Ontario Court of Appeal takes Restrictive Approach to Wallace Damages

In McNevan v. AmeriCredit Corp. (December 15, 2008), the Ontario Court of Appeal clarified that only conduct that is truly high-handed and in bad faith will warrant an award of Wallace damages.

McNevan was employed as an Assistant Vice President at one of AmeriCredit’s call centres. After 13 months of service, AmeriCredit became concerned about McNevan’s managerial skills. The employer terminated him and offered him three months’ pay in lieu of notice. McNevan rejected the offer and brought an action for damages for wrongful dismissal. The trial judge found that McNevan was entitled to six months’ notice, as well as six months of additional notice as Wallace damages, based on the employer’s bad faith and unfair conduct. AmeriCredit appealed.

The Court of Appeal allowed the employer’s appeal in part. While the six-month notice period was found to be within the appropriate range, the Court found that the trial judge erred in awarding a six-month Wallace extension.

The judge erred in awarding the first three-month extension because he took into account inappropriate factors, including the employer’s failure to warn McNevan of his perceived shortcomings, its failure to provide a reference letter and assist in his job search, and its request for a release in exchange for three months’ salary. The Court of Appeal stated that employers are under no obligation to provide feedback prior to a without-cause dismissal, and that it is not necessary to provide a dismissed employee with a reference letter unless the employment contract so requires. Additionally, asking a dismissed employee to sign a release before receipt of a severance package is neither unfair nor high-handed.

The trial judge based the second three-month Wallace extension on the employer’s post termination conduct in mishandling McNevan’s vacation pay, T4 slip, Record of Employment and bonus, and in carelessly shipping McNevan’s personal property which became damaged. The Court of Appeal, however, found that this conduct was not untruthful, misleading, or unduly insensitive enough to justify a Wallace extension.

The Court of Appeal has confirmed that, while employers do have a duty of good faith and fair dealing in the manner of dismissal, Wallace damages will not be appropriate in every case. Courts will therefore not hold employers to a standard of perfection; rather, employers will be permitted some discretion in their approach to the termination of employees.