is a leading decision of the

Supreme Court of Canada The Supreme Court of Canada (SCC; french: Cour suprême du Canada, CSC) is the Supreme court, highest court in the Court system of Canada, judicial system of Canada. It comprises List of Justices of the Supreme Court of Canada, nine justices, wh ...

in the area of Canadian

employment law Labour laws (also known as labor laws or employment laws) are those that mediate the relationship between workers, employing entities, trade unions, and the government. Collective labour law relates to the tripartite relationship between employee, ...

, particularly in determining damages arising from claims concerning

wrongful dismissal In law, wrongful dismissal, also called wrongful termination or wrongful discharge, is a situation in which an employee's contract of employment has been terminated by the employer, where the termination breaches one or more terms of the contra ...

Background

In 1972, Public Press (a subsidiary of

United Grain Growers The United Grain Growers, or UGG, was a Canadian Agricultural cooperative, grain farmers' cooperative for grain storage and distribution that operated between 1917 and 2001. History In 1917, the Grain Growers' Grain Company (GGGC) merged with ...

) 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 In medicine, distress is an aversive state in which a person is unable to completely adapt to stressors and their resulting stress and shows maladaptive behaviors. It can be evident in the presence of various phenomena, such as inappropriate so ...

for Wallace, and he was unable to find similar employment elsewhere. Prior to his termination, Wallace had filed for

bankruptcy Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the debto ...

in 1985, from which he was discharged in 1988. He sued UGG for wrongful dismissal, claiming: :* loss of income, including salary and commissions which would have been earned during the unexpired term of a fixed-term contract, or alternatively, :* such amounts that would have been earned under a period of reasonable notice, plus :* damages for mental distress or aggravated damages, punitive or exemplary damages and special damages. In its defense, UGG asserted: :* the dismissal was for cause (which was withdrawn on the opening day of the trial), :* the employment was not for a fixed term, and :* the claim with respect to mental distress was barred under Manitoba law relating to limitation of actions, as the description of its nature was inserted as an amendment made out of time.

The courts below

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 The Manitoba Court of Appeal (french: Cour d'appel du Manitoba) is the court of appeal in, and the highest court of, the Canadian province of Manitoba. It hears criminal, civil, and family law cases, as well as appeals from various administrat ...

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: :* the contract was not in the nature of a fixed term, as such a variation in company policy required the approval of the general manager, the president or the head of

human resources Human resources (HR) is the set of people who make up the workforce of an organization, business sector, industry, or economy. A narrower concept is human capital, the knowledge and skills which the individuals command. Similar terms includ ...

:* in this case, a reasonable notice period for Wallace would be 24 months, with damages calculated accordingly, :* claims for mental distress were made both in contract and in tort, :* the restatement of the claim for mental distress was not made out of time, as it was a clarification made in consequence of ''Vorvis'', and :* UGG's conduct was not sufficiently reprehensible to warrant an award of punitive damages. 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 had capacity to sue in the matter, not on the basis that wages are exempt from property that vests in the trustee under Canadian bankruptcy law, but on the principle that property acquired after the date of bankruptcy does not automatically vest in the trustee in such a way as to prevent the bankrupt from maintaining an action. :* 15 months was a more reasonable period of notice, as 24 months was indicative of an element of aggravated damages having crept into the trial judge's determination, and :* aggravated damages did not apply. as ''Vorvis'' held that any damages beyond compensation for breach of contract for failure to give reasonable notice "must be founded on a separately actionable course of conduct." Wallace appealed the ruling to the Supreme Court of Canada as to whether: #a fixed-term contract existed, #the Court of Appeal erred in overturning the award for aggravated damages, #the appellant can sue in either contract or tort for "bad faith discharge", #the appellant was entitled to punitive damages, and #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: :* the courts below did not err in holding that a fixed-term contract did not exist, :* where the manner of dismissal has caused mental distress but falls short of an independent actionable wrong, the trial judge has discretion to extend the period of reasonable notice to which an employee is entitled, :* an employee cannot sue in either tort or contract for "bad faith discharge", as the law does not recognize any requirement for good faith or fair dealing, :* there is no foundation for an award of punitive damages, as UGG did not engage in sufficiently "harsh, vindictive, reprehensible and malicious" conduct for that to arise, and :* the trial judge's award of 24 months was reasonable, as bad faith conduct in the manner of dismissal is another factor that is properly compensated for by an addition to the notice period. 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: #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. #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: :* where damages are awarded for the conduct of the termination, they should not be awarded by extending the notice period, :* all damages arising out of the manner of dismissal should be recoverable if they arise from the circumstances set out in ''Wallace'', but :* the damages awarded must reflect the actual damages sustained and not be an arbitrary extension of the notice period, :* damages for mental distress will be available, as long as they arise naturally from the contract breach and the manner of dismissal, and :* an independent actionable wrong will not give rise to punitive damages, as they will only arise where conduct is harsh, vindictive, reprehensible, malicious and extreme in nature. 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: #Making false accusations, #Damaging the employee's prospects of finding another job, #Misrepresenting the reasons for termination, #Firing the employee to ensure deprivation of a benefit, and #Firing the employee in front of coworkers.