May 28, 2003

Court clarifies basis for Wallace awards

Sloppiness doesn’t qualify as bad-faith conduct when it comes to lengthening the reasonable notice period

There has been a judicial trend of expanding the situations in which a terminated employee can claim she is entitled to a lengthening of the reasonable notice period on account of the employer’s conduct at termination. A “Wallace extension”of the reasonable notice period has traditionally been awarded on the basis of “bad-faith conduct” in the manner of dismissal or in the events leading up to dismissal.

Some of these new cases suggested that, even where the employer does not engage in bad-faith conduct, a terminated employee may be entitled to a lengthening of the reasonable notice period if the results of the employer’s conduct is unfair to the employee. The Ontario Court of Appeal has now, in Gismondi v. Toronto (City), had an opportunity to review one of these cases and in doing so the court has limited and clarified when an extension of the reasonable notice period on the basis of Wallace will be appropriate.

Dominic Gismondi was a professional engineer who had been working for the City of North York for 20 years when the various municipalities that made up Metropolitan Toronto were merged into the mega-city. Due to the merger, many positions became surplus. Guidelines were developed and put in place in order to ensure a fair process with respect to competitions for jobs. Gismondi applied for the position of manager of road operations and was granted an interview.

Gismondi was ultimately not chosen as the successful candidate for the position and his employment was subsequently terminated. The city offered him a package that included 80 weeks’ pay, benefits and an allowance for job counselling in accordance with a program the city had adopted for all management employees who were not successful in job competitions.

Gismondi was not satisfied with the process in which he did not receive a position and sued for wrongful dismissal. In his action for damages for wrongful dismissal, the trial judge awarded him 116 weeks’ salary in lieu of notice. The quantum of damages included an addition to the notice period in accordance with the principles in Wallace. The court held the city had “dropped the ball” by failing to apply its own fair, open and equitable hiring criteria uniformly across the board. In particular Gismondi had asked at the end of his interview whether his previous performance appraisals would be reviewed and his references contacted. He was told the panel would consider “all relevant matters.”

But none of his references were ever contacted, whereas the panel did speak with the references of the candidate who was hired for that position. The court found the city had effectively treated Gismondi “in a manner different from other candidates” which, although not malevolent or egregious, entitled him to a lengthening of the period of reasonable notice in accordance with the principles laid out in Wallace.

In its review of this decision, the Ontario Court of Appeal held none of the actions of the city, either individually or cumulatively, justified increased compensation under Wallace. The court did not disagree with the trial judge’s view that Wallace damages could be awarded for the employer’s pre-termination and post-termination conduct but held that such conduct is only relevant as an indication of whether the manner of dismissal was insensitive or unfair.

In addition to the conduct of the employer not giving rise to a Wallace award, the court also noted the employee did not suffer any injury for which he was entitled to compensation in accordance with the principles in Wallace.

In coming to this determination, the court canvassed the cases that have applied Wallace and noted that in the cases where there has been a finding of bad-faith conduct or unfair dealing (and a Wallace extension of the reasonable notice period) the common thread has been “the presence of something akin to intent, malice or blatant disregard for the employee.”

It is conduct that could be characterized as “callous and insensitive treatment” or “playing hardball” with the employee.

The conduct of the city in Gismondi did not in any sense resemble this sort of conduct. The trial judge in Gismondi had specifically described the conduct of the city as “not malevolent” and “probably well intentioned.” The trial judge had characterized the conduct of the job competition as “sloppy” and held the city had been overly diplomatic when advising the employee of the reasons he did not obtain a position.

The appeal court noted this type of employer conduct is not the type of conduct that could justify compensation under Wallace principles. In the absence of any reason to lengthen the period of reasonable notice, the appeal court held that the city’s offer of 80 weeks was reasonable and awarded judgment in that amount.

The decision is a welcome one from an employer’s perspective. Wallace damages have always been designed to, in effect, punish employers for bad-faith conduct. The appeal court’s decision rightfully acknowledges that to warrant punishment for such bad-faith conduct there must be some type of intent, malice or blatant disregard for the employee on the part of the employer.

An innocent error or “sloppiness” on the part of the employer that results in some perceived unfairness to an employee will not trigger a Wallace extension of the reasonable notice period unless that error or sloppiness resulted in “blatant disregard” of the interests of the employee. The appeal court’s clarification that intent, or arguably gross recklessness, is required before an employer is punished by the imposition of a Wallace extension of the notice period should help guide trial judges and provide employers with greater certainty about the possibility of such exposure.

Chris Foulon is a partner in the Toronto law firm of Israel Foulon LLP – Employment and Labour Lawyers. He can be reached at 416-640-1550 or cf@israelfoulon.com. A version of this article originally appeared in the Carswell publication, Canadian Employment Law Today.

LEGAL DISCLAIMER: This article is for informational purposes only and is not intended to provide legal advice, which in all circumstances must be tailored to the specific facts of any problem. You should obtain a proper legal consultation in order to determine how this article applies to your specific situation.
Please feel free to contact Israel Foulon LLP to learn more at 416-640-1550.

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