There has been considerable uncertainty as to the circumstances in which a Court will award aggravated or punitive damages in respect of the dismissal of an employee. Since the seminal decision of the Supreme Court in Wallace v. UGG, dismissing employers have known that any dismissal carries the risk of a Court expressing reprobation in the form of additional damages. However, the theoretical foundation for such damage claims has not been so clearly expressed that one could have confidence about what conduct would attract such a consequence. In Soost v. Merrill Lynch Canada Inc., 2010 ABCA 251, the Court of Appeal of Alberta has brought some welcome clarity to this area and has significantly limited the exposure of employers to extravagant damage awards.

To understand the Soost decision, a brief historical review is necessary. In Wallace, the Court considered the dismissal of a 14 year exemplary employee in circumstances which can only be characterized as oppressive conduct on the part of the employer. The SCC determined that the employee should be entitled to something more than his loss of income for the period of reasonable notice. The Court found that in light of the conduct of the employer, the notice period to which the employee would otherwise be entitled should be extended. This approach was something of an artifice in that the manner of dismissal will typically have little effect on the length of time it will take one to find a job. As a result of this decision, courts would often extend the notice period from between 3 and 6 months to punish employers who were insensitive or high handed in their approach to the dismissal.

The Wallace approach was not satisfactory for its uncertainty. It was never clear what conduct would lead to extended notice and there were no rules surrounding what that extra notice would be. The Supreme Court revisited the issue in Keays v. Honda Canada Inc., 2008 SCC 39.

In Keays v. Honda, the Court directed that damages in a wrongful dismissal are simply calculated in accordance with traditional and accepted damages principles. That is, the employee is entitled to those damages which are the reasonably forseeable losses occurring as a result of the breach. The Court did say that there is an obligation of good faith in the manner of effecting the dismissal and that if there is an insensitive dismissal, then it must have been within the contemplation of the parties that damages would flow and be compensable. The Court also set out the circumstances in which punitive damages would be awarded to a terminated employee. These damages are available only where there is an independent actionable wrong committed by the employer in effecting the dismissal coupled with harsh or highhanded conduct that is deserving of punishment and condemnation. For employers this was a murky expression of the law, which could lead to significant damage claims by employees. Indeed, the trial decision in Soost exemplified the potential for disastrous loss to an employer.

The facts in Soost are straightforward. The Plaintiff was a financial advisor terminated by Merrill Lynch. The employer was not able to establish that it had just cause. The Court of Queen’s Bench found that Soost was entitled to the income he would have earned during the period of reasonable notice (determined to be 1 year). The Court fixed this amount at $600,000. The Court went on to find that this amount undercompensated Soost and that he should be entitled to further damages in the amount of $1.6 million because the consequences of his dismissal included the loss of almost the entirety of his "book of business" (largely retained by his employer) and his ability to earn future income.

The Court of Appeal conducted an analysis of the law concerning terminations. The Court concluded that the only breach of contract was the failure of the employer to give the employee reasonable notice. Any employer can dismiss any employee for any reason, no matter how capricious or whimsical that reason may be. The only entitlement of the employee is a damage award for those losses attributable to the failure of the employer to provide reasonable notice. Only those damages which flow from the failure to give notice (and not the dismissal itself) are recoverable. The Court found that the extra damages awarded by the trial judge were not damages which flowed from the failure of the employer to give reasonable notice, and were therefore not recoverable. The Court noted that there was an obligation on the part of the employer to ensure that in effecting the dismissal, it was not being unduly insensitive. However, the Court found that the circumstances did not give rise to a claim in this case, nor was the conduct of the employer such that punitive damages ought to have been awarded.

The Court of Appeal decision is a welcome one for employers in light of a trend in the lower courts to rely on the Honda case to expand the range of damages visited upon employers. The Court was clear that damages must flow from the breach of the obligation to give notice or the breach of the obligation to be sensitive in the manner of dismissal. Dismissal itself is not a wrong and the negative consequences which might be attributable to the dismissal (as opposed to the failure to give notice) are not compensable. It is welcome judicial restraint. Future claims will be focused on the consequences of the failure to give notice. It will be a rare case where the damages from such failure will exceed the loss of income for the reasonable notice period. As to the obligation to be sensitive, there will have to be a palpable callousness on the part of the employer before a breach can be established. And even then, the damages must be proved.