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EMPLOYERS: Beware of the obligation of good faith and fair dealing in the manner of dismissal. Prior to the Supreme Court of Canada's landmark decision in Wallace v. United Grain Growers Ltd., in a case of wrongful dismissal, damages were limited to the earnings lost during the period of reasonable notice to which the employee was entitled and did not include damages for the manner of dismissal, for injured feelings, or for loss sustained from the fact that the dismissal made it more difficult to the employee to obtain other employment. However, in the Wallace case, the Supreme Court of Canada chose to recognize the relevance of the manner of an employee's dismissal in the determination of the appropriate period of reasonable notice. Mr. Wallace had been a long-term employee of United Grain Growers Ltd. who was dismissed purportedly for cause, notwithstanding that a few days before his dismissal his employer's sales manager as well as their general manager had complimented him on his work. The employer maintained its allegations of cause for over two years withdrawing them only shortly before the trial commenced. The Supreme Court of Canada, in upholding the Trial Judge's award of 24 months' salary in lieu of notice to Mr. Wallace, stated: It has long been accepted that a dismissed employee is not entitled to compensation for injuries flowing from the fact of the dismissal itself ...Thus, although the loss of a job is very often the cause of injured feelings and emotional upset, the law does not recognize these as compensable losses. However, where an employee can establish that an employer engaged in bad faith conduct or unfair dealing in the course of dismissal, injuries such as humiliation, embarrassment and damage to one's sense of self worth and self esteem might all be worthy of the compensation depending upon the circumstances of the case. In these situations, compensation does not flow from the fact of dismissal itself, but rather from the manner in which dismissal was effected by the employer. Often the intangible injuries caused by bad faith conduct or unfair dealing on dismissal will lead to difficulties in finding alternative employment, ...warranting an addition to the notice period. It is likely that the more unfair or in bad faith the manner of dismissal is, the more this will have an effect on the ability of the dismissed employee to find new employment, however, in my view, the intangible injuries are sufficient to merit compensation in and of themselves. I recognize that bad faith conduct which affects employment prospects may be worthy of considerably more compensation than that which does not, but in both cases, damages resulted that should be compensable. Since the Wallace case, the principle that an employer has an obligation of good faith and fair dealing in the manner of its dismissal of employees has been applied in numerous cases in Canada to increase the notice period awarded to employees. Some examples of cases where the court has construed the employer's conduct in dismissing its employee as contravening the obligation of good faith and fair dealing including the following: where the employer leveled false allegations of cause against the employee in order to gain unfair advantage over the employee in negotiating a favourable severance settlement for the employer; where the employer did not have any basis to terminate the employee for cause but advised the employee publicly, in front of other employees, that he had the option of quitting or being fired and subsequently maintained that the employee was not terminated, but left his employment voluntarily; where the employer engaged in discreditable conduct by spreading negative rumors about the employee which made it difficult for the employee to seek alternative employment; where the employer falsely accused the employee of dishonesty and abuse of alcohol, thereby assailing his reputation, making it difficult for the employee to obtain unemployment insurance benefits; where the employee, upon returning to work from her maternity leave, found the employer to have reapportioned all of her significant duties and responsibilities to other employees and, without justification, relegated her to an extremely junior position, and thereafter terminated her employment; where the employer withheld the employee's statutory severance payment in order to obtain the execution by the employee of the release protecting the employer from any action by the employee pursuant to Employment Standards Act and Human Rights Act. As a result of the Wallace decision, and its aftermath, employers should particularly note that: they are held to an obligation of good faith and fair dealing in the manner of dismissal of an employee; where an employee can establish that an employer breached this obligation by engaging in bad faith conduct or unfair dealing leading up to or in the course of dismissal, injuries to an employee such as humiliation, embarrassment and damage to one's self worth and self esteem may be compensated by the Court by adding to the length of the notice period; where an employee can establish in addition, that an employer, in breaching its obligation of good faith and fair dealing in the manner of dismissal or its actions thereafter, affected the employee's employment prospects, the Court may award compensation to the employee greater than otherwise would be the case, in recognition of the additional damages suffered by the employee. EMPLOYERS: Comply with the minimum notice period set out in the Employment Standards Act or pay more. As an employer, one must ensure that a contract of employment with one's employee complies with the minimum notice periods set out in the Employment Standards Act, failing which, liability to that employee may be greater if he or she is dismissed without cause. In a recent British Columbia Court of Appeal decision, an employee and employer had entered into a written employment contract which provided that either party could terminate the employment arrangement upon thirty days notice to the other. The employee argued that this provision of the agreement was void because it had the "potential" to contravene the minimum notice provisions under the Employment Standards Act. In particular, Section 63(2) of the Employment Standards Act entitles an employee to a maximum of 8 weeks notice depending upon their period of service. As such, the Court of Appeal held that the 30 day notice provision in the agreement in question constituted "an agreement to waive the requirements of the Act". Section 4 of the Employment Standards Act provides that "any agreement to waive any provision of the Act or regulation is void". The Court of Appeal went on to say that it was unreasonable to expect the employee to "keep an eye on the relationship between the statutory minimum and the contractual term" to determine at the point of termination "whether the statutory minimum had risen above the notice period stated in the contract". As a consequence of the Court's decision, the employee was released from the notice provision under the contract and, therefore, the period of reasonable notice fell to be determined as if that term in the contract had never existed. In the circumstances of this Court case, the Court held that reasonable notice constituted five months. As a consequence, employers wishing to limit their liability for severance pay in any written agreement of employment should ensure that, at the very least, the minimum notice period set out in the Employment Standards Act are incorporated in such agreements. While it may be sufficient to draw a contractual term which, in effect, converts the statutory floor into a ceiling, it will be folly if the notice provision fails to comply with the law. As has been stated by one Judge "...why [should] the employee be placed in a worse position than if the contract had said nothing at all about the notice of termination." © 2001 Kornfeld Mackoff Silber LLP.

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