Wallace v United Grain Growers Ltd

Background

In 1972, Public Press (a subsidiary of United Grain Growers) expanded its activities in commercial printing through acquisition of a web press, and hired Wallace, who had experience in selling such products. As Wallace was 46, he sought and received assurances that he would be treated fairly and have a guarantee of security in employment until at least his 65th birthday.

Wallace was the company's top salesperson throughout his employment, which was terminated in 1986 without explanation. In a letter issued after termination, UGG claimed that "the main reason for his termination was his inability to perform his duties satisfactorily." The termination and allegation caused great emotional distress for Wallace, and he was unable to find similar employment elsewhere. Prior to his termination, Wallace had filed for bankruptcy in 1985, from which he was discharged in 1988.

He sued UGG for wrongful dismissal, claiming:

In its defense, UGG asserted:

Court of Queen's Bench

At the initial hearing, Lockwood J held that, as Wallace was an undischarged bankrupt, he had no capacity to commence an action on his own. His appeal to the Manitoba Court of Appeal was stayed pending completion of the trial, which was resumed subject to the outcome of the appeal on the bankruptcy issue.

In his resulting judgment, Lockwood J found that, subject to the above:

Accordingly, he awarded damages of $157,700 for wrongful dismissal and $15,000 as aggravated damages for mental distress.

Manitoba Court of Appeal

The Court allowed an appeal and cross-appeal. In his ruling Scott CJM held that:

Wallace appealed the ruling to the Supreme Court of Canada as to whether:

1. a fixed-term contract existed,
2. the Court of Appeal erred in overturning the award for aggravated damages,
3. the appellant can sue in either contract or tort for "bad faith discharge",
4. the appellant was entitled to punitive damages, and
5. the Court of Appeal erred in reducing the appellant’s reasonable notice damages from 24 to 15 months.

UGG cross-appealed as to whether an undischarged bankrupt had capacity to sue in this matter.

At the Supreme Court of Canada

In a 6–3 decision, the appeal was allowed. The Court unanimously dismissed the cross-appeal.

Cross-appeal

In contrast to the facts in Cohen, Wallace did not become involved in any good-faith transactions for value with a third party after his assignment in bankruptcy. Iacobucci J described damages arising from wrongful dismissal as forming part of the wages exemption under the Bankruptcy Act, stating:

Majority ruling in the appeal

In the appeal, Iacobucci J declared:

In expanding on the last point, he stated:

Dissent in the appeal

While agreeing with the majority in most respects, McLachlin J (as she then was) differed on two points:

1. An award of damages for wrongful dismissal should be confined to factors relevant to the prospect of finding replacement employment. It follows that the notice period upon which such damages are based should only be increased for manner of dismissal if this impacts on the employee’s prospects of re-employment.
2. The law has evolved to permit recognition of an implied duty of good faith in termination of the employment.

As a result, in addition to restoring damages for reasonable notice to 24 months, she would have also restored the award for aggravated damages. She explained her reasoning thus:

Impact

The increase in reasonable notice that was suggested by the SCC came to be known as the "Wallace bump," and claims that included it became so frequent that the courts began to criticize the practice. It was subsequently restricted by the Court in Honda Canada Inc. v. Keays to the following circumstances:

Most lawyers consider Wallace not to be dead, but to have evolved, and others point out that Keays damages may result in higher monetary awards in certain circumstances.

Subsequent jurisprudence has identified several key areas where an employer's conduct will constitute bad faith that will attract Wallace damages:

1. Making false accusations,
2. Damaging the employee's prospects of finding another job,
3. Misrepresenting the reasons for termination,
4. Firing the employee to ensure deprivation of a benefit, and
5. Firing the employee in front of coworkers.