The appellate courts and the Supreme Court of Canada have recently handed down major decisions regarding the proper measure of damages in wrongful dismissal matters.

Most cases begin with the considerations outlined in the Bardal v. Globe and Mail case, which speaks to the relevant and appropriate factors to consider in determining the proper length of reasonable notice that an employee may be entitled to on termination. Many of the cases then go on to analyze whether there was any bad faith in the manner of dismissal and whether that should aggravate or extend the notice period in accordance with the principles enumerated in Wallace v. United Grain Growers.

Recent decisions have been tackling the issue of extensions of reasonable notice periods or additional damages arising from the manner of dismissal, and the age old question of foreseeability of harm arising out of the Supreme Court of Canada decision in Honda Canada Inc. v. Keays.

On August 27, 2010 the Alberta Court of Appeal provided a very helpful summary and reminder of the appropriate measure of damages in wrongful dismissal cases and the impact of findings of bad faith in the manner of dismissal after Wallace and Honda. In Soost v. Merrill Lynch Canada Inc., [2010] A.W.L.D. 3707 (Alta C.A.), the Alberta Court of Appeal wrestled with the appropriate award of damages for a wrongfully dismissed employee in the financial services sector.

The facts

The employee was a high performing investment advisor employed by Merrill Lynch. He was dismissed without notice after just under three years of employment. Merrill Lynch had alleged six grounds of just cause to dismiss the employee. While the trial judge found that many of the alleged grounds did exist, none of them were found to be sufficient to justify a dismissal for cause. The employee found a new job three weeks after being dismissed, although it was lesser employment. The employee’s clients did not follow him to his new firm, however, and his income dropped substantially.

The trial decision

The trial judge awarded the employee one year’s pay in lieu of notice, which amounted to $600,000. He was further awarded an additional $1.6 million in damages for what was labelled damage to the employee’s reputation and book of business or goodwill. The trial judge felt that the second award compensated the employee for damages suffered as a result of the termination which could not be compensated for by damages in lieu of reasonable notice alone.

The position of the Alberta Court of Appeal:

  • The employment contract at issue was the most common type, which is a contract for an indefinite period.
  • Technically, there is no such thing as a “wrongful” dismissal. Rather, either side may validly end this type of employment contract at any time provided that reasonable notice or pay in lieu of notice is provided to the employee.
  • Absent a collective agreement or under certain federal legislation, no cause is required for the employee or the employer to end the contract. However, it is implied in every employment contract that the party terminating a contract without cause will provide reasonable notice of the termination.
  • Damages resulting from an employment dismissal will rarely exceed the reasonable notice or pay in lieu of notice that ought to have been provided to the employee. The damages awarded will often be less than that reasonable notice if the dismissed employee mitigated his losses by securing new employment or ought to have done so.
  • The exception to this general rule has been recently clarified by the Supreme Court of Canada in the 2008 decision in Honda Canada Inc. v. Keays decision. Honda damages, as the Alberta Court of Appeal referred to them, are awarded to a dismissed employee where the employer has acted unduly insensitively or unfair in the method or manner of dismissal. Any additional Honda damages are not awarded for the mere fact of dismissal; they are meant to compensate for actual loss. They are not awarded in every case and are not intended to be punitive.
  • An employer may be able to escape Honda damages if they have an honest belief - especially based on arguable grounds - for alleging cause for the termination.
  • Damages are not awarded for the mere fact of dismissal or any stigma associated with the dismissal itself. The Court of Appeal found that it is quite often an inevitable result that there will be a stigma associated with the dismissal from employment and that there will likely be an impact on the employee’s future earning capacity.
  • The Court of Appeal reminded us that the wrong perpetrated by the employer was the lack of reasonable notice. Damages must be awarded accordingly for that lack of reasonable notice (or for any unduly insensitive or unfair methods or manner in the dismissal itself only):

“It is common for dismissed employees to suffer losses going well beyond lack of reasonable notice (or pay in lieu). Various factors may prevent ever getting other comparable employment: a bad economy; a small, shrinking, or obsolescent occupation, industry or set of skills; or age of the employee. Or the employment itself may produce prestige, business contacts, or opportunities from non-parties, which will not survive the layoff or dismissal no matter how honourable the circumstances or how positive the letter of reference. For example, a full professor at a prestigious university, or a famous television news commentator, or a member of a famous sports team, might get research grants or consulting or speaking opportunities or endorsements, worth much more than his or her salary - but only so long as he or she keeps the job … Therefore, when such an employee is dismissed, it is probable that some of the employee’s future earning potential will disappear. That disappearance may be temporary, or permanent. Either way, for quite some time after the notice period, salary from the new employer is likely to be smaller. If that continues beyond the notice period, that discrepancy is not compensated.”

  • The employer attempted to rely on the old decision in Hadley v. Baxendale and claimed that the additional losses awarded by the trial judge were foreseeable and therefore compensable. However, the Court of Appeal reminded us that Hadley is a case concerning the limit on damages, not a case concerning the floor for damages or the method by which damages are calculated. Hadley merely excludes damages which are too remote, typically because they were not foreseeable.

The Alberta Court of Appeal has provided us with a timely and succinct reminder of exactly what an employee is entitled to be compensated for if they are dismissed without cause or adequate notice. Unfortunately, employees will often suffer in their future employment beyond the end of the reasonable notice period awarded by a court or granted in a settlement: that may simply be the cost of doing business.