Balancing Wallace and mitigation

Why would an employee plead Wallace if he’s mitigated damages?

Background

In 1997, when the Supreme Court of Canada handed down its decision in Wallace v. United Grain Growers Ltd., it sent a strong message to employers to act in good faith with employees at the time of their dismissal or be hit with extra damages. From Wallace, it was established that if a court finds an employer has acted in bad faith, the court will likely extend the period of reasonable notice to which the employee is entitled. This extension has come to be known as “Wallace damages” or the “Wallace factor.”

But, as most employment law practitioners know, ordinary damages for wrongful dismissal are subject to a duty to mitigate on the part of an employee. Typically the amounts earned in mitigation are deducted from the amount of damages awarded to an employee in lieu of notice. Given this fact, it appears that once an employee has mitigated his damages by finding alternate employment, Wallace damages may no longer apply. Two recent decisions may suggest otherwise.

The case

In the Ontario Court of Appeal’s decision in Prinzo v. Baycrest Centre for Geriatric Care one of the alternative arguments made by Iole Prinzo’s counsel addressed the issue of Wallace damages and mitigation.

Prinzo was employed by Baycrest for nearly 18 years as manager of the beauty shop. In November 1997 she received a letter of layoff indicating her position was being eliminated and the effective date would be determined over the next few weeks. Before receiving the letter, she suffered injuries from a slip and fall in Baycrest’s parking lot.

She was off work until February 1998. Throughout this time period, Baycrest harassed her and persistently urged her to return to work. At one point, Baycrest even implied her doctor had agreed she was fit to return, which was simply not true. The defendant’s constant harassment of Prinzo prompted her lawyer to intervene with a letter to Baycrest warning it to stop such conduct. Nonetheless Baycrest continued to harass Prinzo.

On the day she finally returned to work, Prinzo was summoned to a meeting. Negative comments were made about her work with Baycrest residents and the termination of her employment was discussed. Shortly thereafter her employment was terminated.

At trial, and on appeal, both courts found the actions of Baycrest were a separate actionable wrong and therefore Prinzo should be entitled to damages for the tort of intentional infliction and mental suffering. Accordingly she was awarded $15,000 for intentional infliction of harm.

In the event the court did not find a tort, it was asked to consider an alternative argument. Prinzo’s lawyer said if the actions of Baycrest were not a separate actionable wrong, then the appropriate length of notice should be extended six months based on the Wallace factor, which amounted to the equivalent of what she received for aggravated damages for mental distress. It was counsel’s submission that if Baycrest’s conduct was viewed as a course of conduct relating to the manner of dismissal, it would also be a breach of the employer’s duty of good faith and fair dealing.

While the Ontario Court of Appeal did not make a finding regarding this submission, it made brief comments relating to the issue of Wallace damages and mitigation.

The Ontario Court of Appeal said Baycrest’s lack of being candid and forthright regarding its intentions for having Prinzo return to modified duties, combined with the insensitive comments made at the meeting, caused her more than injured feelings and emotional upset. It said the employer’s behaviour was humiliating and damaging to the self-esteem of a long-term employee who had demonstrated the greatest concern for the welfare of the Baycrest residents. The Ontario Court of Appeal relied on the findings of Justice Iaccobucci in Wallace:

“Often the intangible injuries caused by bad-faith conduct or unfair dealing on dismissal will lead to difficulties in finding alternate employment, a tangible loss which the Court of Appeal rightly recognizes as 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 come up and in both causes damages resulted that should be compensable.”

Prinzo had partially mitigated her damages by finding alternate, but not comparable, employment. The court would have found she was entitled to the difference between her salary at Baycrest and what she was earning at the other employer during the ordinary notice period. But the Ontario Court of Appeal went further. It stated specifically that:

“If this deduction of earning income were also made from the damages awarded in relation to a Wallace extension, Prinzo would not effectively be compensated for the injury … this result would appear incongruent with the Supreme Court’s view in Wallace that the injuries resulting from bad-faith conduct on the part of the employer are sufficient to merit compensation in and of themselves irrespective of whether (the conduct) affects employment prospects.”

While the Court of Appeal refused to resolve this dilemma, its observations are significant. When the court noted Prinzo could not be effectively compensated for the intangible injuries she suffered if the court deducted the income she had earned from finding other employment, it sent a strong message of its likely willingness not to subject Wallace damages to mitigation.

From this decision, it appears likely it may be possible to mitigate one’s damages, and still be entitled to Wallace damages, depending on the circumstances of the case. Thus the Ontario Court of Appeal’s message is consistent with the Supreme Court of Canada’s earlier remarks in Wallace:

“The law should be mindful of the acute vulnerability of terminated employees and ensure their protection by encouraging proper conduct and preventing all injurious losses which might flow from acts of bad faith or unfair dealing on dismissal, both tangible and intangible.”

Natalie MacDonald is an associate with Grosman, Grosman & Gale, a Toronto-based law firm specializing in employment law. She can be reached at (416) 364-9599 or [email protected].

Courts consistent on Wallace-type damages

A recent case from the Nova Scotia Supreme Court, Schimp v. RCR Catering Ltd., provides another example of how courts are handling Wallace-type damages. The court recognized Wallace damages should be awarded despite the fact the employee had already mitigated his damages.

Terry Schimp was employed as a bartender for just under three years. He received performance evaluations ranging from very good to excellent and received a number of wage increases. Schimp had some problems, the most serious of which was to show up slightly late for his shift, which he did on several occasions. On his last day of work he was about 15 minutes late. He was summoned to vice-president’s office and chastised, but was given no indication he may be terminated. Later that evening an opened water bottle was discovered. The supervisor believed it contained vodka and questioned Schimp. The content of the bottle was never analyzed, nor was the bottle retained. After Schimp completed cleaning up and returned to the pub, he was fired. He was escorted from the premises and banned from returning for six months.

Although the employer attempted to argue Schimp’s performance was at issue, the court concluded he had been fired for theft. The manner in which he was marched off the premises in front of the other staff and the six-month ban was found to be humiliating and degrading.

The court found the damage to Schimp’s reputation and the effect it had on his ability to find work had been permitted to exist for almost two years. Schimp was treated callously and without regard to the effects the termination would have on his reputation or his health.

Schimp was able to mitigate his damages. But the court found the only reason he was able to do so was because of his parents’ concern for his health. Despite the fact Schimp had been able to find employment one month after termination, the court held he was entitled to four-and-a-half months’ salary plus vacation pay and $500 per month in tips, which was increased to more than 10 months plus $500 per month in lost tips on the basis of the Wallace factor.

Both Prinzo and Schimp provide insights into what courts are likely to do when they are required to balance Wallace damages with mitigation. In each of these decisions, it appears the court recognized the intangible injuries done to the employee where the employer had acted in bad faith. Time will only tell whether this type of analysis will apply in all cases.

For more information see:

•Prinzo v. Baycrest Centre for Geriatric Care, 2002 CarswellOnt 2263, 17 C.C.E.L. (3d) 207 (Ont. C.A.)

•Schimp v. RCR Catering Ltd., 2003 CarswellNS 184 (N.S. S.C.)

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