Appeal Court denies “Wallace” damages to unsuccessful candidate of “sloppy” hiring process

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Readers of FOCUS will recall the important Supreme Court of Canada decision in Wallace v. United Grain Growers (see “Fairly, reasonably and decently”: Employers obliged to deal in good faith with dismissed employees, Supreme Court rules” on our Publications page), in which the Court stated that the notice period in wrongful dismissal cases could be lengthened when an employer’s bad faith conduct or unfair dealing has caused humiliation to a dismissed employee. However, the Court in Wallace was careful to say that hurt feelings arising from the dismissal itself were not compensable – only those who had suffered from bad faith conduct by the employer were eligible for additional damages. As a result, the Wallace doctrine has presented courts with the task of distinguishing circumstances in which the employee’s distress is caused by the dismissal itself, from those in which the distress is augmented by bad-faith conduct on the part of the employer.

This aspect of the Wallace doctrine has now been clarified by the Ontario Court of Appeal in its decision in Gismondi v. Toronto (June 20, 2003), in which the Court overturned an extended notice period of 116 weeks awarded by a trial judge. The case involved a 20-year managerial employee who had lost his position following the restructuring occasioned by the amalgamation of the former Municipality of Metropolitan Toronto into the new City of Toronto.

In the wake of the restructuring, Dominic Gismondi, who had been employed as Director of Roads and Sidewalk Operations in the former City of North York, was a candidate in a competition for five positions of Manager, Road Operations. Following his interview, Gismondi was informed that his performance appraisals would be reviewed and his references contacted. This was never done.

Although Gismondi was initially considered the top candidate for the District 3 position (in the former City of North York) by Roberto Stopnicki, the Director of District 3, Stopnicki changed his mind after consulting with a colleague. He was unaware that the colleague with whom he had consulted was the referee for the successful candidate. Moreover, when the leading candidate for the District 1 position (the former City of Toronto) became unavailable to fill the position, it was not offered to Gismondi, but to another candidate whose interview scores were substantially lower.

Gismondi was informed that he was unsuccessful in the competition because his management style was seen to be unsuited to the needs of the merged municipality. He was offered 80 weeks of severance, that is, four weeks for each year of service.

TRIAL JUDGE: CONDUCT NOT EGREGIOUS, BUT “SLOPPY”

In extending Gismondi’s notice period to 116 weeks, the trial judge noted that, while the highest scores in the interview evidently did not determine the successful candidates, there was nothing in the job posting indicating that the interview score would be the determining factor. The judge also accepted that, realistically, Gismondi was not in the running for the District 1 position, despite being formally eligible for each of the five positions. While it was clear from the record of the interview that Gismondi was a capable individual, the trial judge found that he had not “overwhelmed” the interview panel.

The trial judge also found that, while the panel’s failure to review Gismondi’s references and performance appraisals and Stopnicki’s consultation with a competitor’s referee amounted to differential treatment of Gismondi, they had not affected the ultimate result:

    “What is ironic is that the conduct complained of was not egregious. It was, simply put, sloppy. Had Mr. Stopnicki done what had been expected of him, I dare say the result would probably not have been any different. The fact of the matter was, although not stated in these terms, Mr. Stopnicki chose a manager with whom he thought he could work and one who was better suited for the new era. It would have been best if he and the H.R. personnel merely stated this as the underlying rationale rather than attempting to justify the choice in an otherwise transparent fashion. More harm was caused than was necessary in an attempt to be diplomatic.”

Based on his finding that the employer’s conduct, which he described as “not malevolent, and … probably well-intentioned”, had caused the hiring process to go “off the fairness rails”, the trial judge awarded Gismondi 116 weeks’ notice, which included an unspecified amount for Wallace factors.

COURT OF APPEAL: “SLOPPY, WELL-INTENTIONED CONDUCT” NOT WALLACE FACTORS

A unanimous panel of the Court of Appeal allowed Toronto’s appeal, and ordered Gismondi be given the 80 weeks of severance he had originally been offered. The Court held both that the employer’s conduct as described by the trial judge did not give rise to Wallace damages, and that the trial judge had made no findings that the conduct had caused Gismondi any injuries which entitled him to increased compensation.

The Court based its conclusion on a reading of the Wallace case and subsequent cases that applied it. The review of the case law demonstrated that something more than “sloppy, well-intentioned” conduct was necessary to award a lengthened notice period:

    “[I]t seems to me that what is common in all of the examples provided in Wallace and the other cases I have mentioned above is the presence of something akin to intent, malice, or blatant disregard for the employee. It is conduct that could be characterized as “callous and insensitive treatment” … or … “playing hardball”. The conduct found by the trial judge to exist in this case does not in any sense resemble the examples provided in Wallace. The trial judge described the directors, including the one he was most critical of, Mr. Stopnicki, as “not malevolent” and “probably well intentioned”. He described the manner in which the competition was conducted as “sloppy”. This does not reach the kind of conduct worthy of compensation.”

The Court went on to note that, if there were any grounds to extend the notice period, these would have been provided by the employer’s failure to review Gismondi’s performance evaluations and references and Stopnicki’s consultation with the competitor’s referee. However, as the trial judge had found that this behaviour was merely sloppy, but not malevolent, there could be no basis for awarding Wallace damages.

Nor did the fact that the District 1 job was awarded to a candidate with a lower interview score warrant increased damages. The trial judge had found both that Gismondi had no real chance of winning this position, and that there had been no guarantee in the job posting that interview scores would be determinative. The Court summarized its views in the following terms:

    “The conduct is nothing like that referred to in Wallace, where the employer persisted in an unfounded allegation that the employee was dismissed for cause, in particular because of dishonesty. …In the circumstances of this case, the failure of the employer to strictly follow its own procedure neither entitled [Gismondi] to damages for a breach of contract nor to an extended notice period, absent bad faith conduct as described in Wallace, even though [Gismondi] was dismissed as a result of the competition.”

In reducing Gismondi’s notice period to 80 weeks, the Court noted that the 116 weeks awarded by the trial judge was considerably longer than the 104 weeks that the Supreme Court of Canada had referred to in Wallace as being “at the high end of the scale”. Noting that, although appellate courts should generally be reluctant to interfere with a trial judge’s award of damages when the award is in the acceptable range, the Court stated that, in this case, the award of 116 weeks was tainted by the trial judge’s errors in applying Wallace. Accordingly, it held that the trial judge’s award was outside the acceptable range and that the original offer of 80 weeks was reasonable.

In Our View

This case establishes that some form of bad faith by the employer is necessary to support an award of Wallace damages. As well, it is necessary for the terminated employee to demonstrate that he or she has suffered some form of harm or prejudice (apart from losing the job) due to the employer’s conduct. Gismondi’s inability to point to any specific harm was likely a significant factor in the Court’s decision.

However, the Court made it clear that an employee’s ability to secure new employment does not have to be hindered. If bad-faith conduct or unfair dealing results in humiliation, embarrassment or damage to an employee’s self-esteem, Wallace damages may be available, even though the employee’s ability to find new employment has not been impaired. Moreover, if an employer’s conduct is particularly flagrant and results in the employee becoming provably ill, the employer may be liable for the tort of intentional infliction of mental distress (see “Bullying at work: another form of workplace violence”).

For further information, please contact Colleen Dunlop at (613) 940-2734 or Jennifer Birrell at (613) 940-2740.