An employee's bad faith -bad faith claim

Mr. Yanez, a 15-year employee with Canac Kitchens, was dismissed from his position because of a downturn in business. In the dismissal letter, Canac offered Mr. Yanez 13 weeks severance pay based on the mistaken belief that he had provided 10 years of service. This offer was stated to be in compliance with the Employment Standards Act, 2000 and it was requested that Mr. Yanez sign a release.

It was later discovered that the amount of severance offered was lower than the minimum set out in the Employment Standards Act, 2000. Canac Kitchens took immediately steps to rectify their errors and to compensate the affected employees, including Mr. Yanez.

Mr. Yanez made a claim against Canac Kitchens for dismissal without cause. Included in that action was a claim for "Wallace Damages." These are damages which are awarded in cases where an "employee can establish that the employer engaged in bad faith conduct or unfair dealing in the course of dismissal, injuries, such as humiliation, embarrassment and damage to one's self-worth and self esteem." "Wallace Damages" are awarded in addition to wrongful dismissal damages as they deal with the manner in which the dismissal was handled rather than the dismissal itself.

"Wallace Damages" were first acknowledged in the Supreme Court of Canada decision of Wallace v United Grain Growers Ltd., [1997] 3 S.C.R. 701. The case clearly intended that there be compensation given to the employee where the employer engaged in conduct that was unfair or that was in bad faith; however, Iacobucci J. advised that "not all dismissal cases would warrant a claim for damages under this heading" (Wallace at para. 103 and 101 respectively).

While considering Mr. Yanez's claim, Echlin J. expressed concern that "some plaintiffs and their counsel appear not to have appreciated or wilfully ignore the fact that "the Wallace bump up" does not occur automatically in every dismissal" and that almost every dismissal case now claims "Wallace damages" (at para. 16 and 14). This is found to be problematic because "Wallace damages" claims tend to reduce the likelihood that consensual resolutions and settlements will be reached. Consequently, the Court holds that the practice of making "Wallace claims" that are without merit must be deterred. In order to effectively do so it is determined that plaintiffs who make unmeritorious claims for "Wallace damages" may face sanctions, such as a reduction in damages awarded for dismissal claims.

Mr. Yanez's claim for "Wallace Damages" rested on fact that Canac offered less than the Employment Standards Act, 2000 minimums and that they had asked for a release after offering an inadequate amount of compensation. The Court here found that Canac did not intentionally set out to short-change Mr. Yanez and that "Wallace Damages" were not merited in this case. The Court did not administer sanctions in this case; however, it was made very clear that such action may be taken in the future.

In light of this decision employees may be well advised not to make unfounded allegations against their employer for breach of the duty of good faith and fair dealing. If such a claim is made, the employee may face a potential reduction in their damages.

Yanez v Canac Kitchens [2004] O.J.No. 5238