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
Pate 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.
Clark 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.
MacMillan 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.
Fedorowicz 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.
Mastrogiuseppe 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.
Bouma 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.
Yanez 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.
McCulloch 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.
Geluch v. Rosedale Golf Assn.
2004 CanLII 14566 (ON SC) · 2004-06-25Wrongful Dismissal: Senior Executive Awarded 15 Months Notice and Wallace Damages
A wrongful dismissal case involving a senior executive who alleged fiscal impropriety, theft, and abusive conduct by the employer. The court applied the Bardal factors to determine a 15-month notice period and awarded Wallace damages for the manner of dismissal, while denying aggravated and punitive damages. The plaintiff was also awarded compensation for untaken vacation and mitigation expenses.
Fleming v. Ricoh Canada Inc.
2003 CanLII 2435 (ON SC) · 2003-12-10Wrongful Dismissal: Sexual Harassment and Just Cause Termination
A wrongful dismissal case involving a plaintiff terminated for alleged sexual harassment and breach of Ricoh's harassment policy. The court assessed whether the employer established just cause for termination under common law and company policy, and whether procedural fairness obligations were met. The employer's investigation corroborated the harassment complaints, and the court found that the misconduct met the statutory definition of willful misconduct, barring termination pay. The termination process was deemed respectful and humane, and no Wallace damages were awarded.