Wallace Damages — Ontario Employment Law
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About Wallace Damages
In Ontario employment law, the term 'Wallace damages' refers to compensation awarded to an employee when an employer engages in bad faith, unfair, or untruthful conduct during the process of termination. The concept originated from the 1997 Supreme Court of Canada decision in Wallace v. United Grain Growers Ltd., which established that employers have a duty of good faith and fair dealing when dismissing employees.
Historically, if an employer breached this duty—for instance, by making false allegations of cause to justify a termination, publicly humiliating the worker, or offering clemency only in exchange for a forced resignation—courts would penalize the employer by artificially extending the employee's reasonable notice period. A wrongfully dismissed worker might receive an extra several months of pay on top of their normal severance entitlement simply because of the poor manner in which they were fired.
However, it is vital for workers to understand how this area of common law has evolved. In 2008, the Supreme Court shifted this framework with the landmark Honda Canada Inc. v. Keays decision. Today, Ontario courts generally no longer 'bump up' the notice period by adding months. Instead, while the core protection against bad faith remains strongly entrenched, courts now calculate a distinct, fixed monetary sum (frequently referred to as moral damages or aggravated damages) to compensate the worker for the actual mental distress caused by the employer's high-handed conduct.
Even though the method of calculation changed, workers and legal professionals alike still frequently use the shorthand 'Wallace damages' to describe this financial compensation for bad faith terminations. Courts will closely scrutinize the employer's actions before, during, and after the dismissal. They look for dishonesty, misleading actions, or unnecessarily aggressive tactics that cause emotional distress far surpassing the normal, expected upset of losing a job.
Because evaluating the severity of an employer's behavior and quantifying the resulting harm is entirely dependent on the unique facts of your departure, consulting with an employment professional to review the specific details of your termination is highly recommended to determine your lawful entitlements.
Frequently Asked Questions
What is the difference between Wallace damages and regular severance pay?
Regular severance pay (or reasonable notice) compensates you for the loss of your employment income while you look for a new job. Wallace damages, on the other hand, specifically compensate you for mental distress caused by the employer acting unfairly, dishonestly, or in bad faith during the termination process.
Do courts still add months to my notice period for bad faith?
Generally, no. Under current Ontario common law following the Honda v. Keays decision, courts no longer artificially extend your notice period in months. Instead, if bad faith is proven, they award a lump sum of money, increasingly known as moral or aggravated damages.
What kinds of employer actions qualify for this type of bad faith compensation?
Actionable bad faith includes lying about the reasons for termination, maintaining false allegations of theft or incompetence without proof, unnecessarily publicly humiliating the worker during dismissal, or illegally withholding mandatory Employment Standards Act (ESA) minimums to force an employee to sign a release.
Do I need a medical diagnosis to claim damages for bad faith in Ontario?
While medical evidence (such as a doctor's note or psychologist's report) diagnosing depression or severe anxiety is incredibly helpful in proving your claim, Ontario courts have ruled it is not strictly mandatory. You must, however, be able to prove you suffered actual distress beyond the normal pain of being let go.
When should I consult an employment lawyer about a bad faith dismissal?
If your employer was deceitful, aggressive, physically marched you out of the building without cause, or made baseless accusations during your firing to avoid paying severance, you should have legal counsel assess whether you have grounds to claim damages for the manner of dismissal.
Is there a time limit to sue for bad faith damages in Ontario?
Yes. A claim for wrongful dismissal, including damages for bad faith conduct, must generally be filed within two years from the date of termination under Ontario's Limitations Act, 2002. Missing this deadline usually means you lose the right to sue.
Common Scenarios
- A 20-year loyal employee is terminated without cause, but the employer inexplicably forces security guards to escort the employee out the front door in full view of their colleagues and clients, severely and intentionally damaging their reputation.
- During a termination meeting, HR presents a severance package and threatens to withhold the employee's accrued vacation pay and mandatory statutory notice pay unless the employee signs a final release before leaving the room.
- An employer wishes to avoid paying an 18-month severance package to a senior manager nearing retirement, so they suddenly construct false, unsupported allegations of financial fraud to terminate the employee 'with cause', causing severe psychological distress.
What You Should Know
- Immediately document the termination process by writing down exactly what was said, who was present, and how you were treated during the meeting, as this contemporaneous record helps prove bad faith.
- Keep a journal of any emotional or physical impacts the termination has on you, such as insomnia, anxiety, or seeking therapy, as establishing actual distress is required for this claim.
- Never cave to pressure to sign a termination agreement on the spot; 'exploding offers' or aggressive ultimatums during the firing process can themselves be used as evidence of bad faith.
- Since the legal framework for bad faith damages has shifted from adding months of notice to awarding lump sum amounts, have an employment law practitioner calculate the current monetary value of your distress claim before negotiating.
Featured Cases
D. v. L.
2010 ONCA 700 (CanLII) · 2010-10-22D. v. L.: Wrongful Dismissal/Malicious Prosecution
This is an appeal to the Court of Appeal from a trial judgment. The plaintiff E.D. sued his former employer for wrongful dismissal and malicious prosecution. The trial judge found for the plaintiff and awarded damages, including "Wallace" or "Honda" damages and aggravated damages for malicious prosecution. The Court of Appeal decided that the awards for "Wallace" damages and aggravated damages for malicious prosecution duplicated each other because they were based on the same factors. The court allowed the appeal in part to set aside the $15,000 award for "Wallace" damages but otherwise dismissed the appeal.
P. v. Galway-Cavendish and Harvey (Township)
2009 CanLII 70502 (ON SC) · 2009-12-16Wrongful Dismissal with Bad Faith Conduct and Damages Awarded
A wrongful dismissal case where the plaintiff was wrongfully dismissed without notice or opportunity to respond to allegations. The defendant offered clemency in exchange for resignation, and the court awarded Wallace damages for bad faith conduct, aggravated damages for emotional distress, and punitive damages for egregious actions. Special damages were also awarded for legal costs incurred.
B. v. Niagara Motors Limited
2009 ONCA 887 (CanLII) · 2009-11-18Wrongful Dismissal: Employment Gap and Wallace Damages Appeal
This is an appeal from a wrongful dismissal trial decision involving an employee with a two-year employment gap who was invited back by the employer. The Court of Appeal upheld the trial judge's finding that the gap should not affect the calculation of length of service for severance purposes. However, the court overturned the award of Wallace damages for mental distress, finding that the employee had not sought medical attention or therapy despite the employer's improper conduct.
S. v. I.
2009 ONCA 526 (CanLII) · 2009-06-25S. v. I.: Wrongful Dismissal Appeal
This is an appeal from a trial decision in a wrongful dismissal action involving indefinite-term employment contracts. The Court of Appeal upheld the trial judge's findings that the written contracts did not bind the parties due to significant variation with conduct, thereby entitling the respondents to reasonable notice. The appellate court also upheld the award of Wallace damages for reputational harm and mental distress for one respondent, while reducing the award for the other due to insufficient evidence.
B. v. Advanced Micro Devices, Inc.
2008 ONCA 686 (CanLII) · 2008-10-09Wrongful Dismissal: 9 Months Notice Awarded on Appeal
This is an appeal from a wrongful dismissal trial decision regarding the appropriate period of reasonable notice and the award of Wallace damages. The appellate court adjusted the notice period from 10 months to 9 months and removed Wallace damages because they were not pleaded or claimed by the employee.
C. v. BMO Nesbitt Burns Inc.
2008 ONCA 663 (CanLII) · 2008-10-01This is an appeal from a wrongful dismissal trial decision involving an employee with 17 years of service. The Court of Appeal addressed issues regarding the calculation of damages for reasonable notice, the application of mitigation principles, and the award of Wallace damages for the manner of dismissal.
E. v. Number 7 Sales Limited
2008 ONCA 599 (CanLII) · 2008-09-02Constructive Dismissal: 15 Months Notice for Commission Cut
This appeal addressed whether an employer's unilateral reduction of an employee's commission rate from 18% to 9% constituted constructive dismissal. The Court of Appeal upheld the trial judge's finding of constructive dismissal and the award of 15 months' reasonable notice, while also addressing issues regarding Wallace damages, mitigation of damages, and statutory benefits under the Employment Standards Act.
M. v. Ottawa (City)
2008 ONCA 201 (CanLII) · 2008-03-25Wrongful Dismissal: Wallace Damages Standard Clarified
This is an appeal from a trial decision in a wrongful dismissal action involving an employee terminated during sick leave. The Court of Appeal clarified the legal standard for awarding Wallace damages, holding that an employer's honest belief in just cause, a mistake in timing the dismissal, or the withdrawal of a just cause defence at trial does not automatically constitute bad faith or unfair dealing warranting such damages.
M. v. Bank of Nova Scotia
2007 ONCA 726 (CanLII) · 2007-10-22Wrongful Dismissal: 22 Months Notice and Wallace Damages
This is an appeal from a wrongful dismissal trial decision where the employer failed to prove just cause for termination. The Court of Appeal upheld the trial judge's award of 22 months' notice in lieu of termination and $25,000 in punitive damages, but reduced the Wallace damages from eight months to four months.
C. v. BMO Nesbitt Burns
2007 CanLII 44172 (ON SC) · 2007-10-12Wrongful Dismissal: 17-Year Employee Awarded 18 Months Notice and Book of Business Compensation
A wrongful dismissal case where the plaintiff, who had 17 years of service, was dismissed without cause. The court applied the traditional approach to determine an 18-month notice period and awarded damages for the loss of the plaintiff’s Book of Business valued at $90,000. Wallace damages were also awarded due to the defendant’s conduct during dismissal, and the plaintiff’s mitigation efforts were deemed reasonable.
K. v. Babcock & Wilcox Canada Ltd.
2007 ONCA 536 (CanLII) · 2007-07-24Wrongful Dismissal: Wallace Damages Overturned on Procedural Grounds
This is an appeal from a wrongful dismissal trial decision involving allegations of just cause and bad faith conduct. The trial judge had awarded Wallace damages for the employer's failure to warn and alleged conspiracy, but the Court of Appeal set aside this award due to procedural unfairness regarding unpleaded allegations.
M. v. Brantpack Distributing Ltd.
2006 CanLII 23262 (ON SC) · 2006-06-28Wrongful Dismissal: 61-Year-Old Employee Awarded 9 Months Notice and $66,973 in Damages
A wrongful dismissal case where the plaintiff, terminated at age 61, was awarded nine months' reasonable notice. The court applied the Wallace framework to assess employer conduct and determined that no extension of notice was warranted due to lack of malicious intent. The plaintiff was also awarded $66,973 in damages for salary, car benefits, and bonuses during the notice period.
S. v. I.B.M. Canada Ltd.
2006 CanLII 9581 (ON CA) · 2006-03-30S. v IBM: Notice Reduced to 4 Months
The Court of Appeal for Ontario heard an appeal regarding a wrongful dismissal case where a jury had awarded damages for inadequate notice and insensitive termination. The court reduced the reasonable notice period from nine months to four months and overturned the awards for aggravated and punitive damages, finding no independent actionable wrong existed.
F. v. Pace Marathon Motor Lines Inc.
2006 CanLII 2403 (ON SC) · 2006-01-31Constructive Dismissal: 10 Months Notice Awarded with Wallace Damages
A constructive dismissal case where the plaintiff alleged unilateral changes to employment terms and lack of response to clarification requests. The court found constructive dismissal and awarded 10 months’ notice, including Wallace damages for bad faith conduct.
Lowndes v. Summit Ford Sales Ltd.
2006 CanLII 14 (ON CA) · 2006-01-06Wrongful Dismissal: 28-Year Employee Awarded 24 Months Notice
The Court of Appeal for Ontario heard an appeal regarding the reasonable notice period and damages awarded to a long-term employee dismissed after 28 years of service. The court reduced the trial judge's notice award from 30 months to 24 months, finding that exceptional circumstances were required to justify a period exceeding 24 months. The appeal also addressed the justification for Wallace damages for bad faith dismissal and the methodology for calculating prejudgment interest.
M. v. Bank of Nova Scotia
2005 CanLII 46757 (ON SC) · 2005-12-15Wrongful Dismissal: 28-Year Employee Awarded 22 Months Notice and Wallace Damages
A wrongful dismissal case involving a plaintiff with 28 years of service who was dismissed without notice or salary in lieu of notice. The court applied the Bardal factors to determine a 22-month notice period and awarded 8 months of Wallace damages for the manner of dismissal, which included allegations of dishonesty and improper personal relations. Punitive damages were also awarded for the employer’s oppressive conduct.
B. v. Flex-N-Gate Canada Co.
2005 CanLII 10540 (ON SC) · 2005-04-04Wrongful Dismissal: Statutory and Wallace Damages Awarded
A wrongful dismissal case where the plaintiff was awarded statutory entitlements of $83,653 under the Employment Standards Act, along with $34,000 in Wallace damages and $15,000 in punitive and aggravated damages. The court held that statutory entitlements and Wallace damages are not subject to mitigation, while common law damages were reduced by mitigation earnings.
B. v. Holiday Ford Sales (1980) Ltd.
2005 CanLII 8672 (ON CA) · 2005-03-31Constructive Dismissal: 10 Months Notice Awarded
This appeal concerns a claim of constructive dismissal where an employee was assigned menial tasks and denied her former position and pay structure upon returning from stress leave. The Court of Appeal applied the test for constructive dismissal from Farber v. Royal Trust Co. and determined that the employer's failure to reinstate the employee constituted a constructive dismissal. The court recalculated damages to include full-year earnings and commissions, upholding a notice period of ten months, while dismissing the claim for Wallace damages due to a lack of evidence of bad faith conduct.
M. v. Iplatform Inc.
2004 CanLII 48175 (ON SC) · 2004-12-16Wrongful Dismissal: 105-Day Employee Awarded 3 Months Notice and Wallace Damages
A wrongful dismissal case where the plaintiff was employed for 105 days and dismissed without just cause. The court found that all named defendants were jointly and severally liable as the plaintiff’s employer under the common employer doctrine. The plaintiff was awarded three months’ reasonable notice and three months’ Wallace damages for employer misconduct during the dismissal process.
Y. v. Canac Kitchens
2004 CanLII 48176 (ON SC) · 2004-12-16Wrongful Dismissal: 15.5-Year Production Team Leader Awarded 12 Months Notice
A wrongful dismissal case involving a production team leader with 15.5 years of service who was terminated without just cause due to a business downturn. The court assessed reasonable notice at 12 months and determined the plaintiff was not entitled to Wallace damages due to the employer's prompt rectification of a severance miscalculation. The case also addressed whether statutory payments and mitigation earnings should be deducted from common law entitlements.