C. The Supreme Court of Canada and Good Faith: Wallace v. United Grain Growers Ltd.

• Author: John D. McCamus
• Profession: Professor of Law. Osgoode Hall Law School, York University
• Pages: 798-803

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The Supreme Court of Canada was provided with a recent opportunity to consider the desirability of recognizing a duty of good faith contrac-

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tual performance at common law in Wallace v. United Grain Growers Ltd.⁵⁹This case involved a claim for damages for wrongful dismissal. The plaintiff was employed under an agreement that was terminable at will. The plaintiff Wallace had been lured by the defendant from a rival company and for a period of some fourteen years he performed as one of the defendant’s top salespersons. When the defendant fired Wallace, it did so without giving reasonable notice and was liable, therefore, for damages flowing from this clear breach of contract, that is, replacement of the income he would have earned during the notice period. Wallace sought other damages as well, however. The defendant maintained that it fired Wallace for cause and it maintained this position up to the moment of trial. These groundless allegations caused Wallace substantial mental distress, leading him to require psychiatric assistance. As well, Wallace was unsuccessful in obtaining secure employment with another employer. In short, the manner of Wallace’s dismissal allegedly caused further injury for which he sought compensation. In support of these claims, it was argued before the Supreme Court that the defendant was subject to a duty, either in tort or in contract, to refrain from dismissing an employee "in bad faith." In other words, it was submitted that the defendant was subject to a duty to dismiss only in good faith or, that is, for cause or other legitimate business reasons, and that the defendant clearly breached this duty.

Before turning to consider the reasoning of the Supreme Court in this case, it may be useful to briefly portray the law relating to claims for injuries resulting from the manner of a wrongful dismissal as it was understood prior to the decision in Wallace. The history of claims for intangible injuries resulting from the manner of a wrongful dismissal is a lengthy one. In the well-known decision of the House of Lords in Addis v. Gramaphone Co. Ltd.,⁶⁰it was held that damages could not be assessed in an action for wrongful dismissal for injured feelings resulting from the harsh and oppressive circumstances of a dismissal or, indeed, for the extent to which the manner of dismissal might make it more difficult for the employee to obtain re-employment. If libel or slander accompanied the dismissal, the employee should resort to the appropriate tort claim.

With the recognition, in the 1970s, of the possibility of claims for intangible injuries such as mental distress in contract cases,⁶¹renewed

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attempts were made on behalf of dismissed employees to recover damages for mental injury resulting from the manner of the wrongful dismissal. This issue surfaced for the consideration of the Supreme Court of Canada in Vorvis v. Insurance Corporation of British Columbia.⁶²In this case, the plaintiff coupled his claim for damages for lack of reasonable notice with a claim for aggravated damages for mental distress resulting from the oppressive conduct of the manager prior to his dismissal. Briefly stated, the holding in Vorvis was that although a claim for damages for mental distress may conceivably lie in the context of a breach of an employment contract, it was necessary to demonstrate that the mental injury foreseeably flowed from either the wrongful dismissal itself, that is, the lack of reasonable notice, or from another actionable breach of contract or, indeed, a tort. This factor was missing in Vorvis. The conduct of the manager, however offensive, did not constitute...