While many employers have celebrated the Supreme Court of Canada’s 2008 decision in Keays v. Honda, it has led to a great deal of confusion regarding the calculation of Wallace damages. Prior to the Supreme Court of Canada’s 1997 decision in Wallace v. United Grain Growers Ltd., a plaintiff employee had to prove the existence of an independent actionable wrong to receive compensatory damages. Compensatory damages are those damages that are awarded to compensate a plaintiff for injury or damage actually suffered and losses actually experienced, and nothing more. Compensatory damages will simply make good or replace the loss caused by the wrong or injury and are intended to restore the injured party to the position he or she was in prior to the injury. Wallace allowed courts to exercise their discretion in extending an employee’s notice period if it found an employer to be untruthful, misleading or unduly insensitive in the course of termination.

In Keays, the Court held that damages will only be available for conduct in the course of termination “where the parties have contemplated at the time of the contract that a breach in certain circumstances would cause the plaintiff mental distress.” Damages may be founded on the breach of the employer’s implied duty of good faith. More importantly, from the perspective of calculating damages, the Court in Keays stated:

…no extension of the notice period is to be used to determine the proper amount to be paid…if the employee can prove that the manner of dismissal caused mental distress that was in the contemplation of the parties, those damages will be awarded not through an arbitrary extension of the notice period, but through an award that reflects actual damages. [Emphasis added]

Given that Keays has now mandated proof of “actual damages”, rather than an arbitrary “bump” in the notice period, the evidence required to establish Wallace damages is much altered. There are several cases following Keays that illustrate the evidence now necessary to prove Wallace damages.

In Smith v. Centra Windows Ltd., a 2009 decision from B.C., the Plaintiff claimed Wallace damages arising from his employer’s conduct, such as unfounded allegations of cause and a company wide email discussing the Plaintiff’s termination. The Plaintiff had obtained counselling and was diagnosed with depression “related to his loss of work”. Considered in the context of pre-Keays jurisprudence, this may well have resulted in a significant “bump” in the notice period. The Court held, however, that there was insufficient proof to establish that the manner of termination had caused mental distress, suggesting that more in-depth testing was required.

In Fox v. Silver Sage Housing Corp., a 2008 decision from Saskatchewan, the Court found that the Defendant employer had “engaged in a phony budgeting process” to “get rid of” the Plaintiff. Citing Keays, however, the Court noted the Plaintiff had not shown he had undergone treatment for mental distress and held the Plaintiff must prove “he suffered damages as a result of the manner of his dismissal…[a]s bad as this employer’s behaviour was towards [the Plaintiff], he has not proven that the stress and depression he suffered is related to the manner in which he was treated.”

In Bru v. AGM Enterprises Inc, a 2008 decision from B.C., the Defendant employer attempted to characterize the Plaintiff’s frustration with her work environment as a resignation. The Court held the employer had acted unfairly and was insensitive to the Plaintiff’s vulnerable emotional state. The Court required proof, however, of a true “psychological injury”. Here, the Plaintiff’s physician testified about the depression that had resulted from the Plaintiff’s work conditions. The Court calculated damages in the same manner as personal injury damages, setting “pecuniary Wallace damages” at $5,000 and “non-pecuniary Wallace damages” at $12,000. Pecuniary damages are actual calculable losses suffered and expenses incurred by a plaintiff as a result of the wrong caused by the defendant; for instance, pecuniary damages include pay in lieu of notice, as such pay compensates a plaintiff employee for actual losses sustained as a result of a lack of notice of termination. Non-pecuniary damages are those damages that are not objectively calculable. Non-pecuniary damages relate to the suffering and pain which occurs as a result of an injury or wrong being experienced by the victim due to the fault of another person. In the employment context, this is most often psychological injury, but can also include compensation for physical injury.

The difficulty that courts are having in developing consistent jurisprudence on Wallace damages is still evident, however, in cases such as Simmons v. Webb, a 2008 decision from Ontario. The Plaintiff in this case, a 20 year employee, had debilitating arthritis. The company dismissed him by letter and demanded that he remove his belongings immediately. Medical evidence was led as to the depression and deterioration of health of the Plaintiff following termination, yet there was also evidence of his plans to find work shortly after termination. The Court, with little reference to evidence or authority, awarded damages of $20,000.

While the Court in Keays held that an independent actionable wrong is not necessary to establish Wallace damages, the fact that Keays requires a dismissed employee to prove a breach of the duty of good faith that has caused “actual damages” has resulted in an analysis much like any case alleging an independent wrongful act. Employees claiming Wallace damages must have compelling medical evidence proving a causal link between mental distress and the manner of termination that resulted in quantifiable non-pecuniary damage. Until jurisprudence on post-Keays damages is plentiful and patterns begin to emerge, claiming Wallace damages and venturing into the courtroom to attempt to prove them may be a “bumpy” ride. Given the Court’s direction in Keays, however, it will surely be more difficult for employees to establish a claim for Wallace damages in the post-Keays era.