Northern Exposure

New Limits Placed on ‘Bad Faith’ Damages in Terminations

by Helen Gray
McCarthy Tetrault

A recent decision of the Ontario Court of Appeal places new limits on a trial judge’s ability to award damages for conduct on the part of an employer during the termination process that is said to amount to “bad faith.”

While it’s an Ontario decision, it can be expected to have broad ramifications across Canada.

City assessed Wallace damages
We have discussed in this space in the past the 1997 decision of the Supreme Court of Canada, Wallace v. United Grain Growers, which ruled that additional damages could be awarded on top of normal damages for inadequate notice of termination. These additional damages came to be called Wallace damages and are typically awarded when the employer has engaged in bad faith or unfair conduct during termination by being, for example, untruthful, misleading, or unduly insensitive.

In the recent case, Mulvihill v. City of Ottawa, Mulvihill sued for wrongful dismissal seeking 36 months’ pay in lieu of notice plus punitive, exemplary, and Wallace damages. She had been employed by the City of Ottawa three years and, before that, by a neighboring city, Kanata, for about four years.

The city defended the lawsuit, initially alleging that it had just cause to terminate Mulvihill without notice. It later withdrew the allegations of just cause. It then paid her pay in lieu of notice of termination equal to three months’ salary and benefits. This was the amount the city felt was called for under her signed contract of employment.

At the trial, the judge agreed with the city that the written contract governed Mulvihill’s entitlement to notice of termination without cause. However, he found that service with both the cities of Kanata and Ottawa should be credited in calculating her entitlement so that Mulvihill was entitled to 4.5 months’ salary and benefits.

The trial judge also ordered the city to pay Mulvihill 5.5 months pay for Wallace damages. The judge appears to have awarded these damages because the city terminated Mulvihill’s employment while she was on sick leave and because the city initially terminated her employment for cause. The trial judge also ordered the city to pay her $50,000 for costs of the trial.

City appeals
The City of Ottawa, which was represented by the McCarthy Tetrault and the author of this post, appealed the trial judge’s award of Wallace damages and costs. In a decision released March 25, 2008, the appeal was allowed. The Ontario Court of Appeal unanimously held that the evidence didn’t support an award of Wallace damages. The court found that Wallace damages could not be ordered simply because the city at first made and later withdrew the allegation of just cause for termination. Nor could Wallace damages be awarded because the city had terminated Mulvihill while she was on sick leave.

Absent any finding of bad faith employer conduct, which was not proven in this case, these facts don’t give rise to Wallace damages. The appeal court noted that the city had a reasonably held belief at the time of dismissal that it had cause to terminate the employee’s employment.

Good news for employers
The case has been heralded as welcome news for employers because it clarifies that certain employer actions during the termination process won’t automatically give rise to Wallace damages. Such damages aren’t to be handed out like candy. There must be evidence of bad faith.

Further, the appeal court may drill down into the trial judgment and the factual record to determine whether bad faith conduct existed that is sufficient to provide a basis for Wallace damages.

1 thought on “New Limits Placed on ‘Bad Faith’ Damages in Terminations”

  1. This was sent to the Premier of Ontario Dalton McGuinty, the Minister of Community and Social Services Madeleine Meilleur, Hamilton Mayor Fred Eisenberger and Hamilton city councilor Bernie Morelli, via e-mail on Feb 24 08.

    My question to you and to myself is how do they get away with the callous and unjust manner that workers approach their clients with, at Ontario Works, ODSP and even the Social Benefits Tribunal?

    The answer is very simple. BECAUSE THEY CAN

    For the record I would like to state, I have seen many improvements to the SBT since a change of it’s Chair and I expect to see many more. I can’t say the same for Ontario Works and ODSP.

    The research shows when clients have contact with workers the response is not always the same. You could ask three different workers the same question and receive three different answers.

    If the worker doesn’t especially like you, they will simply ignore you. This means things like no return phone calls, ignoring verbal requests for benefits, requesting more than usual documents be brought in to prove eligibility and so on.

    If the worker really doesn’t like you, they will often do everything in their power to harass, intimidate and frustrate you into giving up and going away. This means things like ignoring written requests for benefits, telling you that the benefit doesn’t exist, denying benefits when you are entitled and no decision letters and so on.

    If the worker does like you, they will give you any of the benefits that you ask for if you entitled. This is only if the worker is aware of the benefits requested. Here is an interesting problem. The vast majority of the workers are not aware of benefits that are available. This even includes some of the excellent workers. Another problem is that the fast majority of clients don’t even know what the benefits are.

    ********All clients must document, tape record and video record everything, every time when dealing with any OW or ODSP staff. ********

    The governments must, as a gesture of good will, give all Ontario Works and ODSP clients a written copy of the benefits that they say clients are entitled.

    This would be a first concrete step taken to start the process in eliminating poverty.

    Ontario Works Directive # 31.0 found at or the:

    Ontario Disability Support Program Directives #s 9.1 to 9.19 Found at

    The only real remedy to this problem is for clients to sue their respective governments. For Ontario Works it would be their local municipal government and the Province of Ontario and for ODSP it would be the Province of Ontario.

    In the Ontario Works Act it states No personal liability

    77.(1)No action or other proceeding in damages shall be instituted against the Ministry, the Director, a delivery agent, an officer or employee of any of them or anyone acting under their authority for any act done in good faith in the execution or intended execution of a duty or authority under this Act or for any alleged neglect or default in the execution in good faith of any duty or authority under this Act.

    In the Ontario Disability Support Program it states No personal liability

    58. (1) No action or other proceeding in damages shall be instituted against the Ministry, the Director or a delivery agent, an officer, employee of any of them or anyone acting under their authority for any act done in good faith in the execution or intended execution of a duty or authority under this Act or for any alleged neglect or default in the execution in good faith of any duty or authority under this Act. 1997, c. 25, Sched. B, s. 58 (1).

    This means that a client could sue for damages if bad faith could be proven.

    It is called bad faith; a person who intentionally tries to deceive or mislead another in order to gain some advantage.

    It is called willful blindness or willful deceit.

    The government must get rid of the discretionary powers it allows workers in the OW and OSSP, Act, Regulations and Directives.

    You’re either entitled to benefits or your not. It is extremely simple but the government will not do it until it gets sued for Bad Faith.

    It’s so simple; all the government has to do is to look at how the federal government implements its Employment Insurance application process, and they are saving millions.

    To receive benefits you must go online to apply, with exceptions for some disabled clients. You fill out a simple template and the next thing you experience is a cheque in the mail. If the federal government trusts us why can’t you?

    Ron Payne
    Volunteer Advocate
    Welfare Legal
    Hamilton, Ontario.

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