable contract provisions than those offered by the employer, particularly with regard to tenure. This power imbalance is not limited to the employment contract itself. Rather, it informs virtually all facets of the employment relationship. In Slaight Communications Inc. v. Davidson…Dickson C.J., writing for the majority of the Court, had occasion to comment on the nature of this relationship…: [T]he relation between an employer and an isolated employee or worker is typically a relation between a bearer of power and one who is not a bearer of power. In its inception it is an act of submission, in its operation it is a condition of subordination. . . . This unequal balance of power led the majority of the Court in Slaight Communications, supra, to describe employees as a vulnerable group in society: see p. 1051. The vulnerability of employees is underscored by the level of importance which our society attaches to employment. As Dickson C.J. noted in Reference Re Public Service Employee Relations Act (Alta.)… Work is one of the most fundamental aspects in a person's life, providing the individual with a means of financial support and, as importantly, a contributory role in society. A person's employment is an essential component of his or her sense of identity, self-worth and emotional well-being. Thus, for most people, work is one of the defining features of their lives. Accordingly, any change in a person's employment status is bound to have far-reaching repercussions… The point at which the employment relationship ruptures is the time when the employee is most vulnerable and hence, most in need of protection. In recognition of this need, the law ought to encourage conduct that minimizes the damage and dislocation (both economic and personal) that result from dismissal. In Machtinger, supra, it was noted that the manner in which employment can be terminated is equally important to an individual's identity as the work itself (at p. 1002). By way of expanding upon this statement, 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.9

9 [1997] 3 S.C.R. 701, at pars. 91-95

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The reversion to the rights paradigm noted by Professor Etherington appears to have been

further emphasized by the Supreme Court’s recent decision in McKinley v. BC Tel, within which

the Supreme Court concluded that a determination of whether there exists cause for the summary

termination of employment requires much more than characterization of the employee conduct at

issue as an accepted “sin” of employment. Rather, such a determination was found to require a

thorough assessment of the complete factual context of each such situation:

This being the case, I conclude that a contextual approach to assessing whether an employee's dishonesty provides just cause for dismissal emerges from the case law on point... Underlying the approach I propose is the principle of proportionality. An effective balance must be struck between the severity of an employee's misconduct and the sanction imposed. The importance of this balance is better understood by considering the sense of identity and self-worth individuals frequently derive from their employment, a [page189] concept that was explored in Reference Re Public Service Employee Relations Act (Alta.)… where Dickson C.J. (writing in dissent) stated… This passage was subsequently cited with approval by this Court in Machtinger v. HOJ Industries Ltd… and in Wallace, supra, at para. 95. In Wallace, the majority added to this notion by stating that not only is work itself fundamental to an individual's identity, but "the manner in which employment can be terminated is equally important". Given this recognition of the integral nature of work to the lives and identities of individuals in our society, care must be taken in fashioning rules and principles of law which would enable the employment relationship to be terminated without notice. The importance of this is underscored by the power imbalance that this Court has recognized as ingrained in most facets of the employment relationship. In Wallace, both the majority and dissenting opinions recognized that such relationships are typically characterized by unequal bargaining power, which places employees in a vulnerable position vis-à-vis their employers. It was further acknowledged that such vulnerability remains in place, and becomes especially acute, at the time of dismissal.10

10 [2001]2 S.C.R. 161, at pars. 51-54.

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The Ontario Court of Appeal recently made similar comment:

In an important line of cases in recent years, the Supreme Court of Canada has discussed, often with genuine eloquence, the role work plays in a person’s life, the imbalance in many employer-employee relationships and the desirability of interpreting legislation and the common law to provide a measure of protection to vulnerable employees.11

While what can be described as the rights paradigm approach would appear to be front

and center within the cited recent Supreme Court of Canada pronouncements on various

employment law issues, what has been somewhat less clear has been the extent to which this

approach has filtered down into the provincial trial and appellate courts. It has been equally

uncertain as to whether this recognition of relative employee vulnerability, and the resulting need

for interventionist acts of employee protection, would spread across the breadth of the

employment law jurisprudence, or whether such more policy-focused thinking would be

restricted to “big-picture” issues such as the appropriate standard for cause for summary

termination, as discussed in McKinley.

There have, however, been a number of interesting recent developments within the

various provincial courts referable to one of the more discrete areas of the employment law

jurisprudence -- damages. While not universal, a significant number of these developments are,

to varying degrees, capable of characterization as having been driven, at least in part, by an

emphasis upon the protection of employee interests, suggesting that the rights paradigm is

increasingly impacting upon across-the-board jurisprudential development, and that this is

occurring even within the more discrete areas of employment law.

This paper will discuss several of these developments.

11 Ceccol v. Ontario Gymnastic Federation (2001), 55 O.R. (3d) 614 (CA), at par. 47.

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III. Recent Developments in the Employment Law Damages Jurisprudence

(1) Constructive dismissal damages

While much of the focus in the constructive dismissal analysis tends to fall to consideration of

whether the changes made by the employer to the terms and conditions of employment for the

affected employee(s) are of sufficient magnitude to amount to the repudiation of the employment

contract, determination of whether a constructive dismissal has occurred answers only the first of

the two fundamental questions that must be resolved in every constructive dismissal case.

Once a constructive dismissal is determined to have occurred, the remedial consequences

of such a finding remain to be resolved. Obviously, the remedy is of great import to the parties

involved and, practically, will often be of greater interest than the conceptual determination of

whether a constructive dismissal has occurred.

To date, the approach of the courts to this damages issue has been more in line with the

efficiency paradigm. For example, in 1989, the Ontario Court of Appeal’s decision in Mifsud v.

MacMillan Bathurst Inc12 confirmed that something of a twist is, given the unique character of a

constructive dismissal, to be applied to the damage assessment process in such cases. The Court

of Appeal held that the fact that the affected employee may, at law, be in a constructive dismissal

situation does not eliminate the employee’s obligation, given the duty to mitigate, to consider

his/her current position and evaluate it as a means of mitigating damages:

Why should it not be considered reasonable for the employee to mitigate his damages by working at the other position for the period of reasonable notice, or at least until he has found alternative employment which he accepts in mitigation?… Where the salary offered is the same, where the working conditions are not substantially different or the work demeaning, and where the personal relationships involved are not acrimonious (as in this case), it is reasonable to expect the employee to accept the position offered in mitigation of damages

12 (1989), 70 O.R. (2d) 701 (CA).

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during a reasonable notice period, or until he finds acceptable employment elsewhere.13

This premise is markedly efficiency-based, preferring the employer’s ability to adjust its

workforce to the employee’s entitlement not to be subjected to unilateral changes to the terms

and conditions of his/her employment.

The premise is, however, somewhat contradictory. The base finding of constructive

dismissal amounts to a determination that it would not be reasonable for the employee in

question to be required to accept the changes to the terms and conditions of employment

proposed by the employer. Yet, the employee’s obligation to take reasonable steps to mitigate the

resulting damages is found to require the employee to remain in circumstances already found to

be unreasonable.

This approach to mitigation in the context of constructive dismissal was recently

reiterated by the Ontario Superior Court. Bahen v. ING Canada P & C Inc.14 dealt with a

situation where ING purchased Mr. Bahen’s employer. Over the following months, ING

undertook the task of integrating the two businesses and their employees. Ultimately, Mr. Bahen

was offered a new position, which he refused on the basis that he considered it to be inferior to

his then existing duties and responsibilities. Mr. Bahen did, however, simultaneously indicate a

willingness to remain with the company on an interim basis. In response, ING took the position

that Mr. Bahen’s refusal to accept the adjusted position amounted to a resignation.

The Court, after consideration of the leading constructive dismissal jurisprudence,

ultimately concluded that ING’s abrupt determination that Mr. Bahen had resigned was not,

given the circumstances, supportable.

13 Ibid, QL, at 7. 14 [2000] O.J. No. 2255 (Ont. Sup.Ct.).

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However, the Court went on to emphatically reiterate the Mifsud principle, determining

that Mr. Bahen had, despite his offer to remain with the company on an interim basis, failed to

effectively comply with his mitigation responsibilities by not assuming the proffered position,

thereby disentitling him to any damage award.

In the delivery of her reasons, Justice Swinton specifically cited the Mifsud passage

excerpted above and held that it was ‘unreasonable” for Mr. Bahen to reject the company’s

offer.15

Interestingly, the Ontario Court of Appeal has very recently signaled a considerably more

employee-friendly approach to the determination of damages within the constructive dismissal

context, signaling perhaps a going-forward approach to the issue more closely aligned with the

rights paradigm.

In Belton v. Liberty Insurance Co. of Canada,16 the Court of Appeal overturned the

conclusion of the trial judge that the introduction by the employer of a new commission

arrangement for its insurance adjusters was not a sufficiently material change to the terms and

conditions of employment to establish a constructive dismissal.

However, the Court of Appeal went on to indirectly address a potential damages issue

that can arise where, rather than immediately terminating the employment relationship upon

being advised of a pending change to terms and conditions of employment, an employee remains

in the position for a time so as to assess the actual impact of the proposed change. Such a factual

scenario generates a question as to whether the employer should receive credit for such a time

period as, in effect, mitigation of the employee’s termination losses.

15 Ibid, at pars. 35-40. 16 [2004] O.J. No. 3358 (CA).

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Despite giving the Defendant mitigation credit for a period of time that led up to the date

by which the affected employees had been required to accept the proposed changes to their

commission arrangement, the Court of Appeal, after specifically citing much of the Supreme

Court and Ontario Court of Appeal jurisprudence excerpted at the outset of this paper, made an

exceedingly strong statement about the need for courts to carefully assess the vulnerability of

employees, particularly at the time of termination, in addressing this particular constructive

dismissal damages issue:

As occurred in this case, it is not unusual for an employer and employees to disagree over whether the employer’s unilateral changes to the terms and conditions of employment constitute constructive dismissal. The employees’ predicament in such a situation is unenviable. If they leave their employment claiming constructive dismissal, they will face immediate loss of job and income. They will not know when, or even if, they will find replacement employment. They will have to finance an action in an expensive legal system. Should the matter proceed to trial, they will bear the burden of proving they have been constructively dismissed. Years may pass before the dispute reaches trial, and when it does, the court may not agree with the position they have taken. From the beginning, they face the prospect of paying the employer’s legal costs. On the other hand, if the employees acknowledge an employer’s changes and continue to work, they will be taken to have condoned the changes and will no longer be able to claim constructive dismissal if they are dissatisfied with the new terms and conditions of employment. The vulnerability of employees who believe they may have been constructively dismissed and the difficulty of making the life-altering decisions they face must be recognized. In this context, it is understandable that such employees may wish to try to adjust to the new terms and conditions without affirming the employer’s right to make these changes and before taking the radical step of advancing a constructive dismissal claim. Allowing employees reasonable time to assess the new terms before they are forced to take an irrevocable legal position not only addresses their vulnerability, but also promotes stability and harmonious relations in the workplace.17 [our emphasis]

17 Ibid, at pars 25-26.

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Such sentiments are much more strongly aligned with the rights paradigm than the

efficiency paradigm approach. Presumably, this stated recognition by the Ontario Court of

Appeal of employee vulnerability at the time of termination/constructive dismissal, made in the

context of a damages issue, will influence future judicial approaches to constructive dismissal

remedial issues. It will be interesting to see whether such an approach ultimately dilutes the

impact of the Mifsud approach to mitigation in the constructive dismissal context.

While it predates the decision in Belton, the recent decision of the Nova Scotia Supreme

Court in Chambers v. Axia Netmedia Corp.18 is illustrative of such a potential shift in approach.

In this case, the Court held that the placing of the affected employee on a form of 12-month

probation, during which he was subject to a potential without-notice termination at any time,

amounted to a constructive dismissal. The Court then went on to consider whether to apply the

Mifsud approach to the question of whether the plaintiff had appropriately mitigated his resulting

losses given his failure to remain in his former position.

In rejecting the Mifsud approach, the Court specifically cited its inherently contradictory

structure:

The present case does not involve an occasion where the employee has been constructively discharged because of any demotion. He was offered the same title, and the same compensation and benefits. It is the retention, or apparent retention by the employer of the right to terminate the employee during the course of the probation period that entitles the plaintiff to regard himself as having been constructively dismissed… If he had returned, he would have had to accept employment with the same risk of immediate termination. He would, therefore, have had to accept employment with the same condition that had permitted him to have treated the employment relationship as rescinded or terminated by the employer.19 [our emphasis]

18 [2004] N.S.J. No. 26 (SC). 19 Ibid, at par. 98.

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(2) The offset of damages for lost disability benefits against wrongful dismissal damages

In certain specific circumstances, where an employee’s ongoing medical difficulties intersect

with the termination of employment, overlap may occur between the affected employee’s

termination entitlements and his/her entitlement to disability benefits. Not surprisingly, an

employer facing such circumstances will typically seek to have its termination entitlement

obligations to the employee discounted by the amount of any disability benefits received during

the reasonable notice period.

At one time, the leading approach to such circumstances was thought to be set out in the

Ontario Court of Appeal’s decision in McKay v. Camco Inc.20 In this case, the Court of Appeal

held that any disability benefits received by a terminated employee do not alter the employer’s

termination entitlement obligations to that employee. The Court of Appeal reasoned that

termination entitlements are premised upon the goal of providing a terminated employee with an

appropriate amount of time within which to seek new employment without facing the financial

jeopardy that accompanies the loss of an income stream. By definition, an individual who is

entitled to the receipt of disability benefits is not capable of working and/or seeking new

employment. As such, the two entitlements serve different purposes, and one cannot be set off

against the other.21

However, in 1997, the Supreme Court of Canada adopted a contradictory approach to this

issue.

In Sylvester v. British Columbia,22 the Supreme Court held, essentially, that disability

benefits are generally intended to be a substitute for an employee’s regular salary and, absent an

intention by the parties to provide otherwise, employees who are terminated should be treated the

20 (1986), 53 O.R. (2d) 257 (C.A.). 21 Ibid, QL, at 9. 22 (1997), 146 D.L.R. (4th) 207 (S.C.C).

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same, whether they were working or not working but receiving disability benefits. Accordingly,

the Supreme Court held that any disability benefits received during the applicable notice period

should be deducted from an employer’s termination entitlement obligations, so as to ensure that

all employees receive equal wrongful dismissal damages -- in the form of the salary that the

employee would have earned had he/she worked during the notice period.23

Sylvester is one of the few Supreme Court of Canada employment law decisions from the

1990s that can be said to display adherence to the efficiency paradigm. The Supreme Court

appears to reject the focus on protection of employee rights that drove the McKay interpretation

of the issue. In fact, the Sylvester decision specifically references efficiency concerns relating to

the unfairness to employers with disability plans that would be caused by an opposite result

because they, in some form, will have higher termination costs than employers who do not

provide such benefit coverages.24

As noted by Professor Etherington in his analysis, the Supreme Court also applied a

rather outmoded formalistic notion of equality to conclude that prohibiting offset would lead to

inequality between disabled and non-disabled employees because the disabled employee would

receive “more” compensation upon termination. The notion that equality of treatment requires

identical treatment has been antithetical to the Supreme Court’s jurisprudence on such concepts

for some time.25

However, since the release of this decision, courts around the country have been

diligently chipping away at the Sylvester principle.

Most prominently, the Ontario Court of Appeal, in two separate decisions, aggressively

distinguished the circumstances before it from those in Sylvester, by seizing upon the Supreme

23 Ibid. 24 Supra, note 1, at 211; Supra, note 22, at par.21. 25 Supra, note 1, at 211-212.

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Court’s allowance that evidence of party intent not to adopt such a discounting of the employee’s

termination entitlements would move a case beyond the Sylvester principle of offset. The Court

of Appeal characterized facts such as the existence of a separate insurer, the fact that the

employee had paid all/part of the benefit premiums, the fact that the coverage was earned “as

part of [the employee’s] compensation and as part of a trade-off in arriving at benefits and

salary,” and that it was possible to infer from the general circumstances that the parties would

not, at the outset of the employment relationship, have intended such a result, as sufficient to

permit departure from the Sylvester approach.26

In the context of neatly avoiding the Sylvester approach to this issue, the Ontario Court of

Appeal delivered a not-so-oblique critique of the fundamental proposition that informed the

Supreme Court’s approach to the issue:

The same reasoning applies to the suggestion in Sylvester that a disabled employee who receives adequate notice should not be treated differently [from] a disabled employee who is wrongfully dismissed -- an employer should not be relieved of the obligation to pay damages for a wrongful act because of a benefit plan provided by the employee. Moreover, the concern expressed in Sylvester, that disabled employees who are wrongfully dismissed be treated the same as working employees who are wrongfully dismissed, simply does not arise where the employee has paid for the plan that provides a disability income.27

The Ontario Court of Appeal approach to the issue has also recently been adopted by the

Nova Scotia Court of Appeal.28

The recognition of the particular vulnerability of a disabled employee at the time of

termination associated with refusing to permit the offset of disability benefits received against

termination obligations owed would appear to be representative of a shift to an approach more

26 McNamara v. Alexander Centre Industries Ltd. (2001), 53 O.R. 481 (C.A); Sills v. Children’s Aid Society of the City of Belleville (2001), 53 OR (3d) 577 (CA). 27 Sills v. Children’s Aid Society of the City of Belleville, supra, note 26, at par.46. 28 Kaiser v. Dural, [2002] N.S.J. No. 249 (CA), at par. 3.

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closely aligned with the rights paradigm, in that such gives effect to the unique character of an

employee’s reasonable notice period.

This shift in analytic approach also appears to be becoming more pronounced with the

passage of time.

Rather than relying upon the Ontario Court of Appeal’s approach of distinguishing the

factual circumstances before it from those in Sylvester, the Ontario Superior Court recently

directly challenged Sylvester’s fundamental internal justification.

In Zorn-Smith v. Bank of Montreal, the Court refused to deduct damages awarded to the

Plaintiff for three months’ lost disability benefits, which resulted from the employer’s cessation

of her disability benefits, from the employer’s termination obligations. In arriving at this result,

the Court explicitly held that a terminated employee who is disabled during all/part of the notice

period is not in a position “equal” to that of a terminated employee who is healthy throughout the

same notice period. The healthy employee “would have been able to search for alternate

employment right from the moment of dismissal, whereas [the disabled employee] first had to

get over her disability before she could put her mind to seeking alternate employment.”29

(3) Incentive/variable compensation While it has long been well accepted that the fixing of an employee’s wrongful dismissal

damages is to be inclusive of the value of both salary and employee benefits lost during the

applicable notice period, uncertainty has persisted with respect to how to deal with

incentive/variable forms of compensation within such a context given the less defined nature of

such employee entitlements.

29 [2003] O.J. No. 5044 (Sup.Ct.), at par. 156.

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The Ontario Court of Appeal recently clarified much of this uncertainty. In Moore v.

Thomas Fuller Construction Co.,30 Mr. Moore was employed as the President of the Defendant

corporation. His terms of compensation included participation in a profit-sharing plan that

entitled him to a payout equal to 10% of the company’s net profits at the conclusion of each

fiscal year.

Dissatisfied with his compensation package, Mr. Moore departed his employment 7/12 of

the way through the 1999 fiscal year. During certain of the years of his employment, the

company had sustained losses, voiding his profit-sharing entitlement. However, somewhat

unexpectedly, the company ultimately posted considerable profits by the conclusion of the 1999

fiscal year. Accordingly, Mr. Moore, despite the fact that he had departed his employment prior

to the end of the 1999 fiscal year, initiated a claim for a pro rata share of his 1999 entitlement

under the company’s profit-sharing plan.

The Court of Appeal ultimately affirmed the determination of the trial court that,

irrespective of his arguably premature departure from employment, Mr. Moore was entitled to

claim a pro-rata share of his profit-sharing entitlement. The Court of Appeal held that, given that

the employer had not specifically negotiated a contract with Mr. Moore that either made payout

of the bonus discretionary, or conditioned upon service for a full year, it could not impose such

an after-the-fact condition upon Mr. Moore’s entitlement to this payout.31

The Moore approach to this issue is an approach that fits more comfortably within the

rights paradigm, for several reasons.

First, the Moore decision appears to have resolved a debate between competing lines of

jurisprudence by favouring the more employee-protectionist result.

30 [2003] O.J. No. 4214 (CA). 31 Ibid, at par. 9.

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Prior to the Court of Appeal’s decision in Moore, one line of jurisprudence had

developed in reliance upon a theory referred to as the “entire contract” theory. This approach

essentially accepted the presumption that, where entitlements are based upon service over a

defined time period, common-sense requires the implication that the employee must be in the

service of the employer at the conclusion of that time period to have a claim to the resulting

entitlement.32

The competing line of jurisprudence accepted that the entire contract theory approach

was a permissible means of defining employee entitlement to incentive/variable forms of

compensation, but required such an arrangement to have been clearly agreed to by the parties at

the outset of the employment relationship. The lack of such an agreement, or uncertainty in this

regard, was to work to the benefit of the employee.33

Accordingly, the Court of Appeal had before it a tenable efficiency-based approach in the

entire contract theory jurisprudence that emphasized that such payouts were an employee

retention tool of considerable value to business enterprises. This was, however, rejected in favour

of an approach that essentially created, in the absence of clear agreement to the contrary, a

presumption of pro-rata employee entitlement to incentive/variable compensation, even in a

context where the employee voluntarily departs the employment relationship prior to the end of

the applicable work period. Granting the employee the benefit of the doubt with regard to this

form of entitlement can be interpreted as recognition of the significance of employment and of

the consequences of departure from employment for the average employee.

32 See, for example, Nugent v. Midland Doherty Ltd. (1969), 65 D.L.R. (4th) 694 (CA) and Hall v. Canadian Corporate Management Co., [1983] O.J. No. 875 (HCJ). 33 See, for example, Malinowski v. Nault Sawmill & Lumber Co., [1985] A.J. No. 662 (QB) and Grace v. Reader’s Digest Assn. Ltd., [1995] O.J. No. 2671 (Gen.Div.).

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The fact that this decision emanated from a resignation, as opposed to a termination,

further underscores this point. Mr. Moore was not faced with the various negative consequences

that typically accompany an involuntary departure from employment. Still, the Court of Appeal

elected to adopt the approach that maximized the protection of employee entitlements.

Of note, the Alberta Provincial Court recently applied the same approach to that taken in

Moore to a similar factual context, in Slozka v. Commodity Carriers Inc.34

It seems likely that a similar employee-friendly approach will infuse future decisions with

respect to the fixing of damages for losses relating to incentive/variable compensation in

termination contexts.

While it predates the decision in Moore, the decision of the British Columbia Supreme

Court in Marlowe v. Ashland Canada Inc.35 is illustrative of this expected result. In this case, the

Plaintiff was terminated in early December 1998. The Defendant’s fiscal year ran from October

to September, with employee bonus entitlements to be paid out in December. As part of his

wrongful dismissal action, Mr. Marlowe claimed for lost bonus entitlements referable to the

fiscal year that was completed in September 1998, and for pro-rata amounts referable to the

fiscal year during which he was terminated.

Mr. Marlowe’s letter of offer and the terms of the bonus program both required that he be

employed at the time of payout to be entitled to receipt of any bonus entitlements. However, the

Court held that Mr. Marlowe was entitled to both bonus amounts claimed.

With respect to the 1998 fiscal year, the Court held that, had Mr. Marlow been provided

with appropriate notice of termination, he would have been employed at the time of bonus

payment. As such, he could not be deprived of his full bonus entitlement referable to that fiscal

34 [2003] A.J. No. 119 (Prov.Ct.), at pars. 40 and 52-54. 35 [2001] B.C.J. No. 1338 (SC).

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year. The Court reasoned that the applicable language “meant that Mr. Marlowe was entitled to a

bonus for the 1998 fiscal year if he did not resign in the year, [and] if he was not dismissed for

cause in the year…”36

Perhaps somewhat more surprisingly, the Court went on to grant Mr. Marlowe the

claimed bonus entitlement for the next fiscal year, despite the fact that his reasonable notice

period would not have taken him through to December 1999. In this context, the Court expanded

upon its earlier finding and held that the applicable language must contain an implied term that

Mr. Marlowe would be entitled to a bonus if his employment were terminated at some point in

the fiscal year, other than because of resignation or dismissal for cause. Interestingly, the Court

characterized this latter determination as necessary to give “business efficacy” to the contract.37

A couple of other recent decisions with respect to fixing of damages for lost forms of

variable compensation also appear to fall more on the side of the rights paradigm, in that they

maximize employee protection.

In McIntosh v. CTF Supply Ltd.,38 the Plaintiff was employed by the Defendant for just

three weeks before being terminated. A significant portion of his compensation was commission-

based. Given the factual context, Mr. McIntosh was granted a lengthy notice period, and there

was little dispute that he was entitled to commission losses referable to that time period.

However, given his limited time in his position, there was no prior history against which

to determine the commission amounts owing. Accordingly, the Court assessed these damages in

terms of real and substantial possibility, as opposed to probability.39

36 Ibid, at pars. 106-108. 37 Supra, note 35, at pars. 109-115. 38 [2001] O.J. No. 5062 (Sup.Ct.). 39 Ibid, at pars. 41-43.

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Similarly, in Duprey v. Seanix Technology Inc.,40 the Plaintiff’s employment was

terminated after just several months. However, during those months, Mr. Duprey was able to

initiate negotiations with Future Shop that resulted in the Defendant obtaining a contract to

supply Future Shop with computers to re-sell under its own brand name. A significant element of

Mr. Duprey’s compensation was commission-based. The Future Shop contract garnered almost

$40 million for the Defendant in its first year alone. An additional $42 million had been earned

in the next six months that had passed as of the time of trial.

Although it found that the Defendant had acted in bad faith in terminating Mr. Duprey so

as to avoid paying out the commission entitlements that would have resulted from his success

with the Future Shop contract, the Court limited Mr. Duprey’s notice period to five weeks,

which, obviously, would generate only limited commission damage entitlements.

However, aided by the bad faith finding, the Court, in fixing damages, went on to hold

that Mr. Duprey was entitled to Future Shop commission damages, based upon a quantum meruit

approach, separate and apart from his notice period commission entitlements. Given that the

initial Future Shop agreement facilitated by Mr. Duprey had a one-year term, the Court fixed

these damages as equal to the commissions that would have been earned by Mr. Duprey in that

one year, which amount was determined to be approximately $200,000.41

(4) Damages relating to human rights violations42 The traditional rule has long been that claims based on discrimination must be determined using

the administrative mechanism put in place by the various Canadian human rights statutes. This

40 [2002] B.C.J. No. 2118 (SC). 41 Ibid, at pars. 86-93. 42 Much of this section of the paper is drawn from J. Payne and C. Rootham, Are Human Rights Commissions Still Relevant, paper delivered at Catherine Helen MacLean Memorial Lecture, Ottawa, 2005.

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rule was first propounded by the Supreme Court of Canada in Seneca College of Applied Arts

and Technology v. Bhadauria.43

In that case, Ms. Bhadauria brought a civil claim against the Seneca College of Applied

Arts and Technology, claiming damages for being deprived of teaching opportunities at the

College. She was a woman of East Indian descent with a PhD in mathematics. From 1974 to

1978, she had made ten separate applications for a teaching position at the College. Each time,

she was never even interviewed for the position, and the positions were eventually awarded to

candidates without her educational qualifications, but who were not of East Indian origin.

Ms. Bhadauria claimed damages based on a proposed new intentional tort protecting a

plaintiff against the unjustified invasion of his or her interest not to be discriminated against in

respect of a prospect of employment on the grounds of race or national origin – essentially, a tort

of discrimination.

The Supreme Court ultimately decided not to create this new intentional tort, in large

measure because the same interest was protected through various administrative regimes set out

in statute. The Court stated:

In the present case, the enforcement scheme under the Ontario Human Rights Code ranges from administrative enforcement through complaint and settlement procedures to adjudicative or quasi-adjudicative enforcement by boards of inquiry. The boards are invested with a wide range of remedial authority including the award of compensation (damages in effect), and to full curial enforcement by wide rights of appeal which, potentially, could bring cases under the Code to this Court. . . . In my opinion, however [the new tort] is foreclosed by the legislative initiative which overtook the existing common law in Ontario and established a different regime which does not exclude the courts but rather makes them part of the enforcement machinery under the Code.44

43 [1981] 2 S.C.R. 181. 44 Ibid, at 194-195.

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Bhadauria amounts to affirmation of an exclusive jurisdiction model for human rights

matters, foreclosing access to the courts for human rights abuses. Bhadauria reflects a clear

preference by the Supreme Court, at least at that time, that human rights issues should be dealt

with by human rights commissions and tribunals, and not by the courts. While the Court

never explicitly used the language of “exclusive jurisdiction,”45 this is a fair way to

interpret the Court’s reasoning in that case.

The idea of an exclusive jurisdiction model implies that there is a metaphorical wall

surrounding human rights commissions, so that no issues of discrimination and human rights can

escape their jurisdiction. However, a number of jurisprudential cracks have begun to

appear in that wall, many of which are relatively recent.

In Montague v. Bank of Nova Scotia,46 the Plaintiff had filed both a civil claim for

wrongful dismissal and a human rights complaint. The Canadian Human Rights Commission had

already dismissed her complaint and concluded that she had not been unreasonably dismissed.

The Defendant argued that the plaintiff was now estopped from making the same claim in the

civil courts. The Ontario Court of Appeal rejected this argument, stating:

[G]iving the decision of the Commission, which is not expressed in the clearest terms, the most generous interpretation possible in favour of the defendant, we do not think that the Commission has decided “the same question” as that which was raised in the action. The Commission may have decided that the plaintiff was not unreasonably dismissed by the defendant on the basis of her disability, but it did not adjudicate upon the issue also raised by the plaintiff in her statement of claim that she was dismissed unreasonably in that the defendant acted precipitously and in bad faith in terminating her employment.47

45 Unlike its decision in Weber v. Ontario Hydro, [1995] 2 S.C.R. 929, in which the Supreme Court expressly stated that arbitrators have exclusive jurisdiction over matters that arise, in their essential nature, from the collective agreement. 46 [2000] O.J. No. 1434 (C.A.). 47 Ibid. at par. 4.

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In Farris v. Staubach Ontario Inc.,48 the Ontario Superior Court was even more specific

in rejecting the argument that a civil action should be stayed simply because a human rights

proceeding had been commenced concerning the same events:

Where both a civil action and a complaint arise from an employer-employee relationship, some similarities in evidence and allegations are inevitable. However, given the important remedial purpose of human rights legislation, where the litigation contains some claims independent of the provisions in the Code, mere similarities should not impair the pursuit of a civil remedy. A plaintiff should not be put to the choice: proceed in the courts but only if the human rights process is halted. The threat of a stay in a civil action where a plaintiff also brought a complaint under the Code would be a disincentive for future plaintiffs to use human rights legislation, and could result in fewer complaints being brought forward. Furthermore, it could result in employer respondents not being held accountable for their human rights violations.49 In L’Attiboudeaire v. Royal Bank of Canada, the Ontario Court of Appeal refused to

strike a constructive dismissal claim premised upon allegations of racial harassment, reasoning

that, if the facts in question could support a claim of constructive dismissal, then the action was

sustainable as it was being advanced based on the grounds of constructive dismissal, not racial

harassment.50

Finally, in Sparrow v. Manufacturers Life Insurance Co., the Manitoba Court of Queen’s

Bench, in refusing to strike a wrongful dismissal claim premised upon the allegation that the

Plaintiff was terminated because of his disability, recently opined that “an employee’s rights

arising under the Code are not limited to a complaint to the Commission, and an employee is not

prevented from bringing an action in this Court to enforce rights arising within an employment

relationship.”51

48 [2004] O.J. No. 1227 (Sup.Ct). 49 Ibid. at paragraph 14. See also Ross v. IBM Canada Inc., [2004] O.J. No. 414 50 (1996), 131 D.L.R. (4th) 445 (OCA). 51 [2004] MJ No. 461 (QB), at pars. 11-32.

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The human rights cases mentioned thus far were all situations where an alleged human

rights violation formed part of the narrative, and was not, itself, relied upon as the cause of

action. Cracks in the exclusive jurisdiction model are opened even more broadly in cases where a

former employee argues that he or she is entitled to damages for a breach of the obligation to act

in good faith in the manner of dismissal because the employer discriminated against him or her

in some way.

The Supreme Court of Canada has, in the Wallace52 decision referenced previously, held

that an employer owes its employees an obligation of good faith and fair dealing in the manner

of dismissal, and that a breach of this obligation can be remedied by an increase to the

employee’s reasonable notice period and, hence, his/her wrongful dismissal damages. On several

recent occasions, the courts have drawn this more direct link between a discriminatory act and

the affected employee’s entitlement to damages in a civil court.

For example, in McKinley v. B.C. Tel., the Supreme Court agreed that Wallace damages

were appropriate when an employee was terminated while on short-term disability and suffering

from hypertension and depression. 53

Similarly, in McNamara v. Alexander Centre Industries Ltd., the Ontario Superior Court

awarded the Plaintiff an additional two months notice because he was fired for asking for

time off due to health reasons.54

In Delaquis v. College de Saint-Boniface, the plaintiff was, in part, awarded additional

notice because he had suffered a heart attack shortly before being dismissed.55

52 Supra, note 9. 53 Supra, note 10. 54 (2000), 2 C.C.E.L. (3d) 310 (Ont. SCJ). This decision was appealed, but not on this point: (2001), 53 O.R. (3d) 481 (CA). 55 [2000] M.J. No. 181 (Man. QB).

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In Rinaldo v. Royal Ontario Museaum, the plaintiff received three months additional

notice because of the employer’s insensitivity to his disability.56

Finally, in Rowbotham v.Addison, the employer was found to have acted in bad faith by

being indifferent to the vulnerability of the employee’s position due to disability.57

The courts have also recently begun to recognize the possibility of another means by

which employer human rights violations can find their way into the assessment of damages.

Several recent judicial pronouncements have opened the door to the possibility that allegations of

a human rights violation(s) may constitute an independent actionable wrong58 sufficient to

generate an award of punitive damages in wrongful dismissal cases.

In Gigliotti v. Masev Communications Inc., the plaintiff alleged that he was dismissed at

age 55 because the corporation wanted to put forward a different and more youthful face going

forward. Mr. Gigliotti alleged that this constituted discrimination on the basis of age and, as

such, a breach of the British Columbia Human Rights Code. He then used this allegation to

support his claim for punitive damages.

Although the British Columbia Supreme Court ultimately dismissed the claim for

punitive damages for want of evidence, it did hold that a breach of the Human Rights Code

would constitute an “independently actionable wrong,” despite not being “actionable” in and of

itself, in the sense of giving rise to a tenable civil claim:

In my view, breaching the Human Rights Code would constitute an “independently actionable wrong,” even though it is not actionable in the sense of giving rise to a claim in a lawsuit. It is actionable through a complaint pursuant to the Human Rights Code. In my view, although such complaints are resolved in a

56 [2004] O.J. No. 5068 (SCJ). 57 [2000] B.C.J. No. 250 (SC). 58 See Vorvis v. Insurance Corporation of British Columbia, [1989] 1 S.C.R. 1085 and Whiten v. Pilot Insurance Co., [2002] 1 S.C.R. 595.

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different forum, they are still actionable for the purposes of a punitive damages analysis. 59 This approach was specifically approved by the same court in Greenwood v. Ballard

Power Systems Inc, where the Court refused to accede to a motion to strike a claim for

aggravated and punitive damages premised upon an alleged human rights violation, because [the

above-quoted excerpt from Gigliotti] “is an illustration of the broader meaning of the expression

“actionable wrong”… it may include a breach of a statute that has its own separate procedures

and remedies when the conduct designed to be governed by those statutes is combined with

actions for wrongful dismissal.”60

The Ontario Superior Court has adopted a similar approach to this issue.

In Chikoski v. Shaw Cablesystems GP, the Court refused to strike out claims for

aggravated and punitive damages premised upon alleged violations of Ontario’s Human Rights

Code reasoning that “the range of conduct which may constitute an independent wrong has not

yet been fully defined.”61

The decision in Rinaldo v. Royal Ontario Museum is much more definitive. In this case,

the Court specifically endorsed the approach taken in Greenwood, and held that a breach of a

provincial human rights code could constitute an independently actionable wrong sufficient to

support a claim for punitive damages.62

Very recently, and much more spectacularly, Justice J. R. McIsaac of the Ontario

Superior Court, in a decision released on March 17, 2005 in Keays v. Honda Canada Inc.,63

extended a 15 month notice period to 24 months on Wallace principles and awarded $500,000 in

59 [2004] B.C.J. No. 94 (SC), at par. 141. 60 [2004] B.C.J. No. 384 (SC), at pars. 32-34. 61 [2002] O.J. No. 3420 (Sup.Ct.), at par. 5. 62 [2004] O.J. No. 5068, at pars. 148-152. 63 [2005] O.J. No. 1145.

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punitive damages to a 38 year old plaintiff suffering from chronic fatigue syndrome where the

employer had abused the employee over a period of five years, refusing to recognize his illness,

refusing to accommodate reasonably and insisting on doctor’s notes for every absence. The

employer had finally terminated the plaintiff’s employment.

The Court found that the plaintiff was a particularly vulnerable employee. Justice

McIsaac stated:

It goes without saying that Honda is a worldwide corporation, a “Leviathan compared to the “minnow” that Mr. Keays represents. As Binnie, J. stated in Whiten, supra, a “large whack” is required to “wake up a wealthy and powerful defendant to its responsibilities”.64

He went on to find that the “large whack” in this case necessitated a $500,00 award of

punitive damages in addition to the compensatory awards already made. Justice McIsaac’s

decision is currently under appeal.

These recent jurisprudential developments appear markedly consistent with the rights

paradigm in that movement away from the exclusive jurisdiction model provides employees with

additional options via which to pursue redress for mistreatment at the hands of the employer,

placing the choice of forum largely in the hands of the affected employee.

This is particularly the case in the current climate where, for a number of reasons, human

rights commissions are not particularly responsive to any but the most egregious of human rights

complaints. Even then, the civil court system is currently moving at a considerably faster pace

than any of the provincial human rights processes.

In fact, recent judicial commentary suggests that this jurisprudential development has

been prompted, at least in part, by this latter point.

64 Ibid. at paragraph 62.

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The Supreme Court of Canada recently had complaints about the current ability of

provincial human rights commissions to provide substantive assistance to individuals facing such

issues placed squarely before it in Blencoe v. British Columbia (Human Rights Commission),

when the respondent to a human rights complaint petitioned the courts to find that the

Commission had lost jurisdiction over the complaint because the delays in processing the

allegations against him constituted an abuse of process. The majority of the Supreme Court

ultimately concluded that the delay at issue was not sufficient to constitute an abuse of process.

However, four judges dissented, concluding that the delay (which was not unusual for the

Commission) resulted in an abuse of process. Even the majority commented adversely on the

delays in processing the case. 65

Similarly, in recently deciding that the provisions of human rights legislation are implicit

in every collective agreement, the Supreme Court implicitly suggested that current practical

problems with the processing of human rights complaints formed part of the rationale behind its

decision. On several occasions, the majority stated that it preferred arbitral resolution of such

issues, on policy grounds, because this promoted the “expeditious resolution” of complaints. The

majority also referred to arbitrators as an “accessible and inexpensive forum” for the resolution

of disputes.66

It is clear, then, that concerns about the operation of human rights commissions (concerns

that were not as prevalent in 1981 when Bhadauria was decided) have played some role in the

evolution away from an exclusive jurisdiction model. Again, this focus upon employee access to

remedial assistance is consistent with the rights paradigm approach.

65 [2000] 2 S.C.R. 307. 66 Parry Sound (District) Social Services Administration Board v. OPSEU, Local 324 , [2003] 2 S.C.R. 157

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(5) Wallace damages and related issues As referenced, the Supreme Court of Canada’s 1997 decision in Wallace determined that bad

faith conduct by an employer in the manner of dismissal is a factor that can be compensated for

by adding to the notice period used to measure the damages to be awarded to an employee for the

employer’s failure to provide reasonable notice of termination. 67

The Supreme Court based this proposition upon the special relational nature of the

employment contract that sets it apart from the ordinary commercial contract, as well as upon the

inherent power imbalance that informs all facets of the employment relationship.68

This decision has been characterized as somewhat of a saw-off between the efficiency

and rights paradigms.69

Facilitating the increasing of an employee’s wrongful dismissal damages where the

employer falls below a standard of good faith and fairness in the manner of dismissal would

appear to be strongly motivated by a desire to protect employee interests at a time when they are

most vulnerable.70

The creation of this remedial device as a largely subjective and readily accessible judicial

tool also makes Wallace damages much more realistically available than remedies such as

aggravated or punitive damages, or, even, mental distress damages, to employees as a means of

delivering compensation for inappropriate employer conduct. All that is, theoretically, required is

some form of bad faith conduct on the part of the employer in the manner of dismissal. There is

no requirement for the existence of an independently actionable wrong, as is necessary to permit

67 Supra, note 9, at pars. 80-109. 68 Ibid; Supra, note 1, at 214. 69 Supra, note 2, at 10.37-10.39; Supra, note 1, at 215-216. 70 Supra, note 1, at 215.

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an award of aggravated or punitive damages, nor for defined resulting medical difficulties, as is

necessary to ground a claim for damages for mental/emotional suffering.

Again, this lower threshold is suggestive of judicial recognition that all employees are

particularly vulnerable, and in need of some form of enhanced protection, at the time of

termination, not just those faced with the most egregious forms of employer misconduct.

On the other hand, the Supreme Court majority refused to recognize a free-standing

generalized contractual or tort duty of good faith and fairness in the manner of dismissal on the

ground that such would be overly intrusive into the employer’s ability to determine the

composition of its workplace .71 This part of the Supreme Court’s reasoning appears to affirm the

importance of efficiency concerns in the development of the common law of employment.72

The majority’s solution is also somewhat imperfect in that the conceptualization of the

remedial device as an extension to the employee’s notice period means that this will be of no

actual economic benefit to an employee who is able to mitigate his/her losses quickly. This point

was specifically made by the Ontario Superior Court, in Y.S. v. H & R Property Management

Ltd.:

By virtue of the fact that the plaintiff found new employment by October 1987 the possible recovery by the plaintiff is quite limited so long as this case is regarded as a simple case of wrongful dismissal. The plaintiff's new job, as stated, paid her more than did her job with the defendant. She is required to mitigate her damages.

I digress somewhat at this point to record my opinion that under the Supreme Court of Canada decision in Wallace and United Grain Growers Ltd.,… a breach by the employer of his obligations of good faith when terminating an employment is compensable by increasing the notice period but is not compensable by way of aggravated damages except where an independent, freestanding actionable wrong has been established.

71 Supra, note 9, at pars. 75-78. 72 Ibid.

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In my opinion that means that any additional amount in lieu of notice that might be mandated in those circumstances under the doctrine of Wallace would itself be subjected to capping by way of mitigation when a terminated employee obtains a new job at higher pay. The decision in Wallace would thus be of no assistance to the plaintiff in avoiding the mitigation effect of her subsequent long term employment. …

In order to be eligible in law for more than a modest recovery the plaintiff must establish a right to recovery for an independent tort.73

In addition, unlike mental distress, aggravated or punitive damages, such an increase to

an employee’s wrongful dismissal damages is fully taxable.74

Many of the recent jurisprudential developments referable to Wallace damages and

related areas can be somewhat similarly characterized – as a bit of a saw-off between the rights

and efficiency paradigms. That said, even within such mixed jurisprudence, it appears that

inklings of at least an incremental move to the rights paradigm side of the ledger are beginning to

emerge.

(a) General observations

In general terms, the lower courts have readily embraced and actively utilized the Supreme

Court’s Wallace damages concept. There have been dozens upon dozens of instances of reliance

upon the concept since it was introduced by the Supreme Court in 1997, with the average such

addition to the applicable notice period being in the range of approximately three months.75

As per the above, the ready acceptance by the courts of the Wallace damages concept is

probably relatively neutral in terms of characterization, given the conceptual dual nature of this

remedial development.

73 [1999] O.J. No. 5588 (Sup.Ct.), at pars. 19-24. 74 J. Howard and K. Krenn, “Wallace Update: Damages for Bad Faith Dismissal in Canadian Courts of Appeal” (2003), 61(3) The Advocate 389, at 391. 75 Ibid, at 401.

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The expansive usage of the concept is arguably consistent with the rights paradigm in that

the concept, by definition, directly addresses the inherent vulnerability of the employee,

particularly at the time of termination, via the imposition of specific consequences for employer

attempts to capitalize upon this vulnerability.

However, broad-based judicial reliance upon the Wallace damages concept appears to

have, at least for the moment, largely stopped further jurisprudential development toward a free-

standing generalized implied employer duty of good faith and fair dealing in the manner of

dismissal (or generally), either as tort duty or as an implied contractual obligation. This stalling

of further jurisprudential development along these lines is, of course, more consistent with the

efficiency paradigm.

The ambit of Wallace damages as a remedial concept has been gradually broadened in

recent years.

Rather than interpreting the construct narrowly and restrictively, the courts have

consistently clarified both that the availability of Wallace damages is not limited to contexts

where the employer’s bad faith conduct has somehow adversely impacted upon the employee’s

ability to obtain new work, and that the concept of “manner of dismissal” has a broader ambit

than just the mechanical implementation of the termination process.

In particular, the Ontario Court of Appeal recently affirmed, in Gismondi v. The

Corporation of the City of Toronto, that both of these developments have been appropriate and,

with respect to the latter, that “Wallace damages are not limited to acts of the employer at the

very moment of dismissal and can in appropriate circumstances include the employer’s conduct

pre- and post-termination, and the conduct of the employer in its aftermath…” 76

76 [2003] O.J. No. 1490 (CA), at pars. 23-24.

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The post-Wallace jurisprudence has also similarly emphasized that the types of employer

conduct deserving of Wallace sanction will not be narrowly defined or limited. Gismondi further

affirmed, in this regard, that bad faith employer conduct is a broad concept that has developed,

and will continue to develop, organically.77

Again, this expansive growth of the various aspects of Wallace damages is consistent

with a judicial recognition of the inherent vulnerability of employees at the time of termination

and, as such, the rights paradigm.

That recognized, this development has not occurred without its limits.

Gismondi, while recognizing that Wallace damages were not limited to employer acts at

the very moment of termination, went on to provide that, while employer conduct further afield

may be appropriately so sanctioned, only where such is “a component of the manner of

dismissal.”78 Similarly, while recognizing the breadth of employer conduct that could

appropriately attract such sanction, the Court of Appeal required the existence of “something

akin to [employer] intent, malice or blatant disregard for the employee.”79Again, it appears that a

push toward a more generalized duty of employer good faith has been resisted.

The Ontario Superior Court has also, in one recent decision, cautioned against the

“routine” assertion of claims for Wallace damages that are not justified by the facts, suggesting

in obiter that “clearly unmeritorious” claims for Wallace damages “having little or no

foundation on the evidence,” may face sanctions that could include the reduction of either cost or

wrongful dismissal damage awards.80

77 Ibid., at pars. 25-32. 78 Ibid, at par. 23. 79 Ibid., at par. 32. 80 Yanez v. Canac Kitchens, [2004] O.J. No. 5238 (Sup.Ct), at pars. 36-43. The BC Provincial Court also recently deducted $500.00 from a wrongful dismissal damage award as a result of the Plaintiff’s post-termination conduct, based what appears to be a form of reverse-Wallace reasoning. See San-Da v. APS Architectural Precast Structures Ltd., [2004] BCJ No. 2209 (Prov.Ct), at pars. 96-97.

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Finally, in terms of general observations, it stands to reason that, while difficult to

quantify with any accuracy given that such issues are rarely discussed in the course of judicial

reasons and that remedial options such as aggravated, punitive and mental distress damages tend

to be relatively rarely awarded in any event, these latter forms of damages have been less

frequently awarded since the advent of Wallace damages.

Given the lower threshold applicable to Wallace damages, its seems likely that, since the

advent of same, at least some employer conduct potentially deserving of an aggravated, punitive

or mental distress damage award has been judicially sanctioned via the imposition of Wallace

damages.

For example, soon after Wallace was decided, the British Columbia Supreme Court

struck out a claim for aggravated damages referable to alleged employer bad faith conduct,

reasoning that “the appropriate remedy for bad faith conduct on dismissal is to extend the notice

period, rather than to order a separate damage award.”81

Similarly, in Geluch v. Rosedale Golf Assn. Ltd., while the decision appears to tie a two-

month Wallace extension to the Plaintiff’s notice period to the Court’s finding that comments

made by the employer may have had a negative impact upon Mr. Geluch’s job search, the

portion of the reasons devoted to the Wallace damages analysis details the emotional trauma

suffered by Mr. Geluch as a result of the cause allegations made, and notes that whether the

affected employee sought medical attention will not be determinative of whether an unfounded

cause allegation can result in the imposition of Wallace damages. Mr. Geluch’s claim for mental

distress damages is later dismissed without discussion.82

81 Iacobucci v. WIC Radio Ltd., [1997] B.C.J. No. 2874 (SC), at par. 54. 82 [2004] O.J. No. 2740 (Supt.Ct.), at pars. 176-193. A similar result appears to have occurred in Nagy v. Metropolitan Toronto Convention Centre Corp., [1998] O.J. No. 1017 (Gen.Div.).

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In Marshall v. Watson Wyatt & Co., the Ontario Court of Appeal set aside punitive

damages awarded by a jury, and was less ambiguous about its reasons for doing so:

Even if the Commission’s view satisfies the independent actionable wrong requirement, and I doubt whether it does, a punitive damages award in this case serves no rational purpose. Ms. Marshall was awarded generous compensation equal to nine months’ notice. The nine months was increased by three months because of the jury’s finding that the way Watson Wyatt dismissed Ms. Marshall was unfair or in bad faith. Undoubtedly, the jury relied on much the same evidence for both extending the notice period by three months and awarding punitive damages. In my view, the overall compensatory award of 12 months’ notice – which included a base salary of $112,500 for the second six months and a maximum bonus of $45,000 – was more than adequate to express the jury’s disapproval of Watson Wyatt’s conduct and to deter similar conduct in the future.83

Interestingly, however, the Ontario Divisional Court recently determined that an

arbitration board erred in concluding that it did not possess the necessary jurisdiction to award

aggravated and/or punitive damages in the context of an unjust dismissal grievance initiated by a

unionized employee. Consistent with the rights paradigm, the Divisional Court purposively

interpreted the issues arising out of the collective agreement, as well as the Board’s inherent

remedial powers, so as to achieve a result that permits a unionized employee to obtain redress for

inappropriate employer conduct without having to initiate a multiplicity of proceedings.84

To the extent the conjecture that there are less aggravated, punitive and mental distress

damages awards being made in employment law cases, post-Wallace, is consistent with reality,

such a development departs from the rights paradigm approach in that it results in the delivery of

less damages to the employee than the alternative, given the impact of mitigation and taxes.

83 [2002] O.J. No. 84 (OCA), at par. 50. 84 OPSEU v. Seneca College of Applied Arts & Technology, [2004] O.J. No. 4440 (Div.Ct), at pars. 18-33.

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(b) Discrete developments

As referenced at the outset of this section, there have, however, been several discrete instances of

jurisprudential development that are suggestive of at least incremental movement within the

Wallace damages jurisprudence toward an approach more definitively aligned with the rights

paradigm.

In Prinzo v. Baycrest Centre for Geriatric Care,85 the Plaintiff was terminated after more

than 17 years’ employment with the Defendant. Ms. Prinzo had been required to take medical

leave for several months after a fall in the Defendant’s parking lot. The evidence was that she

was medically unfit to perform any type of work during this time period.

However, commencing shortly after the start of this medical leave, Ms. Prinzo received a

series of telephone call from representatives from the employer, urging her to return to work

forthwith. The employer also attempted to obtain medical information directly from Ms. Prinzo’s

doctor. Ms. Prinzo’s lawyers eventually specifically requested that the employer cease its contact

with Ms. Prinzo in this regard, given its debilitating impact upon her health, but this request was

ignored and the employer continued to harass Ms. Prinzo about returning to work.

When Ms. Prinzo returned to work, she asked to discuss modified duties. Instead, the

possibility of termination was raised by the employer, and she was terminated soon after, with

minimal notice.

In addition to damages for wrongful dismissal, Ms. Prinzo was awarded damages for

mental distress, which were characterized as aggravated damages. This award was upheld on

appeal. Of particular interest, however, is the Ontario Court of Appeal’s discussion of the

Plaintiff’s alternative claim for a Wallace extension of her notice period.

85 [2002] O.J. No. 2712 (CA).

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In noting that the conduct that grounded the awarded mental distress damages could

equally have grounded a Wallace increase to her notice period, the Court of Appeal explains why

it chose to award Ms. Prinzo aggravated damages as compensation for this form of employer

mistreatment, which explanation can be characterized as consistent with the rights paradigm in

that it is premised upon delivery of the more favourable result to the terminated employee:

Prinzo fulfilled her duty to mitigate by finding alternative employment. Her new employment paid somewhat less than her previous employment. Baycrest only has to make up the difference between her salary level at Baycrest and what she was earning at Allstate during the ordinary notice period. If this deduction of earned income were also made from the damages awarded in relation to a “Wallace extension,” Prinzo would not effectively be compensated for the injury done to her. This result would appear incongruent with the Supreme Court’s view in Wallace that the injuries resulting from bad faith conduct on the part of the employer are “sufficient to merit compensation in and of themselves” irrespective of whether the bad faith conduct affects employment prospects…86 The Nova Scotia Court of Appeal recently went one step further in this regard, albeit via

a somewhat confusing set of reasons, awarding a terminated employee Wallace damages in the

face of complete mitigation.

In Schimp v. RCR Catering Ltd.,87 Mr. Schimp, a bartender, was summarily terminated

for theft during a shift and marched off the premises in front of the other staff. The trial court

ultimately held that cause did not exist for summary termination, and that Mr. Schimp had been

subjected to humiliating and degrading treatment without regard to the effect of same upon his

reputation and health. However, Mr. Schimp ultimately fully replaced his prior income after a

month without work. Despite this fact, the trial court awarded him damages equal to 4.5 months’

compensation, plus an additional six months’ compensation characterized as Wallace damages,

plus $10,000 in aggravated damages. 86 Ibid, at par. 72. 87 [2004] N.S.J. No. 57 (CA).

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Given Mr. Schimp’s mitigation efforts, the Court of Appeal reduced the base damage

award to one month’s compensation, and wiped out the other two damages awards. However, the

Court of Appeal went on to reconceptualize Mr. Schimp’s entitlement to aggravated damages,

despite his mitigation accomplishments, as damages based upon Wallace principles, and fixed

these damages as equal to 3.5 months’ compensation.88

Another recent development that appears consistent with the rights paradigm occurred

with regard to the interaction between Wallace principles and termination provisions within an

employment agreement.

Consistent with the efficiency paradigm, both the PEI Court of Appeal and the British

Columbia Court of Appeal have, in the past, held that a Wallace-based extension to an

employee’s notice period is not appropriate where that notice period was fixed by the parties, in

advance, via the use of an employment agreement. The basic rationale adopted in these cases has

been that, by definition, the existence of a termination provision precludes consideration of the

common-law notice period factors, including bad faith employer conduct89

The certainty associated with such an approach is, of course, of great appeal to

employers.

However, more recent trial-level decisions have begun to arrive at the opposite

conclusion, suggesting perhaps a move toward a more rights paradigm mode of analysis.

In MacKenzie v. Rau, the Ontario Superior Court extended the notice period defined in

the employment agreement between the parties by three months so as to compensate the Plaintiff

for the bad faith conduct of the employer. The Court went on to further hold that these damages

88 Ibid., at pars. 54-59. 89 Barnard v. Testoru Amricas Corp. (2001), 11 C.C.E.L. (3d) 42 (PEISCAD); Andrews v. Sleep Country Canada Corp., [2000] B.C.J. No. 876 (CA).

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were, given their character, to be immune from mitigation (the Plaintiff had earned employment

income during the time period covered by the Wallace extension).90

The British Columbia Supreme similarly extended a contractual notice period in Duprey

v. Seanix.91

The approach adopted in these two more recent decisions is much more closely aligned

with the rights paradigm in that it addresses the contradiction inherent in the opposite approach –

the mere existence of a contractual termination provision should not leave an employee without a

remedy for an abusive dismissal. Accordingly, the MacKenzie and Duprey approaches to the

issue recognize and specifically address the inherent vulnerability of the employee at the time of

termination.

While an admittedly small sample, the above-cited handful of recent decisions appear

supportive of the conclusion that there is at least incremental movement within the Wallace

damages jurisprudence toward a position more definitively aligned with the rights paradigm. It

remains to be seen whether this jurisprudential trickle will ultimately become a flood or run dry.

IV. Conclusions

This paper does not purport to chronicle all jurisprudential developments referable to damages-

related issues in employment law over the past several years. The breadth of such jurisprudential

development is simply too big to adequately summarize in a single paper, particularly where the

goal is to provide at least some substantive discussion of the developments being summarized.

This paper equally does not urge upon the reader the conclusion that all recent

developments in this area can be neatly tied to, and explained by, an increasingly broad-based

jurisprudential implementation of an approach to employment law issues that recognizes the 90 (2002), 22 C.C.E.L. (3d) 238 (Ont. Sup.Ct). 91 Supra, note 40, at pars.48-53.

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relative vulnerability of the employee within the employment relationship and the corresponding

need to grant employees a certain degree of protection/assistance, particularly at the time of

termination.

No area of legal jurisprudence can be so neatly tied up in a bow and, in any event, to the

extent that certain recent jurisprudential developments in this area can be fairly grouped together

as conceptually consistent with the unifying theory of the “rights paradigm” conceptualised by

Professors England and Etherington, this concept appears to be in the early stages of its evolution

in the employment law damages jurisprudence.

Caveats aside, this paper’s review of certain recent developments in the employment law

damages jurisprudence is strongly suggestive of the conclusion that a rights paradigm approach

has, to at least some extent, begun to influence the development of the common law in this area.

As such, counsel should begin to consider this mode of analysis as potentially predictive of

future judicial decision-making in this regard.

Judicial pronouncements as to the inherent vulnerability of the employee within the

employment relationship also continue to be made at the appellate level, making it reasonably

likely that a rights paradigm approach will continue to impact upon the development of the

common law referable to employment law damages for the foreseeable future, and perhaps

increasingly so.

Interestingly, if a rights paradigm approach does increasingly influence jurisprudential

development in this area, such may eventually result in rather dramatic adjustments to the

baseline common-law principles that currently drive the resolution of damage issues in many of

the areas discussed in this paper.

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In the context of constructive dismissal damages, a continued evolution of the rights

paradigm might eventually result in the diluting, or even repudiation, of the Mifsud interpretation

of a constructively dismissed employee’s obligation to mitigate his damages as potentially

requiring the employee to remain with the former employer.

As discussed above, the basic premise of the Mifsud approach is inherently contradictory.

A finding of constructive dismissal amounts to a determination that it would not be reasonable

for the employee in question to be required to accept the changes to the terms and conditions of

employment proposed by the employer. Yet, the employee’s obligation to take reasonable steps

to mitigate damages is found to require the employee to remain in circumstances already found

to be unreasonable. The imposition of such a mitigation obligation upon an employee in such a

circumstance is also directly contradictory to the rights paradigm emphasis upon recognizing and

alleviating the particular vulnerability experienced by employees at the time of termination.

Similarly, a continued evolution of the rights paradigm in this context might also

eventually result in a reversal of the current Sylvester approach to the offset of disability benefits

received by an employee during the applicable notice period against the employer’s termination

obligations to that employee, so as to entitle the employee to the full receipt of both amounts in

all cases. Ensuring employee access to a reasonable notice period that he/she can effectively

utilize is much more consistent with the recognition of employee vulnerability at the time of

termination than the current Sylvester approach to this issue.

We would also expect that increased adherence to the rights paradigm in this

jurisprudential area would be likely to result in further, and more consistent, departures from the

exclusive jurisdiction model currently applicable to the policing of employer human rights

violations. One of the more practical means of directly addressing concerns about

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employer/employee power imbalance, and employee vulnerability within the employment

relationship, is to provide employees with a multiplicity of remedial options via which to address

employer abuses of that power imbalance, control over the choices between those options, and

access to the most efficient and/or effective of the options. A continued departure from the

exclusive jurisdiction model achieves all of these goals.

Finally, an increased adherence to the rights paradigm within the employment law

damages jurisprudence might eventually produce an expansion of the Wallace damages concept.

The concept could develop into a free-standing employer tort/contractual obligation of good faith

in relation to the dismissal of employees, as envisioned by the Supreme Court minority in

Wallace.92 Such a development would directly address the mitigation and tax issues discussed

earlier, and would unambiguously prefer rights paradigm concerns relating to the protection of

employee interests over efficiency concerns relating to an employer’s ability to manage the size

and composition of its workforce.

This employer good faith obligation could conceivably expand even further into a more

generalized free-standing obligation of good faith that pervades all aspects of the employment

relationship. Such a development would, almost by definition, specifically adopt and incorporate

the basic tenets of the rights paradigm approach.

At a minimum, it appears likely that there will be further judicial attempts to shelter

Wallace damage awards from the impact of mitigation.

It will be interesting to see whether any, or all, of these potential jurisprudential

developments come to pass over the next several years.

92 Supra, note 9, at pars. 133-146.