When a long serving employee loses a job, the financial consequence of the dismissal may not be the only issue. How an employer communicates and carries out that decision can cause harm of its own. Wallace v. United Grain Growers Ltd., [1997] 3 S.C.R. 701, was a major turning point in Canadian law on the treatment of employees at termination.
Jack Wallace had worked for United Grain Growers for about 14 years before his employment ended. He sued for wrongful dismissal and challenged the employer's conduct surrounding the termination. The Supreme Court considered his reasonable notice entitlement and whether bad faith treatment in the dismissal process should have legal consequences.
The Court recognized an obligation of good faith and fair dealing in the manner of dismissal. Under the approach adopted in Wallace, bad faith in carrying out a dismissal could justify extending the reasonable notice period. The Court allowed the employee's appeal in part and rejected the employer's cross appeal.
That was the law's direction in 1997. It is essential, however, not to publish the Wallace remedy as though it remains the modern test. The Supreme Court revisited the subject in Honda Canada Inc. v. Keays, 2008 SCC 39. Under that later approach, reasonably foreseeable harm arising from bad faith in the manner of dismissal is considered through compensatory damages where supported by the evidence, rather than an automatic increase to the notice period. Mental distress and punitive damages also have their own legal requirements.
The enduring lesson is that employers should separate the decision to terminate from the way a termination is managed. Clear communication, accurate reasons and respectful conduct are not mere matters of etiquette. They can become material to litigation if an employer's actions cause legally compensable harm.
For readers researching severance, Wallace is historically important but must be read alongside the later developments. An older judgment's language about extending notice doesn't, by itself, establish the remedy available in a new dismissal case.
Primary source: Supreme Court of Canada, Wallace v. United Grain Growers Ltd., [1997] 3 S.C.R. 701, https://decisions.scc-csc.ca/scc-csc/scc-csc/en/item/1557/index.do