The Court of Queen’s Bench of Alberta recently delivered its decision in the case of Soost v. Merrill Lynch Canada Inc., 2009 ABQB 591, which provides insight into the assessment of just cause and has arguably expanded the assessment of damages for wrongful dismissal in certain limited employment relationships.

The Plaintiff (“Soost”) was hired by Midland Walwyn (which was shortly after bought out by Merrill Lynch Canada Inc.) (the “Defendant”) as a financial advisor in August of 1998. At the time, Soost had already enjoyed a very successful five years in the investment industry with other brokerages, including RBC Dominion Securities. Soost brought his team and his personal client database with him to the Defendant, which consisted of 70-80 per cent of his clients. The value of his book of business was between $70 and $80 million.

On May 18th, 2001, the Plaintiff was called to a meeting where he was summarily dismissed and his entire team was suspended with pay for one week. Following termination, Soost made efforts to find other employment and three weeks later he joined Lightyear Capital, yet only $10 million of his book of business followed him to his new position. Soost suffered a major decrease in income and could no longer afford to remain in the industry by December 31, 2001. The Defendant alleged just cause for the dismissal on several grounds, including Soost’s failure to obtain internal approvals for private placement activities, as required by company policies. Soost admitted that, prior to his dismissal, he did not provide the Defendant with a complete list of his private placements. It was clear on the evidence presented, however, that this failure was not unique to him.

The Court in this case reinforced the right of an employer to summarily dismiss an employee if that employee has been guilty of serious misconduct, habitual neglect of duty, incompetence, or conduct incompatible with his duties, or prejudicial to the employer’s business, or if he has been guilty of wilful disobedience in a matter of substance. The Court further reinforced that an employer may rely on one significant breach or on cumulative acts of an employee to justify summary dismissal. The Court stated that, in order to rely on cumulative acts of the employee, it must be evidenced that the employee was given express and clear warnings about his performance, that the employee was given reasonable opportunity to improve, and that the employee did not improve to the prejudice of the employer’s business. The Court also reinforced that, in order for an employer to rely on breaches of an employment policy as grounds for just cause, those policies must be consistently enforced for all employees.

The Court ultimately decided that none of the offences committed by Soost were sufficient to justify summary dismissal for someone in Soost’s position, either singly or in combination. The Court found that the Defendant should have given the Plaintiff specific warnings to remedy his performance issues by a certain date, failing which he would be terminated. The Court further emphasized that to terminate for cause someone in Soost’s position in the financial industry would foreseeably have the effect of mortally wounding that person’s ability to successfully carry on as an investment advisor.

It is worth noting that the Court found that the decision to dismiss the Plaintiff was made on May 4th, however, the Defendant waited until May 18th to execute its decision to terminate. The Court interpreted this delay to suggest that whatever faults the Defendant thought Soost had, they were not sufficient to justify immediate action and that some notice could obviously have been given to Soost of his termination. The Court awarded wrongful dismissal damages of $600,000.

But this did not conclude the Court’s judgment. The Court went on to find that Wallace damages could be awarded for categories of loss not previously recognized by the courts. Prior to the decision in this case, the courts discussed Wallace damages only in the context of mental distress suffered by employees due to the bad faith manner in which they were dismissed from their employment. In this case, the Court held that the Defendant’s actions in purporting to dismiss the Plaintiff for cause were both unfair and insensitive, and went on to say:

I appreciate that in Honda Canada the facts dealt with mental suffering. But I see no principled reason why the legal principles set out in that case cannot and should not be applied to the circumstances pertaining to this case. Therefore, I will do so. If I did not, the Plaintiff would be woefully under-compensated for his true loss…

I am satisfied that the manner in which the Plaintiff was terminated had a significant detrimental effect on his reputation in the industry and his ability to keep his old clients and attract new clients. I am satisfied that the Defendant knew at the time it hired the Plaintiff that if it purported to terminate for cause and without notice, the Plaintiff would suffer significant damages to his reputation and book of business or good will such as would not be compensated for simply by an award of damages in lieu of notice.

In Keays v. Honda, [2008] 2 S.C.R. 362, the Court recognized that Wallace damages may be awarded for mental distress, if one can prove this through medical evidence. Soost expands the law on Wallace damages, and states that Wallace damages can also be awarded for other objectively provable losses, foreseeable by both parties at the time of entering into the employment contract, such as the loss of a book of business, if such losses arise from the unfair and insensitive conduct of the employer at the time of termination.

Although perhaps fact specific in some ways, this case is yet another cautionary tale for employers as to the importance of carefully considering their actions in the course of a dismissal, especially when they carry a disproportionate amount of influence over the future of their employee. This case is currently under appeal on the issue of the award of Wallace damages. This appeal, and future consideration of Soost, will undoubtedly result in the continued evolution of Wallace damages.