846, 145 D.L.R. (4th) 1 [Farber]; and see generally R. Scott Echlin & Jennifer Fantini,. Quitting for Good .... Lynn, [1978] I.C.R. 205 at 211. 37. .... Thorold Natural Gas Co. (1916), .... set out in a manual at the time the loan was made. ...... Barnes, supra note 193 at 435, describes a similar dilemma arising from Johnson if.
Employer “Bullying”: Implied Duties of Fair Dealing in Canadian Employment Contracts David J. Doorey Over time, the interpretation of employment contracts by Canadian courts has evolved to reflect the changing perceptions of the ideal balance of power between employee and employer. This paper discusses those changes in the context of employer bullying, which the author describes as a broad range of employer conduct that can cause employees physical or psychological harm. Canadian law has taken two alternative approaches to such conduct. One approach treats it as a breach of an implied term of the employment contract requiring fair dealing (repudiationby-breach-of-contract, or RBB). The other treats it as a repudiation of the contract without any breach (repudiation-without-a-breach, or RWB), because it makes the employment relationship intolerable. The author compares these two approaches to the British model, which relies on the notion of an implied duty of trust and confidence to address employer bullying. The author evaluates the two approaches at different times in the life of the contract: during the course of the employment relationship, and at the time of dismissal. Ultimately, he prefers the RBB approach to the RWB approach, as the latter offers too little protection to employees and only applies to an employee who is prepared to quit in response to bullying. The author deals with the complicating factor of the Supreme Court of Canada’s decision in Wallace—which requires that any damages from employer bullying “in the manner of dismissal” be exclusively in the form of an extension of the notice period—by suggesting a test that would determine at which point in the employment relationship the bullying occurred. While employer bullying in the manner of dismissal must be dealt with under Wallace, the implied-term RBB approach may provide an avenue for compensating employees who were bullied in the course of employment. The author goes on to address the difficult case of a constructive dismissal, pointing out that his test provides a means for deciding which damages were suffered by the employee at which point in the contract, and allowing recovery for all of them. His approach recognizes two distinct duties for employers: (1) a duty of fair dealing in the performance of the contract and (2) a duty to implement decisions to dismiss in good faith.
M.I.R., LL.M., Ph.D. Candidate, Osgoode Hall Law School. Adjunct Professor, Queen’s Faculty of Law and University of Toronto, Centre for Industrial Relations. I would like to thank Hugh Collins and John McCamus for providing very useful comments and suggestions.
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Introduction I. Common Law Constructive Dismissal, Repudiation, and Employer Bullying II. The British Approach to Employer Bullying: The Implied Duty to Preserve Mutual Trust and Confidence (IDTC) A. The Emergence of the IDTC B. Malik and the Broad Scope of the IDTC in Britain III. The Canadian Approach to Employer Bullying in Contract Law A. The “Repudiation-by-Breach-of-Contract” Approach (RBB) (i) Implied Duty of Decent, Respectful, or Fair Treatment (ii) Is There an Implied Duty to Preserve Mutual Trust and Confidence in Canada? (iii) The ID-Decency B. The “Repudiation-Without-A-Breach” (RWB) Approach: Shah v. Xerox Canada C. At the Fork in the Road: Damages for Employer Bullying Cases and the Implications of the Approach Taken (i) Employer Bullying in the “Performance of the Contract” (ii) Employer Bullying in the “Manner of Dismissal” (a) The IDTC and the Manner of Dismissal in Britain: Johnson v. Unisys (b) Bullying in the Manner of Dismissal in Canada: The Wallace Effect (c) Distinguishing Between Conduct in the “Performance of the Contract” from Conduct in the “Manner of Dismissal” 1. Post-Wallace Decisions 2. A Proposed “Test” D. Employer Bullying Amounting to a Constructive Dismissal Conclusion
Introduction Lord Steyn wrote recently that a “change in legal culture” has rendered obsolete the notion of the master and servant relationship from which the employment contract model evolved.1 The need to protect employees, “through their contractual rights, express and implied by law, is markedly greater than in the past,” he wrote.2 Even more recently the British Law Lords have said that judges must recognize that today’s employers are expected to take greater care to protect the
1. Malik v. Bank of Credit and Commerce International SA (in liquidation) (1997), [1997] 3 All E.R. 1 (H.L.) at 15 [Malik]. 2. Johnson v. Unisys Ltd., [2001] 2 All E.R. 801 (H.L.) at 809, [2001] UKHL 13 [Johnson cited to All E.R.].
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“physical, financial, and even psychological welfare of the employee” than has historically been the case.3 A similar tone is evident in recent decisions of the Supreme Court of Canada. For example, Iacobucci J. wrote in Wallace v. U.G.G. Ltd. that the contract of employment is qualitatively different from ordinary commercial contracts because of the inherent vulnerability of employees, which is underscored by the fact that employment is an essential element of a person’s “identity, selfworth, and emotional well-being.”4 Interpretations of employment contracts by British and Canadian courts have long been laced with liberal doses of judicial activism aimed at modeling the contract to fit with judges’ perceptions of what the employment relationship ought to look like.5 One legacy of this judicial process is a bundle of implied terms that has in most respects preserved the power imbalance of employer over employee, of master over servant.6 An intriguing question for employment lawyers is whether, and in what form, this apparent judicial enlightenment about the vulnerability of workers has influenced the balance of rights and obligations within the bundle of implied contractual terms. Are employers today held to a higher standard of care in their treatment of workers than in the past? Do employees have greater access to damages for injury suffered from abusive treatment by employers? These questions are examined in this paper, with a particular emphasis on developments in the Canadian law of the employment contract as it
3. Spring v. Guardian Assurance, [1995] 2 A.C. 296 (H.L.) at 335. See also Walker v. Northumberland, [1995] I.R.L.R. 35. 4. Wallace v. United Grain Growers Ltd. (1998), 152 D.L.R. (4th) 1 (S.C.C.) at 32-33 [Wallace]. See also Re Public Service Employees Relations Act, [1987] 38 D.L.R. (4th) 161 (S.C.C.) [Re PSRA]; Slaight Communications Inc. v. Davidson, [1989] 1 S.C.R. 1038, 26 C.C.E.L. 85 (S.C.C.) [Slaight Communications]; Machtinger v. HOJ Industries Ltd., [1992] 1 S.C.R. 986 [Machtinger]; McKinley v. B.C. Tel (2001), 200 D.L.R. (4th) 385 (S.C.C.) [McKinley]. 5. Alan Fox, Beyond Contract: Work, Power, and Trust Relations (London: Faber, 1974); Geoffrey England, Innis Christie & Merran Christie, Employment Law in Canada, 3d ed. (Toronto: Butterworths, 1998) at 10.1, 10.16 [England et al., “Employment Law in Canada”]. 6. England et al., “Employment Law in Canada”, ibid. at 10.1.
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relates to the problem of “employer bullying.”7 Employer bullying is interpreted broadly to describe a broad range of employer conduct that can cause employees physical or psychological harm, including verbal, physical or sexual abuse or harassment, dishonesty, or other treatment that could be characterized as harsh or unreasonable. Two distinct approaches to employer bullying are discernable in Canadian contract law, each flowing from a particular understanding of the law of repudiation and, in particular, the law of constructive dismissal, which is the most common legal context in which issues of employer bullying are likely to be raised before courts. The first approach treats employer bullying as a potential breach of an implied term of fair dealing in employment contracts. This approach situates employer bullying, and constructive dismissal more generally, within the law of “repudiation by breach of contract.” Repudiation of a contract requires a fundamental or “repudiatory” breach (or anticipatory breach) of a term or terms of the contract (what I call “repudiation by breach of contract,” or RBB). An employee claiming constructive dismissal due to bullying conduct must therefore establish that the conduct breaches a term of the contract. This parallels the 7. I have chosen to focus exclusively on the treatment of employer bullying in the law of contract. This necessarily results in only a partial treatment of the Canadian law’s response to employer bullying. Aspects of the problem are governed by a variety of statutes in different jurisdictions. A notable example is the recent amendments to Quebec’s Act Respecting Labour Standards, 2002, c. 80, s. 47, s. 81.18-20, which create a legal duty for employers to prevent “psychological harassment” in the workplace. See also: Saskatchewan’s Occupational Health and Safety Act, 1993, c. O-1.1., s. 3, which requires employers to protect employees from harassment, on designated grounds, that “constitutes a threat to the health and safety of the worker”; and human rights legislation that prevents harassment on the basis of designated grounds: e.g. Ontario’s Human Rights Code, R.S.O. 1990, c. H.19, s. 5(2). In addition, a number of courts have found that abusive conduct by employers may constitute any of a number of torts, although a general duty to dismiss employees in a fair-handed manner appears no longer to exist after the Supreme Court’s decision in Wallace, supra note 4. For a recent review of the law of tort in relation to employer bullying after Wallace, see: Prinzo v. Baycrest Centre for Geriatric Care (2002), 215 D.L.R. (4th) 33 (Ont. C.A.) [Prinzo]; Noseworthy v. Riverdale Pontiac-Buick Ltd. (1998), 168 D.L.R. (4th) 629 (Ont. C.A.) [Noseworthy]; Cassady v. Wyeth-Ayerst Canada Inc. (1998), 163 D.L.R. (4th) 1 (B.C.C.A.) [Cassady]; and see discussion in England et al., “Employment Law in Canada”, supra note 5 at 16.44.416.46.
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British approach, where the implied duty to preserve mutual “trust and confidence” governs all manner of employer conduct.8 Canadian courts have implied a variety of terms that require fair dealing in the employment relationship, but the formulation that appears to be gaining momentum is described as an implied duty on employers to treat employees with decency, civility, respect and dignity (the “IDDecency”).9 The second approach to employer bullying in Canada requires no implied term at all. In Shah v. Xerox,10 the Ontario Court of Appeal ruled that an employer can repudiate an employment contract by engaging in bullying conduct that does not breach any term of the contract (what I call “repudiation without a breach,”or RWB). Thus, any employer conduct that renders continuation of the employment contract “intolerable” for the employee may constitute a constructive dismissal, even if the conduct does not amount to a breach of contract. The RWB approach was an unlikely and indeed unnecessary addition to Canadian law, since the RBB approach, and implied terms such as the ID-Decency, already provided a legal basis for a finding of repudiation in cases of employer bullying. But the RWB approach may now prove
8. Malik, supra note 1; Johnson, supra note 2; Imperial Group Pension Trust v. Imperial Tobacco, [1991] 1 W.L.R 589 (C.A.) [Imperial Tobacco]. The IDTC is also the preferred implied duty of fair dealing in Australia: Byrne v. Australian Airlines Ltd. (1995), 185 C.L.R. 410 (H.C.A.) and Kelly Godfrey, “Contracts of Employment: The Renaissance of the Implied Term of Trust and Confidence” (2003) 77 Aust. L.J. 764; Greg McCarry, “Damages for Breach of the Employer’s Implied Duty of Trust and Confidence” (1998) 26 Austl. Bus. L. Rev. 141. 9. Hanni v. Western Road Rail Systems (2002), 17 C.C.E.L. (3d) 79 (B.C.S.C.) [Hanni]; Vandooyeweert v. Jensten Foods Ltd., [2002] B.C.J. No. 2346 (B.C.P.C.) (QL) [Vandooyeweert]; Stamos v. Annuity Research and Marketing Services Ltd. (2002), 18 C.C.E.L. (3d) 117, [2002] O.J. No. 1865 (Ont. S.C.J.) (QL) [Stamos]; Saunders v. Chateau Des Charmes Wines Ltd. (2002), 20 C.C.E.L. (3d) 220, [2002] O.J. No. 3990 (Ont. S.C.J.) (QL) [Saunders]; Lloyd v. Imperial Parking Ltd., [1997] 3 W.W.R. 697, 25 C.C.E.L. (2d) 97 (Alta.Q.B.) [Imperial Parking]; Morgan v. Chukal Enterprises, [2000] B.C.J. No. 1563 (B.S.S.C.) (QL) [Morgan]; Noftal v. Anthony Group Ltd., [1999] N.J. 65 (Nfld. S.C.) [Noftal]; Sheppard v. Sobeys Inc. (1997), 149 Nfld. & P.E.I.R. 328 (Nfld. C.A.) [Sheppard]. See also discussion in England et al., “Employment Law in Canada”, supra note 5 at 16.4344.2. 10. (2000), 131 O.A.C. 44, 49 C.C.E.L. (2d) 166 (Ont. C.A.) [Shah cited to C.C.E.L.].
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seductive to litigants and courts because it forgoes the need to identify and prove a breach of an implied duty of fair dealing. Moreover, the RWB approach provides an attractive alternative to the RBB approach for judges who wish to resist the burgeoning of a new head of damages in contract flowing from the independent breach of implied terms such as the ID-Decency. I argue in this paper that the RBB approach should not be surrendered too swiftly. In particular, drawing on the British experience, I argue that the RBB approach governs a broader range of employer conduct than the RWB approach. Since the duty of fair dealing under the RBB approach appears as an implied term of the contract, the time is ripe to revisit the potential for employees to recover independent damages in contract for injury due to employer bullying.11 The RWB approach discourages this exploration because it recognizes no independent wrong. In Part I, I provide a brief overview of the common law of constructive dismissal and its application to employer bullying. Part II examines the emergence and development in Britain of the implied duty to preserve trust and confidence. The similarities in the common law models of the employment contract in Britain and Canada, and the traditional influence of the British model on the Canadian law, make the British experience a useful aid in understanding recent Canadian developments. Part III then examines the development of the RBB and the RWB approaches to employer bullying in Canadian contract law. This leads to a comparison of the two approaches at two “moments” in the employment relationship: (1) during the performance of the contract; and (2) in the manner of dismissal. It is necessary to distinguish between these two moments because of the Supreme Court of Canada’s decision in Wallace, where the Court described a mechanism for awarding damages for “bad faith” conduct by employers “in the manner
11. Professor Swan argued in 1990 that “extended damages” should be available in cases of harsh employment conduct on the basis of an independent breach of an implied term that employers will treat employees with dignity: John Swan, “Extended Damages and Vorvis v. Insurance Corporation of British Columbia” (1990) 16 Can. Bus. L.J. 213. And see the more recent exploration of this issue in England et al., “Employment Law in Canada”, supra note 5 at 16.43-44.2.
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of dismissal.” I consider what role exists for implied terms governing fair dealing by employers after Wallace, an exercise that leads to a proposal for distinguishing between the two moments. On this point, the recent decision of the House of Lords in Eastwood v. Magnox Electric plc.12 is illuminating. Lastly, I consider the relative implications of the two approaches in the difficult case of employer bullying amounting to a constructive dismissal.
I. Common Law Constructive Dismissal, Repudiation, and Employer Bullying The issue of employer bullying arises most often in wrongful dismissal actions, and usually in the context of a constructive dismissal argument. Constructive dismissal has traditionally been treated as a branch of the general contract law doctrine of repudiation of contract and, in particular, of “discharge by breach.”13 A party repudiates a contract if it commits a breach, or “anticipatory breach,” of a term of the contract that “evinces an intention to no longer be bound by the contract”14 or that “[goes] to the root of [the] contract.”15 The innocent party may elect to accept the repudiation, in which case it is relieved of future performance and may be entitled to damages flowing from the breach.16 12. [2004] 3 All E.R. 991, [2004] UKHL 35 [Eastwood cited to All E.R.]. 13. Rubel Bronze & Metal Co. v. Vos, [1918] 1 K.B. 315 [Rubel Bronze]; General Billposting Co. v. Atkinson, [1909] A.C. 118 (H.L.); Western Excavating (ECC) Ltd v. Sharp, [1978] I.C.R. 221 (C.A.) [Western Excavating]. The leading Canadian decisions are Brown v. Canada Biscuit Co., [1935] 2 D.L.R. 81 (S.C.C.); Farber v. Royal Trust Co., [1997] 1 S.C.R. 846, 145 D.L.R. (4th) 1 [Farber]; and see generally R. Scott Echlin & Jennifer Fantini, Quitting for Good Reason: The Law of Constructive Dismissal in Canada (Aurora, Ont.: Canada Law Book, 2001). 14. Rubel Bronze, ibid.; Hong Kong Fir Shipping Co., Ltd. v. Kawasaki Kisen Kaisha, Ltd., [1962] 1 All E.R. 474 (C.A.); Reber v. Lloyds Bank International Canada (1985), 18 D.L.R. (4th) 122 (B.C.C.A.); Wood v. Owen De Bathe Ltd., [1998] B.C.J. No. 288 (S.C.), aff’d [1999] B.C.J. No. 173 (C.A.) (QL) [Wood]. 15. Decro-Wall International SA v. Practitioners in Marketing Ltd., [1971] 2 All E.R. 216 (C.A.) at 227, Sachs L.J. 16. Gunton v. Richmond-upon-Thames London Borough Council, [1981] 1 Ch. 448 (C.A.) at 468; Farquhar v. Butler Bros. Supplies Ltd. (1988), 23 B.C.L.R. (2d) 89 (B.C.C.A) at 94 [Farquhar].
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The breach must be fundamental, so the breach of relatively minor terms of the contract will not repudiate the contract, although such breaches may be actionable in damages. However, a single breach of a fundamental term, a term that “goes to the root of the contract,” may amount to repudiation of the whole contract.17 This approach has typically led courts to address three questions in constructive dismissal actions: (1) what are the express and implied terms of the contract?; (2) has the employer breached one of those terms?; and (3) is the breach fundamental or repudiatory?18 There is often little difficulty answering the first two questions of this test. This is the case, for example, when the employer refuses to pay the remuneration required by the contract.19 But identifying a term of the contract that is breached by a bullying employer can prove to be more difficult when the contract does not include an express “antiharassment” provision or other term indicating a duty of fair treatment.20 Historically, courts have shown great creativity in the use of implied terms in favour of employers, recognizing implied duties for employees to avoid insolence, dishonesty, insubordination, abusive conduct, and harassment of employers and co-workers, all of which can be grouped under a general implied duty of fidelity and good faith service to the employer.21 However, the courts were comparatively slow to recognize reciprocal implied duties on the part of employers to avoid
17. Rubel Bronze, supra note 13. 18. Longman v. Federal Business Development Bank (1982), 131 D.L.R. (3d) 533 (B.C.S.C.) at 548 [Longman]; Stacey v. Consolidated Foods Corp. of Canada Ltd. (1987), 15 C.C.E.L. 113 (N.S.T.D.) at 117; Farber, supra note 13; Orth v. Macdonald Dettwiler & Associates Ltd. (1986), 16 C.C.E.L. 41 (B.C.C.A) at 54. 19. Wood, supra note 14. Courts have held that trivial or relatively minor changes in the remuneration of the employee may not amount to a repudiation by the employer: see e.g. Poole v. Tomenson Saunders Whitehead Ltd. (1987), 18 C.C.E.L. 238 (B.C.C.A.). 20. For a modern example, see Bell v. Intertan Canada Ltd., [2002] S.J. No. 650 (Q.B.) at para. 39 (constructive dismissal cannot be founded upon name-calling by co-workers because that conduct does not amount to a breach of any term of the contract). 21. See e.g. Lister v. Romford Ice & Storage Co. Ltd., [1957] A.C. 555; Secretary of State for Employment v. ASLEF (No. 2), [1972] I.C.R. 19; Hivac Ltd. v. Park Royal Scientific Instruments Ltd., [1946] Ch. 169; Carter v. Bell & Sons (Canada) Ltd., [1957] A.C. 555. See also Fox, supra note 5.
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mistreatment, bullying, and dishonesty in their dealings with employees.22 In a 1919 decision of the Saskatchewan Court of Appeal, Berg v. Cowie, Lamont J.A., writing for the majority, recognized an implied duty for employers to treat their employees “decently”: . . . the servant is also, in my opinion, entitled to decent treatment at the hands of his master. . . . [A] master has no right to make the conditions of living, on the part of his servants, intolerable. . . . The conditions of employment . . . would be intolerable if a master were permitted to use such language towards his servant, and the servant could only escape therefrom by losing his wages if he refused to submit to it.23
Cowie involved an employer who had called his employee a “bastard,” a “liar,” and a “cur.” A half-century later, in 1974, the English Court of Appeal tackled a case with similar facts in Wilson v. Racher.24 The employer in that case had summarily dismissed his employee following a heated verbal exchange that the Court found was initiated by the employer. In finding that the employee had been wrongfully dismissed, Edmund-Davies L.J. described a progression in the common law’s treatment of the employment relationship: Many of the decisions which are customarily cited in these cases date from the last century and may be wholly out of accord with current social conditions. What would today be regarded as almost an attitude of Czar-serf, which is found in some of the older cases where dismissed employees failed to recover damages, would, I venture to think, be decided differently today.25
Elwood Davis, L.J. found that the law had evolved such that, “[w]e have now come to realize that a contract of service imposes upon the parties a duty of mutual respect.”26 22. But see Limland v. Stephan (1801), 3 Esp. 269 at 270, Kenyon L.J.: “From the servant is due obedience and respect; from the master protection and good treatment.” [Emphasis added]. 23. Berg v. Cowie (1918), 40 D.L.R. 250 (Sask. C.A.) at 252-253 [emphasis added] [Cowie]. 24. [1974] I.R.L.R. 114, [1974] I.C.R. 428 (C.A.) [cited to I.R.L.R.]. 25. Ibid. at para. 5. 26. Ibid.
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Although the two cases were separated by more than fifty years, there is a synergy in the conclusions in Cowie and Wilson, reflected in the willingness of the courts to hold the employers responsible for the termination of the employment contract when employees elected to quit in response to employer mistreatment. However, Cowie went largely unnoticed in Canada for decades and, in Britain, the development of the law on employer bullying was dramatically influenced by the introduction of a statutory “unfair dismissal” procedure, and in particular, an amendment to that statute in 1974 that introduced a form of statutory constructive dismissal.
II. The British Approach to Employer Bullying: The Implied Duty to Preserve Mutual Trust and Confidence (IDTC) A. The Emergence of the IDTC Under the statute, introduced originally in 1971,27 an employer’s reason for dismissal had to satisfy a test of “fairness.”28 Complaints alleging unfair dismissal were to be heard by an employment tribunal (“Industrial Tribunal”) at first instance, and appeals on points of law could be taken to the Employment Appeals Tribunal (“EAT”).29 Decisions of the EAT could be appealed on points of law to the Court of Appeal, and from there to the House of Lords. The 1974 amendment expanded the definition of “dismissal” to include the situation where the employee terminates the contract “in circumstances in which he is entitled to terminate it without notice by reason of the employer’s conduct.”30 A series of applications soon reached the EAT involving employees who 27. The provisions are now incorporated in the Employment Rights Act (U.K.), 1996, c. 18. For a critical examination of this regime, see Hugh Collins, Justice in Dismissal: The Law of Termination of Employment (Oxford: Oxford University Press, 1992). 28. Employment Rights Act, ibid., s. 98. 29. The EAT replaced the National Industrial Relations Court in 1975. 30. Trade Union and Labour Relations Act (U.K.), 1974, c. 52, Sch.1, para. 5(2)(c) (repealed) [emphasis added]. Today, the provision is found in the Employment Rights Act, supra note 27, s. 95(1)(c).
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had terminated the employment relationship in response to various forms of employer bullying, including abusive language,31 false allegations of dishonesty or theft,32 dishonest performance evaluations,33 and other conduct directed at an employee that was demeaning, embarrassing or inappropriate, such as sexual harassment.34 Some members of the EAT believed that the constructive dismissal subsection of the Act had introduced a new statutory test of fairness or reasonableness that was distinct from common law notions of repudiation and fundamental breach (the “Unreasonableness Test”).35 Other members believed that Parliament had intended merely to codify the existing British common law of repudiation and constructive dismissal (the “Contract Test”).36 That law, as noted above, required employees to establish that the employer had breached a term of the contract, expressed or implied, and that the breach was fundamental or repudiatory in nature. This led the Tribunal members to consider whether there were implied terms that regulated employer bullying. One term that began to take form in those early EAT decisions required the parties to an employment contract to refrain from conduct which could “undermine the continuation of the confidential relationship between employer and employee.”37 This debate within the EAT about whether the statute had introduced a new reasonableness test, or had merely codified the existing contract 31. See e.g. Palmanor Ltd. v. Cedron, [1978] I.R.L.R. 303, [1978] I.C.R. 1008 (E.A.T.); Isle of Wight Tourist Board v. Coombes, [1976] I.R.L.R. 413 (E.A.T.). 32. See e.g. Robinson v. Crompton Parkinson Ltd., [1978] I.R.L.R. 61 (E.A.T.), [1978] I.C.R. 401 [Robinson cited to I.R.L.R.]; Fyfe & McGrouther Ltd. v. Byrne, [1977] I.R.L.R. 29 (E.A.T. Scot.). 33. Courtaulds Northern Textiles v. Andrew, [1979] I.R.L.R. 84 (E.A.T.) [Courtaulds]; The Post Office v. Roberts, [1980] I.R.L.R. 347 (E.A.T.) [Roberts]. 34. Wood v. Freeloader Ltd., [1977] I.R.L.R. 454 (E.A.T.) [Freeloader]. 35. Turner v. London Transport Executive, [1977] I.C.R. 952 (C.A.) at 964. See also Western Excavating, supra note 13 at 717; Gilbert v. Goldstone, [1977] I.C.R. 36 (E.A.T.); Logabox Ltd. v. Titlerley, [1977] I.R.L.R. 25 (E.A.T.). 36. Freeloader, supra note 34. See also Western Excavating, supra note 13 at 717; Wetherall (Bond St. WI.) Ltd. v. Lynn, [1978] I.C.R. 205 at 211. 37. Freeloader, ibid. at para. 12. See also Robinson, supra note 32 (false allegation of theft against an employee by an employer breaches the implied duty to preserve mutual trust and confidence).
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law principle of repudiation by breach, was resolved by the Court of Appeal in Western Excavating.38 Lord Denning ruled that the statute had incorporated the existing common law test of “discharge by breach” of contract, or constructive dismissal: If the employer is guilty of conduct which is a significant breach going to the root of the contract of employment, or which shows that the employer no longer intends to be bound by one of more of the essential terms of the contract, then the employee is entitled to treat himself as discharged from any further performance. If he does so, then he terminates the contract by reason of the employer’s conduct. He is constructively dismissed.39
In Britain, therefore, a constructive dismissal requires a fundamental or repudiatory breach of a term of the contract, both under the statute and at common law. 40 In the period following Western Excavating, the implied duty to preserve mutual trust and confidence became the dominant contract term regulating employer bullying. It was defined as a duty on the parties “to not without proper reason and cause conduct themselves in a manner calculated or likely to destroy or seriously damage the relationship of confidence and trust between the parties,” (the implied duty to preserve mutual trust and confidence or IDTC).41 Thus, the IDTC provided the means to bridge the common law doctrine of repudiation, or “discharge by breach,” and the employment law concept of constructive dismissal in cases involving employer conduct that could otherwise be described as unreasonable or unfair. This was explained recently by Lord Nicholls in Eastwood: [The IDTC], implied as a legal incident of employment contracts, provides the means by which an employee who resigns in response to outrageous conduct by an employer may obtain redress. Such conduct is a breach of a fundamental term of the contract . . . and an
38. Supra note 13. 39. Ibid. at 223 [emphasis added]. 40. See also Lewis v. Motorworld Garages Ltd., [1986] I.C.R. 157 at 169 (C.A.) [Lewis]; Woods v. W.M. Car Services (Peterborough) Ltd., [1981] I.C.R. 666 at 671 (E.A.T.). 41. Courtaulds, supra note 33.
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employee who accepts this breach as a repudiation of the contract by the employer is ‘constructively’ dismissed by the employer.42
While the IDTC was developed initially within the case law applying the constructive dismissal subsection of the unfair dismissal statute, its application soon transcended the statute and became a key normative feature of the common law of the employment contract in Britain.43 Underlying the IDTC is the notion that the employment contract depends for its performance on continued mutual trust and confidence between the parties.44 Contracts that share this quality involve close personal relations and are often of indefinite duration. In the employment context, in particular, flexibility and good will between the parties are required to effectively manage the varied, often unanticipated scenarios that arise in the course of the employment relationship. The effects of this need for trust and confidence appear throughout the common law of employment. For example, summary dismissal of an employee may be justified if the employee’s breach is serious enough to be inconsistent with the continuance of trust and confidence between employer and employee.45 And the general rule that specific performance of the employment contract will not be ordered to remedy a repudiatory breach is explained, inter alia, on the basis that the order
42. Eastwood, supra note 12 at para. 4-6. See also Hugh Collins, Aileen McColgan & Keith Ewing, eds., Labour Law: Text and Materials (Oxford: Hart Publishing, 2001) at 528; Bob Hepple, Hepple and O’Higgins Employment Law, 3d ed. (London: Sweet & Maxwell, 1979) at 120. 43. See Malik, supra note 1. 44. See e.g. Llanelly Railway & Dock Company v. London & North Western Railway Company (1873), 29 L.T. 357. Also Blyth Chemicals Ltd. v. Bushnell (1933), 49 C.L.R. 66 (H.C.) (employment relationship requires mutual confidence). 45. Sinclair v. Neighbour, [1967] 2 Q.B. 279 at 289 (C.A.); Federal Supply & Cold Storage Company of South Africa v. Angehrn & Piel (1910), 80 L.J.P.C. 1 at 3; Geoffrey England, “Recent Developments in the Law of the Employment Contract: Continuing Tension Between the Rights Paradigm and the Efficiency Paradigm” (1995) 20 Queen’s L.J. 557 at 606. See also discussion by Iacobucci J. in McKinley, supra note 4 at 396-407, and the Court’s approval in that case of the trial judge’s charge to the jury in which he directed them to determine whether the employee’s dishonesty would “seriously impair the trust and confidence the employer is entitled to place in the employee . . .” at 393.
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will be ineffective once the parties no longer share mutual trust and confidence.46 If we accept the premise that the effective performance of a contract requires mutual trust and confidence, it follows logically that the parties would have intended that neither of them should engage in conduct likely to destroy that necessary condition.47 Thus, the IDTC can be explained either on the basis of the presumed intent of the parties or as a necessary measure to give “business efficacy” to the contract.48 In fact, though, it is usually described as an example of a term implied “by law” as an incident of the contract of employment.49 The IDTC has also been explained as a branch of the general implied duty of co-operation in all contracts.50 That duty in its various incarnations has been found to prohibit parties to a contract from preventing performance,51 from delaying performance,52 or from substantially detracting from the other
46. See George Russell Nothcote, ed., Fry on Specific Performance, 6th ed. (London: Stevens & Sons, 1921) at 50-51. See also Stocker v. Brocklebank (1851), 3 Mac. & G. 250; De Francesco v. Barnum (1890), 45 Ch. D. 430; Hill v. C.A. Parsons and Co. (U.K.), [1972] Ch. 305 (C.A.); Hepple, supra note 42 at 51-52; Johnson v. Shrewbury & Birmingham Rlwy. Co. (1856), 3 De G., M. & G. 914 at 926, Knight-Bruce L.J.; Chappel and Others v. The Times Newspaper, [1975] 2 All E.R. 233 (C.A.); Vine v. National Dock Labour Board, [1956] 3 All E.R. 939; Ridge v. Baldwin, [1964] A.C. 40 (H.L.); and Stevenson v. Air Canada (1981), 126 D.L.R. (3d) 242 (Ont. H.C.J.) (dismissal had not destroyed mutual trust and confidence). 47. See Denmark Productions Ltd. v. Boscobel Productions Ltd., [1969] 1 Q.B. 699 at 730 (C.A.), Winn L.J. (contract based on mutual trust and confidence includes an implied term that the parties will “do nothing which [they] foresaw or should have foreseen would lose that confidence”). 48. These are common “tests” for the implication of contract terms. See Stephen Waddams, The Law of Contracts, 4th ed. (Toronto: Canada Law Book, 1999) at 356. 49. See e.g. Johnson, supra note 2 at 815; Eastwood, supra note 12 at 995. 50. Hepple, supra note 42 at 119-20. See generally Samuel Stoljar, “Prevention and CoOperation in the Law of Contract” (1953) 31 Can. Bar Rev. 231; John Burrows, “Contractual Co-Operation and the Implied Term” (1968) Mod. L. Rev. 390; Waddams, supra note 48 at 358-363. 51. Stoljar, ibid. at 232-233; Cardy v. City of London Corporation, [1950] 2 All E.R. 475 (C.A.); MacKay v. Dick (1881), 6 A.C. 251 (H.L.); Southern Foundaries Ltd. v. Shirlaw, [1940] A.C. 701. For a Canadian application, see Kohler v. Thorold Natural Gas Co. (1916), 27 D.L.R. 319 (S.C.C.). 52. Barque Quilpué Ltd. v. Brown, [1904] 2 K.B. 264 at 271 (C.A.).
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party’s enjoyment of the benefits of the contract.53 In Eastwood, Lord Nicholls explained the IDTC as a modern formulation of the mutual implied duty of parties to an employment contract “to conduct themselves in a way which will enable the contract to be performed.”54 Implicit in the IDTC, and in Lord Nichols’ comment, is the premise that the psychological harm caused by a bullying employer can prevent or impede effective performance by an employee. This conclusion finds support in the social science literature, including in studies examining the effects of harassment on job performance in Canadian workplaces.55 B. Malik and the Broad Scope of the IDTC in Britain The IDTC has proven to be an extremely broad and versatile term governing employer conduct that reaches well beyond the scope of the original bullying cases. The leading decision on the scope of the IDTC is Malik v. B.C.C.I.56 Malik reached the House of Lords on a motion to dismiss for want of a cause of action, so the Law Lords were asked to confirm whether a cause of action could be based on a breach of the IDTC in the circumstances. The employees were dismissed for redundancy following the collapse of the employing bank amid accusations that it had engaged in fraudulent business activities. They claimed to have suffered “stigma damages” as a result of their innocent connection with the bank, which they claimed had hindered their search for subsequent employment. The employees sought damages for economic loss resulting from the employer’s breach of the IDTC during the term of the contract, even though (1) the fraudulent conduct complained of involved the employer’s dealings with a third party and 53. Mona Oil Equipment & Supply Ltd. v. Rhodesia Railways, Ltd., [1949] 2 All E.R. 1014 at 1018. 54. Eastwood, supra note 12 at para. 5. 55. See e.g. Diane Crocker & Valery Kalembra, “The Incidence and Impact of Women’s Experience of Sexual Harassment in Canadian Workplaces” (1999) 36 Can. Rev. Sociol. & Anthropol. 541 (nearly 1/3 of female respondents who experienced sexual harassment at work believed the harassment affected their job performance, nearly half (48%) of whom indicated that harassment hindered or prevented them from performing their job); see also Hepple, supra note 42 at 120. 56. Supra note 1.
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was not directed at the employees, and (2) the employees were not aware of the conduct during the term of their contracts. Notably, then, the employer’s conduct did not actually affect the relationship of trust and confidence between the parties during the term of the contract. Lord Steyn reviewed the history of the IDTC and indicated that he regarded “the emergence of the implied obligation of mutual trust and confidence as a sound development.”57 He noted that the IDTC “as formulated, is apt to cover the great diversity of situations in which a balance has to be struck between an employer’s interest in managing his business as he sees fit and the employee’s interest in not being unfairly and improperly exploited.”58 Lord Steyn acknowledged that most of the cases in which the IDTC had been applied involved more explicit forms of mistreatment directed specifically at the employee. But he found that the IDTC did not require the conduct to have been directed specifically at the employee, and that the employer’s motive for its conduct was irrelevant. Moreover, he found that the employee did not have to be aware of the conduct during the term of the contract. To require knowledge of the conduct during the term of the contract would reward employers who were successful in keeping their wrongful acts secret. Nor did the conduct need actually to have affected the relationship of trust and confidence during the term of the contract. This is because the IDTC created a positive obligation in law that governed the employer’s conduct in all of its dealings. And since the IDTC was an independently actionable term of the contract, separate damages were recoverable for its breach under the ordinary rules of contract.59 Malik was widely touted as a dramatic moment in the history of British employment law.60 Certainly, the IDTC has had a significant 57. Ibid. at 46. 58. Ibid. 59. This result has since been confirmed by the House of Lords in Johnson, supra note 2; Eastwood, supra note 12. 60. Douglas Brodie, “The Heart of the Matter: Mutual Trust and Confidence” (1996) 25 Indus. L.J. 121; Douglas Brodie, “Beyond Exchange: The New Contract of Employment” (1998) 27 Indus. L.J. 79; Douglas Brodie, “Wrongful Dismissal and Mutual Trust” (1999) 28 Indus. L.J. 260; Douglas Brodie, “Mutual Trust and the Values of the Employment Contract” (2001) 30 Indus. L.J. 84 [Brodie, “Values”]; Linda Clark, “Mutual Trust and Confidence, Fiduciary Relations, and the Duty to Disclose” (1989) 28 Indus. L.J. 348;
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impact on the extent to which the employment tribunals and the courts have been prepared to scrutinize employer conduct that potentially affects employees. For example, the IDTC introduces a positive obligation on employers to be supportive of employees, so that an employer is in breach if it reprimands an employee in front of customers.61 The IDTC also regulates the exercise of employer discretion. Thus, an employer breached the IDTC when it failed to offer to an employee a redundancy package that had been offered to all of the employee’s colleagues.62 The IDTC was also found to have been breached by an employer who required an employee to undergo a psychiatric examination without good cause.63 And the IDTC introduces a requirement for employers to act fairly and reasonably during investigations of employee conduct and during internal disciplinary procedures.64 The IDTC may also influence the scope of express terms in a contract. In United Bank Ltd. v. Akhtar, the contract granted the employer an express right to transfer the employee anywhere in the U.K., and the discretion to grant a moving allowance.65 The EAT found that the IDTC was “over-riding” and that the express term had to be read with the IDTC. As a result, the employer was required to give the employee reasonable notice of the transfer and to exercise its discretion regarding moving allowances reasonably. The effect of the IDTC can also be seen in other areas of the employment relationship. For example, in Roberts, the EAT ruled that the employer breached the IDTC when a manager provided a poor job reference that was not based on a careful inquiry into the employee’s
Hugh Collins, “Claim for Unfair Dismissal” (2001) 30 Indus. L.J. 305; Lord Steyn, “The Role of Good Faith and Fair Dealing in Contract Law: A Hair-Shirt Philosophy?” (1991) Denning L.J. 131; Justice Lindsay, “The Implied Term of Trust and Confidence” (2001) 30 Indus. L.J. 1. 61. Morrow v. Safeway Stores plc., [2002] I.R.L.R. 9 (E.A.T.) [Morrow]. 62. B.G. Plc. v. O’Brien (2002), L.E.L.R. 64 (E.A.T.). 63. Bliss v. South East Thames Regional Health Authority, [1985] I.R.L.R 308 (C.A.). 64. Eastwood, supra note 12; King v. University Court of the University of St. Andrews, [2002] I.R.L.R. 252 (Ct. Sess.) [King]. 65. [1989] I.R.L.R. 507 (E.A.T.); see also Imperial Tobacco, supra note 8.
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abilities.66 Similarly, the EAT found that an employer had breached the IDTC when it provided a job reference for an employee which, although factually accurate, gave a misleading impression of the employee’s performance and character.67 The IDTC also influences the common law duties of employers in relation to occupational health and safety. Thus, an employer breached the IDTC when it failed to adequately address an employee’s complaint that she could not wear the provided safety goggles because of her glasses.68 Another employer breached the term when it failed to fully investigate an employee’s allegations of sexual harassment.69 These decisions clearly draw the adjudicators into assessments of the reasonableness of the employer’s management practices. Douglas Brodie has observed that the IDTC can also have the effect of giving “legal force” to the reasonable expectations of the contracting parties apart from notions of estoppel and incorporation of ancillary documents.70 For example, in French v. Barclays, the court found that the employer had breached the IDTC by changing its policy on a bridging loan that had been offered to the employee to cushion the cost of a reassignment.71 The change in policy violated the IDTC because, inter alia, the terms of the original policy had been extended to other employees over the years with no attempt to revise them, and had been set out in a manual at the time the loan was made. To conclude, the IDTC today constitutes the core substantive duty in British common law governing all manner of employer conduct that might adversely affect the employee’s trust and confidence in the employer. While it was initially applied to more direct forms of employer bullying and harassment targeting specific employees, its scope was later expanded so that it now governs all forms of employer conduct, limited only by the provision that the conduct be likely to destroy mutual trust and confidence. Given the strong legal foundation
66. 67. 68. 69. 70. 71.
Roberts, supra note 33. TSB Bank Plc. v. Harris, [2000] I.R.L.R. 157 (E.A.T.) [Harris]. British Aircraft Corp. Ltd. v. Austin, [1978] I.R.L.R. 332 (E.A.T.). Reed and Bull Information Systems v. Stedman, [1999] I.R.L.R. 299 (E.A.T.). Brodie, “Values”, supra note 60. [1998] I.R.L.R. 646 (C.A.).
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for implying the IDTC, and the strong historical influence of British employment law on the development of Canadian employment law, it would be reasonable to expect that the IDTC would emerge in Canada. In fact, no such development has (yet) occurred. However, there have been important and in many ways parallel developments in Canadian law, as the courts in recent years have shown a comparable preparedness to scrutinize bullying treatment of employees by employers.
III. The Canadian Approach to Employer Bullying in Contract Law The Canadian law of constructive dismissal, like its British counterpart, has historically been treated as a branch of the general law of contract repudiation, or discharge by breach.72 The leading Canadian case on constructive dismissal is Farber, where Gonthier J. explained constructive dismissal in the following terms: . . . it has been established in a number of Canadian common law decisions that where an employer unilaterally makes a fundamental or substantial change to an employee’s contract of employment—a change that violates the contract’s terms—the employer is committing a fundamental breach of the contract that results in its termination and entitles the employee to consider himself or herself constructively dismissed.73
This test appears consistent with that set out in Western Excavating. That is, it appears to describe the RBB approach, under which an employee who alleges constructive dismissal, including a dismissal arising from bullying conduct, must establish that the employer has breached a term of the contract. But the situation has been muddied by the recent decision of the Ontario Court of Appeal in Shah, which ruled that an employer may repudiate the contract by bullying behaviour even if no term of the 72. Farber, supra note 13 at 13; Vanderleast v. Regina (City) (1992), 42 C.C.E.L. 67 (Sask. Q.B.) at 76; Longman, supra note 18 at 548; Farquhar, supra note 16 at 94. But see Shah, supra note 10. 73. Farber, ibid. [emphasis added]. See also Re Stolze and Addario (1997), 36 O.R. (3d) 323 (C.A.).
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contract is breached.74 If the employer’s conduct has made the relationship “intolerable,” then the employee is entitled to treat the contract as at an end and recover damages for wrongful dismissal in the form of pay in lieu of notice. For courts and litigants alike, this RWB approach may seem the preferable route in actions alleging constructive dismissal based on employer bullying. Rather than expend effort identifying and proving a breach of an implied term requiring fair dealing, it may seem expedient to skip directly to the key question of whether the conduct has rendered the relationship “intolerable.” This is reasonable, if the only question at issue is whether the employer’s conduct has repudiated the contract and thereby activated the “reasonable notice” term. However, there are circumstances where an employee may suffer damages from a breach of an implied duty of fair dealing that are quite distinct from those flowing from a breach of the reasonable notice term. As Malik illustrates, an implied term that requires fair dealing by employers creates an independent contractual duty, the breach of which may give rise to separate damages. This potential for employees to be compensated in contract for injury suffered from employer bullying is an intriguing aspect of the recent development of implied duties of fair dealing in employment contracts, and one that is ignored by the RWB approach in Shah. Given the possibility that the RWB approach may be perceived as a more attractive alternative to the RBB approach in employer bullying cases, it is appropriate to take a closer look at the relative scope of protection for employees provided by the alternative approaches. This requires an examination of both the scope of conduct governed by the two approaches, and the potential scope of damages available when an employee suffers injury from employer bullying. These issues are explored in the remainder of this paper. I begin by examining the RBB and RWB approaches more thoroughly. I then compare the scope of protection afforded by the two approaches. This comparison involves the analysis of employer conduct at two “moments” in the employment relationship: conduct in the performance of the contract, and conduct in the manner of dismissal. I examine the potential for employees to recover damages for breach of 74. Shah, supra note 10.
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an implied term requiring fair dealing that does not lead to the termination of the contract and does not occur during the act of dismissal (conduct in the performance of the contract). In particular, I identify a number of scenarios in which an employee could suffer injury and recover independent damages for employer bullying under the RBB approach that would be outside the scope of the RWB approach. Therefore, I argue that the RWB approach is too restrictive in terms of the scope of protection it offers to employees. Next, I examine the issue of potential damages arising from employer bullying in the manner of dismissal. The treatment of employer bullying at this later “moment” is complicated by the Supreme Court’s decision in Wallace. We will explore whether the RBB approach can lead to independent damages for bullying conduct in the manner of dismissal. This means assessing whether a breach of an implied term of fair dealing can amount to an “independently actionable wrong.” While doctrinally this seems likely, Wallace establishes a unique mechanism for dealing with employer bullying “in the manner of dismissal” which probably precludes this result. Thus, if the possibility of employees recovering independent damages for breach of an implied term of fair dealing during the performance of the contract is to be preserved, conduct in the “manner of dismissal” must be distinguished from conduct in the “performance of the contract.” How damages are assessed for injury sustained due to employer bullying may depend on which side of this distinction the conduct falls. Constructive dismissal proves to be a difficult case, therefore, because by definition it falls on the cusp of these two moments. A. The Repudiation-By-Breach-of-Contract Approach (RBB) As noted above, in 1918 the Saskatchewan Court of Appeal in Cowie recognized an implied duty on employers to treat their employees with “decency” and to avoid conduct that made the work environment “intolerable” for the employee.75 For decades, that decision attracted
75. Cowie, supra note 23.
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little judicial attention in Canada.76 However, over the past two decades, there has been exponential growth in the number of decisions in which Canadian courts have held bullying employers accountable in contract law for the breakdown of the employment relationship. The origins of this development can be traced to a period in which the Supreme Court of Canada was emphasizing, in cases such as Re: Public Service Employee Relations Act, Slaight Communcations, and Machtinger, the need for the common law to recognize the vulnerability of employees and the importance of work to an individual’s well-being.77 (i) Implied Duty of Decent, Respectful, or Fair Treatment In decisions from various jurisdictions, Canadian courts began to recognize implied duties in favour of employees—duties that were expressed as a right to be treated “decently,”78 “reasonably,”79 or “fairly.”80 In other cases, courts have expressed the employer’s implied 76. It was not considered in any reported decision until 1979, when Proudfoot J. of the British Columbia Supreme Court found that an employer that directed “obscene profanities” at the employee may have supported a constructive dismissal claim “in 1918,” but “not in 1979”: Meyer v. Steintron International Electronics (1979), 1 A.C.W.S. (2d) 70 (B.C.S.C.) at para. 5 [Meyer]. Cowie, ibid., is not expressly cited, although it does appear to have been argued. 77. See Re PSRA, supra note 4 at 368, Dickson C.J.C.; Machtinger, supra note 4 at 1002, Iacobucci J.; Slaight Communications, supra note 4. 78. Sheppard v. Sobeys (1994), 127 Nfld. & P.E.I.R. 199 (Nfld. S.C.), rev’d (1997) 149 Nfld. & P.E.I.R. 328 (Nfld. C.A.), [1997] Nf.J. No 78 (QL) [Sheppard]. The Supreme Court found that the employer’s failure to address harassment by co-workers violated an implied duty for employers to treat employees “decently.” The Court of Appeal overturned that decision, but agreed that constructive dismissal requires “a variation of a fundamental term” and that “abusive treatment” could amount to a repudiation of contract, although the conduct of the employer in that case did not. 79. Sadden v. Faye (1996), 151 Sask. R. 81 (Sask. Q.B.) at 82 [Faye] (false allegations of theft directed at an employee amounts to a repudiatory breach of the implied duty of “reasonable treatment” in favour of employees). 80. Paitich v. Clarke Institute of Psychiatry (1988), 19 C.C.E.L. 105 (Ont. H.C.J.) at 124, aff’d 30 C.C.E.L. 235 (C.A.) [Paitich] (supervisory staff have an implied duty to treat their subordinates “fairly” and not to render competent performance intolerable); Weldon v. Comcor Chemicals Ltd., [1993] B.C.J. No. 39 (S.C.) at para. 33 (QL) (unjustified criticism and harassment breaches implied duty for employers to treat employees fairly).
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duty as a requirement to ensure that harassment and hostility do not poison the work environment. This duty applies to conduct by representatives of the employer81 as well as to conduct by co-workers.82 In Robinson v. Royal Canadian Mint, Chadwick J. recognized an implied term requiring an employer “to promote the interests of its employees and to see that the work atmosphere is conducive to the well-being of its employees.”83 These various formulations of implied duties are consistent with the more general implied term in employment contracts requiring employers to maintain a safe work environment, an obligation which has long been recognized by the courts.84 That specific implied duty was traditionally interpreted narrowly, focusing on the need to provide safe equipment and processes,85 but it has been expanded in recent decisions. For example, in Haggarty v. McCullogh, the Alberta Provincial Court ruled that the duty to maintain a safe work environment included a duty to prevent bullying and harassment—conduct that may produce psychological damage and create a hostile work environment.86 (ii) Is There an Implied Duty to Preserve Mutual Trust and Confidence in Canada? In Lindsay v. Toronto Transit Commission, the employer had not been truthful and forthright with the employee during its investigation of an alleged theft, and it made a number of changes to the employee’s working conditions while the investigation continued.87 The employee resigned and brought an action alleging constructive dismissal, on the basis that it was a condition of his employment contract that there be 81. Robinson v. Royal Canadian Mint (1992), 36 A.C.W.S. (3d) 279 (Ont. Ct. Gen. Div.), aff’d 71 A.C.W.S. (3d) 403 (C.A.) [Robinson]; Paitich, ibid.; O’Neil v. Hodgins, 88 C.L.L.C. 14.040 (N.B.Q.B.) [O’Neil]. 82. O’Neil, ibid.; Sheppard, supra note 78; Stamos, supra note 9. 83. Supra note 81 at 281. 84. See e.g. Matthews v. Kuwait Bechtel Corp., [1959] 2 Q.B. 57; Ainslie Mining Comp. v. McDougall (1909), 42 S.C.R. 420; Marshment v. Borgstrom, [1942] S.C.R. 374 [Marshment]. 85. Marshment, ibid.; Gregory (Next Friend of) v. Pickel, [1996] O.J. No. 452 (QL). 86. (2002), A.J. No. 7 (Alta. Prov. Ct.) (QL). 87. (1998), 99 C.L.L.C. 210-002, 115 O.A.C. 319.
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“mutual trust.” The Ontario Court of Appeal found that the “imperfectly concealed investigation, the lack of candour, and the last minute unilateral changes to the [employee’s work] schedule undermined the trust that had existed between the appellant and the respondent.”88 This reasoning is consistent with that underlying the emergence of the IDTC in Britain. Where a contract requires mutual trust and confidence for its performance, it follows that there is an implied term that the parties will not destroy that trust and confidence. It is surprising that this rather compelling logic has not translated into a broader application of an implied duty to preserve trust and confidence in Canada analogous to developments in Britain. The need for trust and confidence in employment contracts has influenced the development of Canadian law as it has in Britain. For example, Canadian law has long accepted the general “principle of law” that specific performance of an employment contract will not be ordered where trust and confidence has been destroyed.89 Moreover, the implied duty of co-operation, to which the IDTC has been traced in Britain, is recognized in Canadian contract law.90 And, more explicitly, the employment contract is described in Canadian law as one that requires mutual trust and confidence.91 For example, in Deildal v. Tod Mountain
88. Ibid. at para. 10. 89. Red Deer College v. Michaels (1975), 57 D.L.R. (3d) 386 (S.C.C.); Stevenson, supra note 46; Simmons v. Longworth, [1981] 6 W.W.R. 329 (Sask. C.A.); Philip v. Expo 86 Corp. (1986), 19 B.C.L.R. (2d) 88 (C.A.); Simpson v. Blacks Harbour (1995), 160 N.B.R. (2d) 375 (N.B.Q.B.); England et al.,”Employment Law in Canada”, supra note 5 at 16.5: “[C]ourts have justified the no reinstatement policy on the ground that it would be against public policy to compel an employer to maintain the service of an employee where mutual trust and confidence no longer subsists.” 90. Waddams, supra note 48 at 498-499, and cases cited therein. The duty to co-operate might explain employment decisions such as Kopij v. Metropolitan Toronto (Municipality) (1996), 29 O.R. (3d) 752 (Gen. Div.), rev’d on other grounds, 41 O.R. (3d) 96 (C.A.) (employee constructively dismissed when key co-workers refused to work with him due to a loss of confidence, which left the employee unable to effectively perform his job); see also Cohnstaedt v .University of Regina, [1989] 1 S.C.R. 1011, 57 D.L.R. (4th) 641, and Kuhbock v. Coldwell Banker Affiliates of Canada (1996), 25 C.C.E.L. (2d) 46 (Alta. Q.B.). 91. See e.g. Dieldal v. Tod Mountain Development Ltd. (1997), 33 B.C.L.R. (3d) 24 (B.C.C.A.) [Dieldal]; Durand v. Quaker Oats Co. of Canada Ltd. (1990), 32 C.C.E.L. 63 (C.A.) [Durand] (breach of the implied duty of honesty by employees is cause for
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Development Ltd., Braidwood J.A. described the employment contract as involving “mutual dependence and trust,” and he concluded that it was “logical” to imply that the parties would have agreed not to destroy that necessary condition.92 However, Canadian courts have applied the duty to preserve trust and confidence only to a subset of jobs where they believe that the need for it is heightened by the nature of the duties. In Lindsay, for example, the employee was responsible for handling the employer’s cash and for supervising a group of employees. In another case, an employer who cancelled an employee’s cheque-writing authority and credit card privileges was found to have constructively dismissed the employee because these actions “showed a complete loss of trust in the employee.”93 Similarly, the relationship between a senior middlemanager and an employer has been described as one requiring mutual trust and confidence, so an employer who destroys that element of the relationship can bring the contract to an end.94 These cases suggest that an implied duty to preserve trust and confidence exists where the employee is responsible for the employer’s finances or holds a management position. But demarcating the application of an implied duty of trust and confidence according to job duties is unjustifiable. It implies that most employment relationships do not require trust and confidence, and that certain employees deserve greater common law protection than others solely on the basis of their assigned duties. All employees, regardless of
dismissal because it destroys confidence and trust required in employment contract); Smith v. Reichhold Ltd. (1989), 26 C.C.E.L. 229 (B.C.C.A.) (employee conduct that destroys the employer’s trust repudiates the contract); Dover Corp. Ltd. v. Victoria Chinatown Care Soc. (1988), 26 B.C.L.R. 240 (C.A.) (fundamental factor of confidence underlies a contract of service); see also Vorvis v. I.C.B.C. (1989), 58 D.L.R. (4th) 193 (S.C.C.) at 214, Wilson J. (citing with approval Professor Fridman’s description of the employment contract as one characterized by “mutual trust and confidence”) [Vorvis]. 92. Diedal, ibid. This argument was cited with approval by McLachlin J. (LaForest and L'Heureux-Dubé JJ. concurring) in her dissenting reasons in Wallace, supra note 4 at para. 139. 93. Miwlanski v. H.N. Helicopter Parts International Corp. (1992), 45 C.C.E.L. 303 (B.C.S.C.) at 307. 94. Campbell v. McMillan Bloedel (1978), 2 W.W.R. 686.
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job function, are subject to implied duties to act in good faith and in furtherance of the employer’s interests, and there can be no justification in policy or in law limiting the employer’s reciprocal duty on the basis of the employee’s job function. Indeed, no such distinction is made in Britain. A broader application of the IDTC in Canadian employment law would help to unify a Canadian approach to employer bullying that is at present characterized by a hodgepodge of implied terms and questionable applications of contract law doctrine. Formulating the implied term as a singular duty to preserve the relationship of trust and confidence would have the benefit of encouraging exploration of the impact of employer conduct beyond the more direct forms of employer bullying and harassment with which Canadian law seems principally concerned to date. While Canadian common law seems increasingly prepared to condemn verbal abuse or dishonesty directed specifically at an employee, less direct forms of misconduct which can nevertheless have deleterious effects on the employment relationship and the employee remain largely outside the arsenal of implied terms in Canada.95 The IDTC directs attention to the possible negative impact of employer conduct on the relationship between the parties, and away from the particular form of conduct involved. This can have an important normative effect because it may encourage employers to reflect upon their behaviour, whether directed at employees or not, through the lens of the potential impact on the employee’s trust in the employer. (iii) The ID-Decency Despite the attractiveness of a more universal application of the IDTC, Canadian courts appear instead to be settling upon an implied term expressed as a duty on employers to treat employees with civility, decency, respect, and dignity (the ID-Decency). In other words, the courts look to the form of the employer’s conduct rather than the impact of that conduct. 95. Including, for example, employer conduct in dealings with third parties: see e.g. Malik, supra note 1.
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The ID-Decency can be traced back to Lloyd v. Imperial Parking Ltd, 96 a 1996 decision of the Alberta Court of Queen’s Bench. In Imperial Parking, the employee had been subjected to verbal abuse, shouting, swearing and repeated threats of dismissal at the hands of his employer over a period of several months. Eventually, he left his employment and sued, successfully, for constructive dismissal. Sanderson J. defined what he believed to be a universal implied term of all employment contracts in Canada: A fundamental implied term of any employment relationship is that the employer will treat the employee with civility, decency, respect, and dignity. The standard that has to be adhered to by the employer is dependent upon the particular work environment. This appears to be part of the trend to establish a duty upon an employer to treat employees “reasonably” in all aspects of the labour process [citations omitted]. In this case, a fundamental implied term of the employer/employee relationship was breached.97
It is noteworthy, parenthetically, that Sanderson J. found the scope of the ID-Decency to vary with the work environment, although he did not elaborate on how and why that was so. He was likely acknowledging that there might be greater tolerance for abusive or foul language, for example, in some work environments than in others.98 Context matters. A similar approach has been applied in Britain, where
96. Imperial Parking, supra note 9. The ID-Decency took its present form in this case, but the argument for implying a term requiring employers to treat employees “decently” or with “dignity” was certainly not a new one. For example, Swan argued in 1990 in favour of an implied term requiring employers to treat employees with “dignity and a sense of self-worth” in the manner of dismissal a breach of which would be grounds for compensation independent from the wrongful dismissal: Swan, supra note 11 at 220. 97. Imperial Parking, ibid. at 709 [emphasis added]. 98. This concept is well known in Canadian grievance arbitration, involving disciplined unionized workers, for example, and in human rights cases dealing with “poisoned work environment” scenarios. Canadian adjudicators have found that comments that may be considered normal “shop talk” in one work environment, may be perceived as highly inappropriate and illegal in another: see ibid. See discussion in England et al., “Employment Law in Canada”, supra note 5 at 8.238-39; and Donald Brown & David Beatty, Canadian Labour Arbitration, 3d ed. (Aurora, Ont.: Canada Law Book, 2003) at 7:3660, and case cited therein.
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the EAT recently found that whether foul language leads to a breach of the IDTC may depend upon the nature of the work environment.99 Following Imperial Parking, the ID-Decency quickly found acceptance in other Canadian jurisdictions. The Newfoundland Supreme Court accepted that the ID-Decency is an implied term of all employment contracts, but found that it had not been breached when an employer failed to give a raise to an employee who felt that she deserved higher pay.100 The B.C. Supreme Court has applied the term in a number of recent decisions, starting with Morgan v. Chukal Enterprises Ltd, where a manager verbally harassed the employee over a period of two years.101 The employee complained to the owners, who took no action to remedy the abuse. Martinson J. found that the employer’s conduct amounted to a repudiatory breach of the ID-Decency,102 and he opined that the law should recognize “zero tolerance for rudeness” between parties to an employment contract.103 In Hanni v. Western Road Rail Systems (1991) Inc., Burnyeat J. concluded that an employer repudiated the contract by breaching the ID-Decency in the following circumstances: Accusations were made against her but no details were provided. A hostile and embarrassing work environment was created . . . . She was offered $8,000 to go away and she arrived back . . . to find her office occupied by another. In those circumstances, the fundamental implied term that Ms. Hanni would be treated with civility, decency, respect, and dignity was breached . . . .104
And in Vandooyewart v. Jensten Foods Ltd., the B.C. Supreme Court found a repudiatory breach of the ID-Decency where the employer engaged in unrelenting criticism of the employee, directed obscenities at the employee and failed to provide any constructive assistance to the
99. See Cantor Fitzgerald International v. Bird, [2002] I.R.L.R. 867 (H.C.). 100. Noftal v.Anthony Group Ltd.(1999), 175 Nfld. & P.E.I.R 70. 101. Morgan, supra note 9. 102. Ibid. at 210. 103. Ibid. Contrast this conclusion with that in Meyer, supra note 76, where Proudfoot J. dismissed the action even though the employer had directed “obscenities” at the employee. 104. Hanni, supra note 9 at 97.
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employee.105 The inclusion of the latter form of conduct suggests that the ID-Decency, like the IDTC, imposes positive duties on employers to assist employees and to be supportive of their employees in the performance of their jobs. Ontario courts have also applied the ID-Decency in recent employer bullying cases. In Saunders v. Chateau des Charmes Wines Ltd., for example, the Superior Court of Justice described the employer’s treatment of the employee as “hostile, aggressive, profane, rude, demeaning and intimidating.”106 The court found that this conduct amounted to a breach of the ID-Decency of “sufficient severity and effect to amount to a repudiation of the employment relationship.”107 Similarly, in Stamos v. Annuity Research and Marketing Services Ltd., the same court considered a case in which the employee was subjected to “verbal harassment,” “intimidating tactics,” “unjustifiable attacks on her job performance,” “unreasonable demands,” “sexist and bigoted language,” and “hostility” at the hands of a co-worker.108 She was repeatedly called a “bitch” by the co-worker and when she complained to the employer about the treatment she was receiving, the employer told her to lock her office door and to avoid the co-worker. Dambrot J. referred to the ID-Decency, and found that an employer has an implied duty to ensure that the work environment does not become intolerable for the employee.109 The employer had breached its duty by failing to take corrective action to protect the plaintiff from the bullying treatment of the co-worker. This quick cross-country tour of recent cases suggests the burgeoning of the ID-Decency as the principal implied term regulating employer bullying in Canada. Consistent with the RBB approach, the courts applying this term have ruled that a “repudiatory breach” of the IDDecency amounts to a constructive dismissal. However, no employee has yet sought independent damages for a breach of the ID-Decency. The employees were satisfied with using the ID-Decency merely as a 105. 106. 107. 108. 109.
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tool upon which to establish the termination of the contract in order to recover damages for constructive dismissal (payment in lieu of reasonable notice). Therefore, the issue of whether independent damages are recoverable for injury suffered as a result of employer bullying that breaches the ID-Decency remains an issue to be explored in Canadian law. We will examine this issue in greater detail after we have reviewed the RWB approach set out in Shah. B. The “Repudiation-Without-A-Breach” (RWB) Approach: Shah v. Xerox Canada The Ontario Court of Appeal’s decision in Shah stands in apparent contrast to the contemporaneous development of the various implied terms reviewed in the previous section. In Shah, the employee resigned after receiving a series of warning letters complaining about poor performance. The trial judge found that the allegations in these letters were “largely unsubstantiated” and resulted from a failure on the part of the manager to properly inform himself about the nature of the job that Mr. Shah was performing. The court found that the employer’s behaviour towards Mr. Shah had made continued employment “intolerable.” This amounted to a repudiation of the contract, a constructive dismissal. The employer, armed with Farber as authority appealed on the basis that the trial judge had erred by finding a constructive dismissal without identifying a breach of any term of the contract. Of course, an easy answer to this argument is that the employer’s conduct violated the ID-Decency or the IDTC, and that the breach was repudiatory. However, Mr. Shah had not argued a breach of the ID-Decency, or of any other term for that matter. The Court of Appeal, in a unanimous decision, nevertheless rejected the employer’s argument. The court reviewed Farber, and accepted that in the more common constructive dismissal cases involving changes to an employer’s job duties, the issue is indeed whether the change constitutes a repudiatory breach of a term of the contract. However, the court found that Farber did not require that there be a breach of a term in all constructive dismissal cases. It focussed on Gonthier J.’s comment in Farber that
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there is a “general principle” of law that a repudiation of contract occurs “where one . . . demonstrates an intention no longer to be bound” by the contract.110 Since the employer in Farber had clearly breached a term of the contract, there was no reason for Gonthier J. to decide whether repudiation could have occurred without a breach.111 Indeed, when Gonthier J.’s reasons are considered in context, it seems clear that he was describing the circumstances in which a breach of a term will amount to repudiation of the contract, namely, when it evinces an intention to no longer to be bound by the contract. This is simply a restatement of the law of repudiation upon which the RBB approach is based.112 But the Court of Appeal in Shah nevertheless interpreted Gonthier J.’s comments as confirmation that there could be a repudiation of contract without a breach of any term: “[The trial judge] however, concluded that the court may find an employee has been constructively dismissed, without identifying a specific fundamental term that has been breached, where the employer’s treatment of the employee makes continued employment intolerable. We agree . . . .”113 The result, then, is that there may be repudiation of an employment contract without a breach or anticipatory breach of any term of the contract, at least in Ontario.
110. Shah, supra note 10 at 168. 111. The employer in Farber eliminated the employee’s position and offered instead a lower paying and less prestigious job. Gonthier J. found that it was “clear” that this constituted a substantial alteration of essential terms of the contract: Farber, supra note 13 at 15. 112. This interpretation of Farber is consistent with Gonthier J.’s explanation that constructive dismissal requires a breach of a term of the contract (ibid. at 13), and from the authorities upon which he relied, including the “leading case” of Rubel Bronze & Metal Co., where the court found that an employer can repudiate an employment contract by “breach of a single provision” of the contract if the provision is important, but that breaches of “minor provisions” may not amount to a repudiation: Rubel Bronze, supra note 13 at 322. Gonthier J. also approved of author Brian Bruce’s explanation that constructive dismissal “occurs when an employer makes a unilateral and fundamental change to a term or condition of an employment contract without providing reasonable notice of that change”: Farber, ibid. at 13 [emphasis added]. 113. Shah, supra note 10 at 167.
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C. At the Fork in the Road: Damages for Employer Bullying Cases and the Implications of the Approach Taken It is possible for the RBB and the RWB approaches to co-exist. The question, though, is what role is left for implied terms of fair dealing if an employee can prove she was constructively dismissed without having to establish that one of these terms was breached by her bullying employer. As Dambrot J. observed in Stamos, it makes little practical difference which approach is taken if the employee’s prayer for relief is limited to damages in lieu of reasonable notice: An employer who subjects employees to treatment that renders competent performance of their work impossible or continued employment intolerable exposes itself to an action for constructive dismissal. . . .Whether such treatment is viewed as a breach of a specific fundamental implied term of the employment relationship . . . or as a repudiation of the entire relationship (Shah), the result is the same. The employee is entitled to treat the employment contract as at an end, and to recover at least damages in lieu of reasonable notice.114
Indeed, it turns out that under both approaches the question of whether the employer’s conduct repudiated the contract may boil down to the court’s assessment of whether the conduct made continued employment “intolerable.” Under the RWB approach, this is the only question. If the RBB approach is applied, the court must determine, first, whether a term has been breached, second, whether that breach is “fundamental” or sufficiently serious to repudiate the contract. Courts have determined the latter by asking whether the conduct has made the relationship “intolerable” for the employee.115 Thus, on the narrow issue of entitlement to damages for wrongful dismissal, both approaches lead to the same outcome. But focusing too narrowly on damages for wrongful dismissal can obscure the potential impact of independently actionable implied terms governing fair dealing. Bullying conduct can occur at any stage of the employment relationship, and is not limited to the moment of dismissal. 114. Supra note 9 at para. 60. 115. See e.g. Morgan, supra note 9 at 210; Hanni, supra note 9 at 97; Paitich, supra note 80.
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One benefit of the RBB approach is that it presents a tool for governing employer conduct that does not depend upon the termination of the contract. It encourages courts to develop a “positive obligation in law” for employers to refrain from bullying conduct throughout the employment relationship. The RWB approach, in contrast, governs only employer conduct that terminates the employment relationship. This is a significant limitation, because damages for bullying conduct by employers in breach of a term of the contract are recoverable according to the ordinary rules of contract even if (and perhaps, as we will shall consider below, only if) that conduct does not terminate the contract. (i) Employer Bullying in the “Performance of the Contract” There are a number of scenarios in which bullying conduct by an employer could injure an employee and yet the employment contract would survive. If that conduct breaches a term of the contract, expressed or implied, damages may be recoverable. Those damages are not “aggravated” damages, but are rather independent damages flowing from the separate breach of the contract.116 In this section, we examine three scenarios in which employer bullying could breach the contract, and thereby give rise to a remedy, although the contract continues forward after the impugned conduct. First, the employee may not learn of the conduct that constitutes the breach until after the contract has expired. This is precisely what happened in Malik. Since the IDTC creates a “positive obligation in law” that governs all employer dealings, the employees were entitled to recover any damages that flowed from the breach, even though they did not learn of the employer’s conduct until after the contract had expired. Another example might be an employer who provides false or inaccurate information about an employee to a prospective employer in breach of an implied duty of fair dealing.117 The employee may not learn of that conduct until after his or her employment contract has expired. The RWB approach cannot provide redress to employees for employer 116. McKinley, supra note 4 at para. 78; Prinzo, supra note 7 at 53; Vorvis, supra note 91. 117. Recall that this behaviour has been found to breach the IDTC: see Harris, supra note 67.
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misconduct that does not become known until after the contract has expired because the test in Shah requires the court to find that it was the employer’s conduct that did, in fact, render the employment relationship “intolerable.” This assumes knowledge of the conduct by the employee during the term of contract. Second, it might be possible for an employer to commit a “nonrepudiatory” breach of an implied duty of fair dealing, depending upon how the term is formulated. In Britain, every breach of the IDTC is repudiatory, a result that flows from the formulation of the term itself. This is because, in the words of Arnold J., “any conduct which is likely to destroy or seriously to damage [the relationship of trust and confidence] must be something that goes to the root of the contract.”118 However, significant discretion remains on the issue of what conduct amounts to a breach.119 If the implied term is defined as a legal duty to treat employees “decently,” on the other hand, it does not necessarily follow that every breach constitutes a repudiation of the contract. There may be conduct that breaches the ID-Decency, but which a court could nevertheless find insufficiently serious to entitle the employee to treat the contract as at an end. Not every act of indiscretion or insubordination by an employee amounts to a repudiatory breach of implied duties of fidelity;120 similarly, then, an employer might breach an implied duty of fair dealing and yet not repudiate the contract. Since the RWB approach recognizes only bullying conduct that is sufficiently serious to repudiate the contract, it leaves no room for the possibility of a remedy for less serious, but nevertheless injurious employer bullying. In contrast, if employer bullying is governed by an implied term of the contract, then a remedy could be recoverable even in cases of less serious, non-repudiatory breaches.
118. Courtaulds, supra note 33 at para. 11. See also Morrow, supra note 61. 119. In Lewis, supra note 40, the Court decided that a series of relatively minor acts may “cumulatively amount to a repudiatory breach” of the IDTC, even though the acts individually would not have been a breach. 120. See e.g. Laws v. London Chronicle (Indicator Newspapers) Ltd., [1959] 2 All E.R. 285, [1959] 1 W.L.R. 698 (C.A.); Hardie v. Trans-Canada. Resources Ltd. (1976), 71 D.L.R. (3d) 668 (Alta. C.A. (A.D)); Jewitt v. Prism Resources Ltd. (1981), 127 D.L.R (3d) 190, 30 B.C.L.R. 43 (C.A.).
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Admittedly, this second example may be more one of legal theory than of practical significance. There are few situations in which a nonrepudiatory breach would give rise to damages of any significance, and few employees who continue to be employed would risk retaliation by suing the employer for a non-repudiatory breach. But the possibility should not be discounted altogether. For example, a court could find a non-repudiatory breach of the ID-Decency in an action alleging a variety of other breaches by the employer, including wrongful dismissal. The court could declare that the employer committed the lesser form of non-repudiatory breach as part of a broader order. It is possible that damages could be attributable to the non-repudiatory breach of the IDDecency. Moreover, the psychological benefit to the employee of a declaration alone or a nominal award should not be discounted. Thirdly, employer bullying that may be sufficiently serious to repudiate the contract might nevertheless not terminate the contract. Two scenarios come to mind. In the first scenario, an employee who is the victim of a breach of the ID-Decency may elect to keep the contract alive and claim damages for the breach.121 This is precisely what occurred in Gogay v. Hertfordshire County Council, a recent decision of the English Court of Appeal.122 Ms. Gogay, a health care professional, was suspended pending an investigation of an allegation that she had abused a patient. The suspension was ultimately lifted and the allegations withdrawn, but Ms. Gogay nevertheless filed an action at common law for breach of the IDTC. She claimed damages for mental illness that she alleged she suffered as a result of the allegation and suspension. Notably, she did not allege that the employer had terminated her employment as, indeed, it had not. The court ruled that the employer’s allegations against the employee violated the IDTC, and that damages for psychiatric illness were recoverable for breach of that term according to the normal rules of contract. Again, the RWB approach has no application if the employee elects not to treat the bullying conduct as a repudiation of the contract.
121. See Halsbury’s Laws of England, 4th ed., vol. 9(1) (London: Butterworths, 1998) at para. 997. 122. Gogay v. Hertfordshire County Council, [2002] I.R.L.R. 703 (C.A.) [Gogay].
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One can imagine other scenarios in which an employee may wish to keep the contract alive and claim damages or other relief from employer bullying. For example, an employee who is not working due to a longterm disability may object to obsessive and intrusive employer surveillance at her home, conduct that might breach the ID-Decency or the IDTC, and may even incur damages related to the stress caused by the surveillance. That employee might file an action to have the surveillance stopped and to recover damages arising from the surveillance, and yet wish to keep open the possibility of a future return to work if the disability improves. True, some spiteful employers might react by terminating the employee, but that would simply raise a new potential head of damages for the employee in wrongful dismissal, and would not detract from the validity of the original claim. The second scenario involves an employer who elects to terminate an employee subsequent to engaging in serious bullying conduct. The bullying conduct does not terminate the contract in this scenario—it occurs before the dismissal, during the continuance of the contract—but it may nevertheless have caused injury to the employee. In those circumstances, the employee might plead both a breach of the notice provision and a breach of the ID-Decency during the period prior the dismissal. This is the most likely scenario in which an employee would seek independent damages for breach of an implied term of fair dealing. It requires the court to distinguish “the dismissal,” or the breach of the reasonable notice term, from the impugned conduct occurring before the dismissal, which breaches the implied term of fair dealing. In some cases, where to draw this line may prove difficult. An obvious example is the case of constructive dismissal, which by definition involves employer conduct during the operation of the contract that in effect repudiates the contract.123 I will examine these difficult cases and propose a test of how to draw the distinction later in this paper. For now, the aim is to establish the more straightforward point that breach of a term of the contract, while that contract subsists, can give rise to independent damages that can be claimed in an action filed after 123. See discussion in Mark R. Freedland, “Recent Cases, Notes, Claims for Unfair Dismissal: Johnson v. Unisys Ltd.”, Case Comment (2001) 30 Indus. L.J. 305 at 309; Eastwood, supra note 12.
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the termination of the contract. This is as true of an implied term such as the ID-Decency or IDTC as it is for any other independently actionable term of a contract. The House of Lords affirmed this point in Eastwood v. Magnox Electric plc. That case involved two separate complaints by co-workers alleging breach of the IDTC in the form of harassment, false allegations, and an unfair internal disciplinary process, all of which occurred prior to their actual dismissal. The accompanying case, McCabe v. Cornwall County Council124 involved an employee whose dismissal for cause followed a flawed investigation and unfair internal disciplinary process. In each case, the employee sought damages for personal injury due to mental suffering caused by a breach of the IDTC prior to the dismissal. The cases were consolidated before the House of Lords because they raised the same substantive legal issue, namely, whether an employee can recover independent damages for a breach of the IDTC in the period prior to the dismissal. Note the similarity between the facts in these British cases and those in Vorvis. Mr. Vorvis was subjected to months of harassment at the hands of his employer and was then summarily dismissed.125 He did not plead that the bullying conduct prior to his dismissal breached an implied term requiring fair dealing. But, as noted by Anderson J.A. of the B.C. Court of Appeal, had he done so, he might have succeeded in obtaining separate damages for mental suffering for breach of that term.126 The House of Lords came to the same substantive decision in a unanimous decision in Eastwood, ruling that damages for breach of the IDTC were recoverable according to the ordinary rules of contract if the breach occurs prior to the dismissal. Lord Nicholls ruled: “. . . when an employee suffers financial loss from psychiatric or other illness caused by his pre-dismissal unfair
124. Eastwood, ibid. 125. McIntyre J. noted that the impugned employer conduct “preceded the wrongful dismissal”: Vorvis, supra note 91 at 205. 126. Vorvis v. Insurance Corp. of British Columbia (1984), 9 D.L.R. (4th) 40 (B.C.C.A.) at 54-55. And see comments in Waddams, supra note 48 at 552; Swan, supra note 11 at 220.
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treatment . . . the employee has a common law cause of action which precedes, and is independent of, his subsequent dismissal.”127 To summarize, then, I have identified a variety of scenarios in which independent damages for breach of an implied term requiring fair dealing may be recoverable when the contract survives the breach. The RWB approach obviously has no application to these scenarios, since it applies only when an employee is prepared to terminate her employment in response to employer bullying. The question we need to address next is whether an employee can recover both damages for breach of an implied term requiring fair dealing and damages for breach of the reasonable notice term when the employer’s breach occurs in the manner of dismissal. (ii) Employer Bullying in the “ Manner of Dismissal” This leads us head-on into the line of cases commencing with Addis v. Gramophone, which stand for the proposition that damages for wrongful dismissal are limited to those flowing from the breach of the duty to give reasonable notice of termination.128 Therefore, an employee bringing a wrongful dismissal action cannot recover damages for such things as damage to reputation, mental suffering due to the manner of dismissal, hurt feelings, or the fact that the manner of dismissal makes it more difficult to find fresh employment.129 But these cases also confirmed that extended damages might be awarded if they flow from an independently actionable wrong, including a breach of a term of the employment contract other than the notice provision.130 Thus, the 127. Eastwood, supra note 12 at para. 29. Lord Steyn issued separate but concurring reasons, while Lords Hoffman, Rodger, and Brown adopted the reasons of Lord Nicholls. See also King, supra note 64. The employee would still need to prove that the damages flowed from the breach of the IDTC, and not the wrongful dismissal, and may need to answer a defence of waiver if an extended period of time passed since the bullying conduct: see Macari v. Celtic Football & Athletic Co. Ltd., [1999] I.R.L.R. 787 (Ct. Sess.). 128. [1909] A.C. 488 (H.L.) [Addis]. See also Peso Silver Mines v. Cooper, [1966] S.C.R. 673; Vorvis, supra note 91; Wallace, supra note 4. 129. Vorvis, ibid.; Johnson, supra note 2 at 804, Steyn J.; Malik, supra note 1 at 8, Nicholls J.; Wallace, supra note 4 at para. 103. 130. See e.g. Addis, supra note 129 at 504; Vorvis, ibid. at 288.
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emergence of implied terms such as the IDTC and the ID-Decency offered the intriguing possibility that the hurdle usually attributed to Addis had at last been overcome. Early indications in the development of the IDTC in Britain suggested that this might indeed be the case. For example, in his explanation in Malik of why “stigma damages” were recoverable for financial loss owing to damage to the employee’s reputation caused by a breach of the IDTC, Lord Nicholls explained the relationship between the IDTC and the principle in Addis as follows: At common law damages are awarded to compensate for wrongful dismissal. Thus, loss of which an employee would have suffered even if the dismissal had been after due notice is irrecoverable, because such loss does not derive from the wrongful element in the dismissal. Further, it is difficult to see how the mere act of wrongful dismissal, rather than dismissal after due notice, could of itself handicap an employee in the labour market. All this is in line with Addis’s case. But the manner of circumstances of the dismissal, as measured by the standards of conduct now identified in the duty of trust and confidence term may give rise to such a handicap. The law would be blemished if this were not recognized today. There now exists the separate cause of action whose absence Lord Shaw of Dunfermline noted with “a certain regret”: see Addis. The trust and confidence term has removed the cause of regret.131
These comments fuelled expectations that the House of Lords would take the opportunity to pound the proverbial death-nail into Addis when next given the opportunity to consider a claim for damages arising from a breach of the IDTC leading to a repudiation of the employment contract. (a) The IDTC and the Manner of Dismissal in Britain: Johnson v. Unisys This opportunity arose in the 2001 case of Johnson v. Unisys.132 Mr. Johnson was summarily dismissed and he filed an action at common law for breach of contract alleging, inter alia, that the employer had breached the IDTC by the manner in which it had dismissed him. His assertion, which had been successful in an earlier claim under the unfair 131. Malik, supra note 1 at 9-10 [emphasis added]. 132. Johnson, supra note 2.
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dismissal statute, was essentially that the employer had not given him a fair opportunity to defend himself and had not complied with its own internal disciplinary procedure. Mr. Johnson claimed £400,000, alleging that as a result of the manner of his dismissal, he had suffered a mental breakdown that had prevented him from working again. The employer brought a motion to dismiss the action on the grounds that it disclosed no reasonable cause of action, which was successful at trial and before the Court of Appeal.133 A central issue in the case was whether the IDTC could apply to conduct “in the manner of dismissal.” Lord Hoffman considered the impact of Addis, and explained, as Lord Nicholls and Lord Steyn had done in Malik, that Addis did not prohibit the recovery of damages for mental distress and damage to reputation if the damages flowed from a breach of a term of the contract other than the implied term requiring reasonable notice of termination: In [Malik], Lord Steyn said that the true ratio of Addis’s case was that damages were recoverable only for loss caused by a breach of contract, not for the loss caused by the manner of its breach. As McLachlin J. said [in Wallace v. United Grain Growers, [1997] 3 S.C.R. 701], the only loss caused by a wrongful dismissal flows from a failure to give proper notice or make payment in lieu. Therefore, if wrongful dismissal is the only cause of action, nothing can be recovered for mental distress or damage to reputation. On the other hand, if such damage is loss flowing from a breach of another implied term of the contract, Addis’s case does not stand in the way. That is why in Malik’s case itself, damages were recoverable for financial loss flowing from damage to reputation caused by a breach of the implied term of trust and confidence.134
Lord Hoffman therefore accepted that the IDTC could, at common law, represent the independent contractual term needed to attach a claim for damages flowing from the manner of dismissal.
133. [1999] 1 All E.R. 854 (C.A.). 134. Johnson, supra note 2 at 817-18 [emphasis added].
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On this crucial point, all of the Law Lords agreed.135 Lord Nicholls said that there was “in principle . . . much to commend” the argument that separate damages are recoverable for breach of the IDTC in the manner of dismissal.136 Similarly, Lord Millet wrote that the common law courts can imply terms that regulate the manner of dismissal, and damages would be awarded for breach of those terms “because such damages would be awarded for breach of the implied but independently actionable term (as in Malik’s case) and not for wrongful dismissal.”137 Lord Steyn, who dissented in the outcome, was most forceful in defending the view that separate damages are recoverable for breach of the IDTC in the manner of dismissal. He argued that the employment contract is governed by the ordinary principles of contract law, and that Addis had never precluded recovery of separate damages arising from a breach of an independent term, a point that had been affirmed in Malik. In his opinion, damages could be recovered for breach of the IDTC in the manner of dismissal and such damages were distinct from those for wrongful dismissal.138 In the result, then, all of the Law Lords found that the common law had evolved to the point that a term could be implied into the contract that governed the manner in which an employer executes its discretion to dismiss an employee.139 If such a term were implied, damages for breach of that term would be recoverable according to the ordinary 135. Lord Bingham agreed with the reasons of both Lords Millet and Hoffman. Lords Hoffman (ibid. at 818) and Millet (ibid. at 819) agreed that independent damages could be recoverable for breach of an implied term requiring fair dealing, although they suggested that the IDTC was ill-suited for application to the act and manner of dismissal because it was “concerned with preserving the continuing relationship which should subsist between employer and employee.” Lord Hoffman preferred the “more elegant” implied term that the employer would exercise its right to dismiss “fairly and in good faith.” Lord Millet suggested that the court could imply a more general obligation for employers to treat employees “fairly,” including in the manner of dismissal. 136. Ibid. at 803. 137. Ibid. at 825. 138. Ibid. at 813. 139. However, both Lords Millet and Hoffman noted that there existed policy arguments against the implication of such a term to the manner of dismissal that made the question of whether the court should imply such a term one that was “finely balanced” (ibid. at 818-19).
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rules of contract. However, a majority of the judges, with Lord Steyn dissenting, ruled that the statutory unfair dismissal regime, which included a cap on damages and strict time limits for filing of complaints, reflected a policy decision by Parliament to limit damages for breach of the employment contract and to channel claims for damages, other than for wrongful dismissal, into the statutory regime. Therefore, the IDTC does not apply to the “manner of dismissal.” But since the Law Lords in Johnson affirmed the conclusion in Malik, the IDTC continues to apply to conduct during the performance or “subsistence” of the contract.140 Precisely where the line is drawn between these two moments was left for another day.141 From a practical perspective, then, Johnson maintained the obstacle to the recovery at common law of separate damages arising from the “manner of dismissal.” A minority of Canadian workers has access to forms of statutory “unfair dismissal” provisions that provide various levels of “just cause” (or “good and sufficient cause,” in the case of Quebec) for eligible employees (and Quebec employees now have statutory protection against “psychological harassment.”)142 I will not explore here whether arguments similar to those accepted in Johnson could prevail in those Canadian jurisdictions. Certainly for the majority of workers in Canada who do not have access to a statutory unfair dismissal scheme, the policy barrier to the recovery of independent damages that impeded the House of Lords in Johnson does not arise. This might suggest reason for optimism that such damages are recoverable in Canada for the breach of independently actionable terms such as the ID-Decency or IDTC. The difficulty with this result, however, is that it appears to be inconsistent with the approach of the majority of the Supreme Court in Wallace v. United Grain Growers.
140. See Eastwood, supra note 12; Gogay, supra note 122; Freedland, supra note 123. 141. This was the principle issue in Eastwood, ibid. In his concurring reasons in Eastwood, Lord Steyn continued his assault on the majority judgement in Johnson, supra note 2, arguing that it had created much confusion and had unduly restricted the development of the common law. He argued forcefully that Johnson should be reconsidered. 142. See e.g. Canada Labour Code, R.S.C. 1985, c. L-2, s. 240; Labour Standards Code, S.N.S. 1975, c. 50. s. 71; Act Respecting Labour Standards, S.Q. 1979, c. 45, s. 124.
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(b) Bullying in the Manner of Dismissal in Canada: The Wallace Effect In Vorvis, the Supreme Court confirmed the rule that aggravated or punitive damages can be awarded for conduct related to the manner of dismissal if the employer’s conduct “arises from the dismissal itself” and amounts to an “independent actionable wrong.”143 The conduct about which Mr. Vorvis complained “preceded the wrongful dismissal” and therefore, according to McIntyre J., could not “be said to have aggravated the damage incurred as a result of the dismissal.”144 In other words, the employer’s bullying conduct occurred during the performance of the contract and not in the manner of dismissal. Thus, the Court did not need to answer whether a breach of an implied term requiring fair dealing by employers in the manner of dismissal would constitute the requisite independent actionable wrong, or even whether such a term exists. In its recent decision, Whiten v. Pilot Insurance Co., the Supreme Court ruled that a breach of an implied duty of fair dealing in an insurance contract constitutes an independent actionable wrong upon which a punitive damages claim could rest.145 Binnie J. wrote that: “. . . in my view, a breach of the contractual duty of good faith is independent and in addition to the breach of the contractual duty to pay the loss. It constitutes an “actionable wrong” within the Vorvis rule . . . .”146 This result appears to support a claim for recovery of aggravated or punitive damages for breach of a comparable implied term requiring fair dealing in employment contracts. But the application of the reasoning in Whiten to the employment contract is complicated by the Supreme Court’s decision in Wallace.147 143. Vorvis, supra note 91 at 204-205. See also Wallace, supra note 4; Noseworthy, supra note 7; Brown v. Waterloo Regional Board Of Police Commissioners (1982), 43 O.R. (2d) 113 (C.A.); Wurster v. Universal Environmental Services Inc. (1998), 164 D.L.R. (4th) 166 (Ont. C.A.). 144. Vorvis, ibid. at 205. 145. (2002), 209 D.L.R. (4th) 257 (S.C.C.). 146. Ibid. at 290. The insurer had argued that Vorvis required an independent tort and that the independent wrong could not be a separate breach of the contract, an argument that was firmly rejected by the Court. 147. Supra note 4.
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Mr. Wallace was recruited from a competitor based on an assurance that if he performed well, his employment would continue until he retired. He was a top salesperson for the employer for many years and received positive evaluations, but was then summarily dismissed, initially with no explanation. Afterwards, the employer alleged that Wallace had been terminated for cause due to unsatisfactory performance. The employer maintained its allegation of cause until the commencement of the trial, at which time it withdrew the allegation. Wallace sought damages in contract for mental distress he suffered as a result of “the manner of his dismissal.” He argued that the employer had breached an implied term of the contract that prohibited “bad faith discharge” or an implied contractual duty of “fairness,” or alternatively, that the employer had committed a tort of “bad faith discharge.” The trial judge awarded 24 months’ notice, plus an additional $15,000 in “aggravated damages.” The Court of Appeal reduced the notice period to 15 months, and overturned the award of aggravated damages on the basis that there had not been an independent actionable wrong.148 The Supreme Court confirmed that damages “beyond compensation for . . . failure to give reasonable notice of termination must be founded on a separately actionable course of conduct.”149 Iacobucci J. agreed with the Court of Appeal’s finding that there was insufficient evidence that the employer had committed a “separate actionable wrong” in the manner in which it had dismissed Mr. Wallace.150 He refused to recognize a new implied term that employers will dismiss only for proper cause or legitimate business reasons because implying such a term would be “overly intrusive and inconsistent with established principles of employment law.”151 He agreed also with the Court of 148. (1995), 14 C.C.E.L. (2d) 41 (Man. C.A.). 149. Wallace, supra note 4 at 26-27, Iacobucci J. On this point, both the majority and minority judges agreed. Justices McLachlin, LaForest, and L’Heureux-Dubé dissented in the final judgement. They would have implied a term requiring good faith in dismissal, the breach of which would give rise to general damages for mental distress and loss of reputation. 150. Ibid. at 26-27: “The Court of Appeal ruled that there was insufficient evidence to support a finding that the actions of UGG constituted a separate actionable wrong either in tort or in contract. I agree with these findings and see no reason to disturb them.” 151. Ibid. at 28.
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Appeal’s finding that there had been no tort committed in the manner of dismissal, confirming that there is no general legal duty for an employer to dismiss employees fairly.152 However, Iacobucci J. then ruled that employers should nevertheless be held to an obligation of good faith and fair dealing in the manner of dismissal, the “breach” of which is to be compensated by adding to the period of reasonable notice.153 Iacobucci held that this obligation was appropriate because there is an imbalance of power in employment relationships and employees are particularly vulnerable at the point of dismissal.154 The result is that “good faith” dealing in the manner of dismissal is to be treated as an additional factor to be added to the Bardal list of factors that affect length of reasonable notice.155 If an employer engages in bad faith in the manner of dismissal, and that conduct falls short of an independent actionable wrong, the notice period may nevertheless be increased to compensate for humiliation, embarrassment, and loss of self-worth and self-esteem, as well as to compensate for difficulties in securing alternative employment that are caused by the employer’s conduct.156 The majority reinstated the award of 24 months’ notice, which now included an extended period for bad faith dismissal, but rejected the separate award for aggravated damages. What then is the relationship between Vorvis, Wallace, Whiten and the recent development and application of implied duties of fair dealing, such as the ID-Decency? We should note, first, that Canadian courts have continued to apply the ID-Decency subsequent to Wallace.157
152. See Cassady, supra note 7. But see Zorn-Smith v. Bank of Montreal, [2003] O.J. 5044 (QL). 153. Wallace, supra note 4 at 33. For comment and criticism of Iacabucci J.’s reasoning, see Shannon K. O’Bryne, “Bad Faith Contexts of Employment: Wallace v. United Grain Growers Ltd.”, Case Comment (1998) 77 Can. Bar Rev. 492; John Swan, “Damages for Wrongful Dismissal: Lessons from Wallace v. United Grain Growers Ltd.”, Case Comment (1998) 6 C.J.L.E.L. 313. 154. Wallace, ibid. at 32. 155. Bardal v. Globe & Mail Ltd. (1960), 24 D.L.R. (2d) 140 (Ont. H.C.J.). 156. Wallace, supra note 4 at 37-38. 157. Imperial Parking, supra note 9; Faye, supra note 9; and Sheppard, supra note 9, were each decided before the release of Wallace. The remainder of the cases in which the IDDecency have been applied were decided after Wallace was released.
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Judges must believe therefore that the application and development of the ID-Decency is consistent with Wallace. Certainly, Wallace does not preclude the implication of the ID-Decency or other like term where there is clear evidence, clearer than in Wallace, that the parties intended the ID-Decency to form part of the contract.158 But the courts have noted nothing exceptional in this regard in the post-Wallace decisions in which a repudiatory breach of the ID-Decency has been found. There are two additional ways to reconcile Wallace with the post-Wallace implication of the ID-Decency. The first possibility is that the Supreme Court in Wallace did not preclude in all cases the implication of a term requiring fair dealing by employers both in the performance of the contract and in the manner of dismissal. Proponents of this interpretation might emphasize that Iacobucci J. found that there was “insufficient evidence” that the employer’s conduct amounted to an independent breach.159 This finding could be interpreted narrowly so as not to preclude the implication of a general duty of fair dealing throughout the employment relationship. But the spirit, if not the text, of Wallace indicates that the majority judges intended the issue of employer behaviour that relates to the manner of dismissal to be dealt with within the new mechanism of extended notice. This intention is evident in the examples Iacobucci J. uses to explain when extended notice damages are appropriate. Employer dishonesty, conduct that is “unduly insensitive,” and false allegations of theft made against the employee160 in the manner of dismissal would likely violate the ID-Decency. But Iacobucci J. directs that this type of conduct “falls short” of an independent wrong in the manner of dismissal and, therefore, must be assessed within the Wallace mechanism of extended notice. This leaves little manoeuvring room for an implied term governing employer bullying in the manner of dismissal.161
158. See discussion in England et al., “Employment Law in Canada”, supra note 5 at 16.44.2. 159. Wallace, supra note 4 at 26. 160. Ibid. at 34-35. 161. The post-Wallace case law has channelled employee complaints about employer conduct at the time of the dismissal into the extended notice mechanism. For example,
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But if Wallace forecloses the application of an implied term requiring fair dealing to the manner of dismissal, then the post-Wallace development of the ID-Decency is consistent with Wallace only if it is possible to distinguish a duty of fair dealing before the dismissal, or in the performance of the contract (when the ID-Decency applies) and a duty of fair dealing in the manner of dismissal (when it does not). This distinction was already noted by the Supreme Court in Vorvis, when it ruled that extended damages were available in a wrongful dismissal action only for conduct related to the “dismissal itself,” and not for conduct occurring before or after the dismissal.162 But the need to define when “Wallace damages” are available has forced courts to address these categories more directly. (c) Distinguishing Between Conduct in the “Performance of the Contract” and Conduct in the “Manner of Dismissal” Conduct that is “after” the dismissal is clear enough: employer conduct after the employer has announced its decision to dismiss the employee, such as bad faith in subsequent lawsuits, is governed by the Wallace “extended notice” mechanism.163 However, where the line is drawn between conduct before a dismissal and conduct in the dismissal itself—or conduct in “the performance of the contract” and conduct “in the manner of dismissal”—and what the implications of that distinction are, has presented a difficult challenge for Canadian employment law in the post-Wallace era. The distinction is not merely an interesting legal puzzle. Where this line is drawn may have significant consequences in terms of the courts have ordered Wallace extended notice damages for harsh employer conduct in the manner of dismissal while refusing separate aggravated or punitive damages on the basis of an absence of an independently actionable wrong: Noseworthy, supra note 7; Marshall v. Watson Wyatt & Co. (2002), 57 O.R. (3d) 813 (C.A.). 162. Vorvis, supra note 91. The Court did not elaborate fully in Vorvis on how that distinction is to be made, although it is clear that the conduct directed at Mr. Vorvis in the months prior to the announcement of the decision to dismiss was found to be conduct “preceding” the dismissal. And see McKinley, supra note 4 at 414; Prinzo, supra note 7 at 53; McPhillips v. B.C. Ferry Corp., [1995] B.C.J. 2261 (S.C.) (QL). 163. This was a key element justifying the award in Wallace.
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quantum of damages available in employer bullying cases. This is because the Wallace extended notice mechanism is not intended to compensate employees for the quantum of the actual injury they suffer.164 Rather, damages in the form of extended notice are limited by the parameters set by the courts in defining the outer boundaries of what constitutes reasonable notice, which continues to range from 12 months to 24 months, depending upon whether the employee held a non-managerial or managerial position.165 Extended notice for bullying conduct in the manner of dismissal is just one ingredient in a stew of other Bardal factors, all of which are lumped together in the determination of a reasonable notice period that must not exceed prevailing, court-defined boundaries. So, for example, a non-managerial employee who would be entitled to 11 or 12 months’ notice even without the “bad faith” conduct in the manner of dismissal will receive little, if any, additional damages under the Wallace mechanism, regardless of the level of injury caused by the bad faith conduct. On the other hand, if the employer’s conduct breaches an independent term of the contract, damages will be assessed according to normal contract law principles. In many cases, this will lead to a greater damage award than under the extended notice mechanism. In Deildal v. Tod Mountain Development Ltd., for example, Braidwood J.A. was prepared to order 12 months’ pay, in addition to 15 months’ reasonable notice, for breach by the employer of an implied term that the employer would not “resort to scurrilous falsehoods to justify [its] decision” to dismiss the employee.166 The conduct that breached the term included a false allegation of theft. We can make a rough comparison of this outcome to post-Wallace decisions that have awarded extended notice of not more than six months for false allegations of theft made by employers in the course of the termination.167 Similarly, in Wallace, McLachlin J. would
164. See comments of Goudge J.A. in Noseworthy, supra note 7 at 635. 165. Clendenning v. Lowndes Lambert (BC) Ltd. (2000), 193 D.L.R. (4th) 610 (B.C.C.A.) at 627; Cronk v. Canadian General Insurance Co. (1995), 25 O.R. (3d) 505 (C.A.). 166. Deildal, supra note 91 at paras. 71-81. 167. The comparison is, of course, a very general one since the outcomes were influenced by the particular factors present in the individual cases. See Mitu v. New Century Food & Paper Ltd., [2001] B.C.J. No. 1184 (S.C.) (QL) (4 months’ extended
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have awarded $15,000 damages for breach of an implied duty of good faith discharge, in addition to the award of 24 months’ notice that the majority judges awarded applying the extended notice formula. 1. Post-Wallace Decisions In a number of recent decisions, the “manner of dismissal” has been found to include employer conduct occurring months or even years prior to the decision by the employer to dismiss the employee.168 This approach sweeps into the Wallace mechanism of extended notice virtually all employer conduct, thereby rendering superfluous the potential role of an implied duty of fair dealing during the “performance of the contract.” For example, in Chan v. Meyer’s Sheet Metal Ltd., the Court awarded extended notice damages pursuant to Wallace as a result of the employer’s failure to address harassment of the employee by coworkers throughout the entire period of employment.169 An equally expansive application of Wallace was applied in Khan v. Fibre GlassEvercoat Co., in which the court awarded three months’ extended notice. The basis for this award was that, during the pre-employment bargaining, the employer had induced the employee to sell his business to the employer and take a position with the employer by making disingenuous promises about the position and job security.170 This extremely broad application of Wallace appears to read out altogether Iacobucci’s J. condition that the bad faith conduct “accompany” the dismissal. Other judges have been more cautious in their application of Wallace, recognizing that it was intended to apply more strictly to conduct related to the act of dismissal.171 For example, in Marlowe v. Ashland notice); Baughn v. Offierski (2001), 5 C.C.E.L. (3d) 283 (Ont. S.C.J.) (5 months); Smart v. McCall Pontiac Buick Ltd., [1999] B.C.J. No. 2111 (S.C.) (6 months). 168. See e.g. Khan v. Fibre Glass-Evercoat Co., [2000] O.J. No. 1877 (QL); Chan v. Meyer’s Sheet Metal Ltd., [1998] A.J. 1557 ( Prov. Ct.) [Chan]. 169. Ibid. 170. Supra note 169 at para. 30. 171. See also Gismondi v. Toronto (City) (2003), 64 O.R. (3d) 688 at para. 23 (Ont. C.A.), where Rosenberg J.A. wrote that Wallace extended notice damages “are not limited to acts of the employer at the very moment of dismissal and can in appropriate
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Canada Inc., the B.C. Supreme Court ruled that “reprehensible” conduct directed at an employee by a manager during an employee evaluation that concluded several weeks prior to the actual announcement of the dismissal could not be considered conduct “in the manner of dismissal.”172 Since the decision to dismiss was made after the meeting, by other managerial staff, the harassing manager could not have been acting “in the manner of dismissal” during the evaluation.173 Therefore, the Wallace mechanism of extended notice did not apply.174 Instead, the employer’s conduct was “more properly assessed in the context of the breach surrounding the assessment of performance,”175 in other words, as an independently actionable wrong during the performance of the contract.176 That breach might have been of the ID-Decency, but the court relied instead on an implied duty of employers to conduct evaluations in a “fair and bona fide” manner.177 The court ordered an additional $20,000 in “punitive damages” for breach of that independent contractual duty. In Marlowe, therefore, not all offensive conduct during an employment relationship is swept into the extended notice mechanism, only conduct that is related to the execution of a decision to dismiss. All conduct that is not “in the manner of dismissal” continues to be subject to the ordinary rules of contract and damages. This important distinction is lost in cases such as Khan and Chan. Consider also the Ontario Court of Appeal’s reasons in Prinzo v. Baycrest Centre for Geriatric Care.178 The Court ruled there that the employer harassed and engaged in dishonest dealings with the employee “prior to the dismissal.”179 Damages were awarded in tort for that conduct, which Weiler J.A. noted were not circumstances” include “pre- and post-termination” conduct, but only if the conduct is “a component of the manner of dismissal.” [emphasis added]. 172. (2001), 106 A.C.W.S. (3d) 95, [2001] B.C.J. No. 1338 (QL). 173. Ibid. at paras. 120-26. 174. Ibid. at para. 125. 175. Ibid. at para. 123. 176. Ibid. at para. 124. 177. Ibid. at para. 122. In the alternative, the Court relied upon an independently actionable claim for defamation. 178. Prinzo, supra note 7. 179. Ibid. at 53.
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“aggravated damages” because they did not arise from the dismissal. Weiler J.A. then found, in the alternative, that if the employer’s conduct were treated as having occurred in the “manner of dismissal,” then it would “also” give rise to Wallace extended notice damages.180 The use of “also” is perhaps unfortunate insofar as it might suggest that an employee could receive either Wallace damages or damages in tort or contract for an independent breach for the same employer conduct. But Weiler J.A. likely intended to explain that damages for bullying conduct must now be assessed differently depending upon whether they flow from conduct in the performance of the contract or conduct in the manner of dismissal. Wallace applies only to the latter. The employment community would benefit from a more principled test for distinguishing between the two “moments” so that the parties can more accurately predict how damages, if any, will be assessed in employer bullying cases. Admittedly, it seems somewhat absurd that the legal consequences of abusive or harsh conduct by employers should depend upon whether that conduct is treated as having occurred in the “performance of the contract” or “in the manner of dismissal.” The House of Lords conceded that the need to make a similar distinction in Britain as a consequence of its decision in Johnson could lead to “unsatisfactory” and “artificial” outcomes.181 The same can be said of the impact of Wallace. But Wallace, like Johnson in Britain, demands a test to define the scope of “the Wallace exclusion area,” which is defined narrowly as conduct “in the manner of dismissal.”182 2. A Proposed “Test” A test that distinguishes conduct in the “performance of the contract” from conduct in the “manner of dismissal” must recognize, firstly, that 180. Ibid. at 53-55. 181. See e.g. Eastwood, supra note 12 at para. 39, Steyn L.J., and para. 31, Nicholls L.J. One problem is that the distinction creates a perverse incentive for employers to dismiss rather than suspend employees, since the IDTC would apply to the latter but not the former: see e.g. Gogay, supra note 122. 182. This language is borrowed from the British description of the effect of Johnson. All conduct “in the manner of dismissal” is described as falling within the “Johnson exclusion area”: Eastwood, supra note 12 at para. 27.
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the former was not intended by Iacobucci J. in Wallace to include the entirety of the employment relationship. The challenge is to develop a workable test for deciding at what point “the manner of dismissal” begins and the “performance of the contract” ends. One obvious component of the test is that a dismissal, in fact, occurs. Clearly, an act cannot be “in the manner of dismissal” if there is no dismissal. But that parameter only takes us so far. We still must identify the link in the chain of events at which point the “manner of dismissal” begins. The solution that seems both workable and most consistent with the text and spirit of Wallace is to draw the distinction at the point when the employer announces a conscious decision to dismiss the employee. At any point prior to this moment the possibility remains that the contract will continue indefinitely (or to term, as the case may be). This test then has two components. First, it clarifies that Wallace applies only to employer conduct related to an antecedent conscious decision to dismiss the employee. This excludes, therefore, most instances of employer bullying which amounts to a constructive dismissal, a point to which I will return in the final section of this paper. Secondly, it limits the scope of Wallace to conduct occurring during the implementation or announcement of a decision to dismiss and conduct thereafter. This would mean, for instance, that injury caused by abusive employer conduct intended to drive an employee out by making the work environment intolerable would be assessed as a breach of the implied term governing fair dealing and not pursuant to the Wallace extended notice mechanism. Under this test, an employer who provides the employee or others with dishonest reasons for dismissal may justify Wallace extended notice damages.183 So too would verbal abuse or other insensitive or berating treatment by an employer when the decision to dismiss is announced. For example, an employer that informs a long-term employee of his or her dismissal by courier, or by way of a newspaper advertisement for his replacement, may be exposed to “extended notice” damages due to the
183. See Noseworthy, supra note 7; Antonacci v. A&P Canada Ltd. (2000), 181 D.L.R. (4th) 577 (Ont. C.A.) [Antonacci]; Marshall v. Watson-Wyatt (2002), 209 D.L.R. (4th) 411 (Ont. C.A.) [Marshall].
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manner of the dismissal.184 Attempts by employers to pressure employees to execute inadequate offers of severance, with or without conditions, could also lead to extended notice damages.185 And, consistent with Wallace, this test would include within the extended notice mechanism employer conduct occurring after the decision to dismiss has been announced to the employee.186 But all employer conduct that occurs prior to the announcement of a conscious decision to dismiss the employee would be treated as conduct in the “performance of the contract,” or conduct “preceding” the dismissal, to use the language in Vorvis, and not subject to the Wallace mechanism. Thus, as in Marlowe, abusive and dishonest treatment of employees in the period prior to the conscious decision to dismiss may be assessed as a potential breach of contract, but not as conduct potentially warranting extended notice under Wallace. Similarly, injury suffered due to employer conduct during the investigation of alleged employee wrongdoing or during an internal disciplinary procedure, even if those procedures ultimately lead to a conscious, final decision to dismiss the employee, could give rise to damages for breach of the IDDecency, for example, but not to Wallace damages.187
184. Wallace, supra note 4 at 33-36. 185. Kroll v. 949486 Ontario Inc. (1997), 34 C.C.E.L. (2d) 78 (Ont. Ct. Gen. Div.). And see McKinley, supra note 4 (employer reducing severance offer during negotiations about severance terms). 186. This might include the employer’s behaviour in subsequent legal proceedings, or bad faith in response to a request by the employee for references, or delaying the employee’s eligibility for benefits by stalling the processing of forms: Marshall, supra note 183; Antonacci, supra note 183; McKinley, supra note 4. 187. See e.g. Eastwood, supra note 12, and King, supra note 64, for British cases involving this fact scenario, where the courts found that flawed investigations and disciplinary procedures must be assessed as potential breaches of the IDTC in the performance of the contract. Consider also Gismondi, supra note 171, in which the Ontario Court of Appeal appears to accept that a flawed job competition process that caused the employee to be rendered redundant could give rise to Wallace damages for bad faith in the manner of dismissal. Under the “test” proposed in this paper, the employer’s conduct in Gismondi would be assessed as a potential breach of the ID-Decency, for example, in the performance of the contract.
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D. Employer Bullying Amounting to a Constructive Dismissal I noted earlier that the proposed test excludes from the Wallace extended notice mechanism most instances of employer bullying amounting to a constructive dismissal. As Professor Freedland has noted, constructive dismissal “falls precisely on the cusp” of the distinction between conduct in the “performance of the contract” and conduct in the “manner of dismissal”.188 It also usually involves conduct occurring before the employer has made a conscious decision to dismiss an employee and certainly before that decision has been announced to the employee. Consider again the fact scenario in Vorvis. If, rather than waiting to be subsequently dismissed, Mr. Vorvis had treated the employer’s bullying conduct as a repudiatory breach of the ID-Decency amounting to a constructive dismissal, should damages for that conduct be assessed as a breach of contract, or pursuant to the extended notice mechanism in Wallace? Note that this is the precise fact scenario in which the ID-Decency has been applied to date—in each case, the court has found a constructive dismissal based on a repudiatory breach of the ID-Decency. Of course, the same issue arose in Britain as a consequence of Johnson. The issue was whether Johnson precluded the application of the IDTC at common law to employer conduct amounting to a constructive dismissal. Professor Freedland argued that Johnson should not be used to “roll back the obligation of mutual trust and confidence from the employer’s conducting of the employment relationship, even if that conduct is repudiatory in character and could therefore be regarded, or even claimed upon, as constructive dismissal.”189 In other words, he argued that conduct occurring during the performance of the contract, before the employer has made a decision “about actual dismissal,” ought to be assessed as a potential breach of the IDTC and should not be swept into the Johnson exclusion. In Eastwood, the House of Lords ruled that “the manner of dismissal” begins with a dismissal, “whether actual or constructive.”190 Therefore, 188. See Freedland, supra note 123 at 310. 189. Ibid. at 311. 190. Supra note 12 at para. 27.
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in the case of an actual dismissal (not constructive), any conduct occurring before the employer has announced its decision to dismiss is governed by the IDTC as conduct in the performance of the contract. On the question of how to distinguish the two moments in the case of a constructive dismissal, Lord Nicholls wrote: “In cases of constructive dismissal a distinction will have to be drawn between loss flowing from antecedent breach of the [IDTC] and loss flowing from the employee’s acceptance of these breaches as a repudiation of the contract.”191 This statement of the test appears to place all bullying conduct occurring until the moment that the employee “accepts” the breach as a repudiation of contract within the scope of the IDTC. Obviously, since the employee cannot “accept” a repudiation caused by bullying conduct until after that conduct has occurred, this test appears to allow an employee in Britain to recover separate damages for conduct that breaches the IDTC, even if that conduct also amounts to a constructive dismissal.192 But the situation is muddied by the separate and concurring reasons of Lord Steyn in Eastwood, who wrote, “the employee’s response to the employer’s breach will dictate whether there can be common law liability.”193 This appears to suggest that once a repudiatory breach of the IDTC is accepted by the employee, the conduct amounting to the breach must be treated as conduct “in the manner of dismissal” and, therefore, as within the Johnson exclusion zone. In Canada, a number of decisions have already awarded Wallace damages in constructive dismissal cases. The theory is that bullying conduct amounting to a constructive dismissal terminates the contract and, therefore, the concerns expressed by Iacobucci J. in Wallace over 191. Ibid. at paras. 12, 31 [emphasis added]. 192. The employee will still face the difficult challenge of proving causation; that is, that the injury was incurred due to the bullying conduct and not the fact of dismissal. Nicholls L.J. commented on this challenge in Eastwood, supra note 12 at para. 31: “Judges and tribunals, faced perhaps with conflicting medical evidence, may have to decide whether the fact of dismissal was really the last straw which proved too much for the employee, or whether the onset of the illness occurred even before he was dismissed.” 193. Ibid. at para. 40. For an enlightening discussion of these issues written prior to the release of Eastwood, see Lizzie Barnes, “The Continuing Conceptual Crisis in the Common Law of the Contract of Employment” (2004) 67 Mod. L. Rev. 435.
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the need to protect employees during a period of vulnerability and stress are equally pertinent. Thus, in Anderson v. Tecsult Eduplus Inc.,194 Wallace damages were awarded for the manner in which the employer handled a demotion that amounted to a constructive dismissal. Moir J. found that a constructive dismissal is “an occasion when the employment relationship ruptures” and, therefore, the employer “was under an obligation of good faith and fair dealing in the manner it carried out the demotion.”195 Thus, the employer’s breach was treated as conduct “in the manner of dismissal” even though the employer had neither decided nor intended to dismiss the employee. This logic works well enough when the repudiation is based on a breach of a term of the contract other than one prohibiting bullying. However, if the termination of the contract is based on a repudiatory breach of a term such as the ID-Decency, Wallace is inapplicable. This is because Wallace applies only to bullying conduct that “falls short of” an independent breach of contract. Therefore, damages flowing from a breach of an implied term requiring fair dealing must always be assessed as an independent breach of contract, even if the employee treats the breach as a repudiation of the contract (as a constructive dismissal). Only two options exist. The breach can be treated as having occurred in the “performance of the contract,” prior to the dismissal, in which case damages are assessable according to the ordinary rules of contract. Or, the breach can be treated as having occurred in the “manner of dismissal”—an approach that the Supreme Court appears to reject in Wallace—in which case it would amount to an independent actionable wrong upon which a claim for aggravated or punitive damages may rest. Wallace extended notice damages cannot be ordered as compensation for a repudiatory breach of the ID-Decency. The result is that it is only possible to treat bullying conduct amounting to a constructive dismissal as conduct “in the manner of dismissal” in Canada, and therefore subject to Wallace, if the bullying conduct repudiates the contract without breaching a term of the contract. This would carve out an important role for the RWB approach, and relegate terms such as the ID-Decency and the IDTC to the limited role 194. (1999), 179 N.S.R. (2d) 284 (S.C.). 195. Ibid. at 311.
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of governing conduct occurring before a conscious decision is made to dismiss the employee and that does not amount to a constructive dismissal. Bullying conduct that would otherwise breach the IDDecency or IDTC in the “performance of the contract” would cease to do so the moment the employee elects to treat that conduct as a constructive dismissal. At that point, the law would assume away the implied term and reframe the issue to whether or not the conduct made continued employment “intolerable” within the meaning of Shah.196 This legal fiction would prevent the potential recovery of independent damages for breach of the implied term during the performance of the contract, while simultaneously triggering potential entitlement to Wallace damages for bad faith “in the manner of dismissal.” This approach requires some tricky legal gymnastics and seems highly artificial. This artificiality creates a danger that the courts might simply abandon implied terms requiring fair dealing altogether in order to make sense of the application of Wallace to employer bullying that occurs before the employer has decided to dismiss the employee. Treating employer conduct occurring before a conscious decision to dismiss is announced as conduct in the “performance of the contract,” as proposed here, would avoid this need to finesse conduct amounting to constructive dismissal into the scope of Wallace. This approach therefore recognizes two related, yet distinct legal duties for employers: (1) a duty to comply with implied terms of fair dealing during the “performance of the contract,” which includes all conduct prior to the announcement of a conscious decision to dismiss; and (2) a duty to implement decisions to dismiss in good faith and to behave decently thereafter (as per Wallace). Damages could be recovered for breach of either or both of these duties, but the manner in which the damages are assessed varies. The former duty gives rise to independent damages for breach of contract, while the latter creates an entitlement to extended notice damages pursuant to Wallace. I have argued for the preservation 196. Barnes, supra note 193 at 435, describes a similar dilemma arising from Johnson if conduct amounting to a constructive dismissal is treated as conduct “in the manner of dismissal”: “If the employee affirms the contract and carries on working, the [IDTC] may be relied on for the purposes of a contractual claim. If the employee purports to accept the repudiation, the apparently bizarre consequence is that this possibility disappears.”
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of the RBB approach to encourage the recovery of independent damages for breach of implied terms governing employer bullying during the performance of the contract rather than solely at the moment of dismissal (and thereafter), as is the case with the more restrictive RWB approach.
Conclusion Many questions remain about the scope of implied terms governing fair dealing by employers in Canada. For example, although a number of courts have ruled that employer bullying breached the ID-Decency, no Canadian court has yet ordered damages for that breach. Since the employees in these cases do not appear to have argued for recovery of independent damages for breach of the implied term, it is too early to gauge prospective judicial reaction to the possibility of recovery of independent damages. Certainly in relation to employer bullying during the “performance of the contract,” the emergence of the ID-Decency in Canada in particular appears to create a potential head of damages in employer bullying cases which remains largely unexplored.197 I have argued here that recovery of independent damages for breach of the IDDecency or the IDTC is likely to facilitate damage awards that more closely approximate the actual injury suffered by an employee victimized by employer bullying than the Wallace extended notice mechanism. The potential for employees to recover damages for injury incurred due to employer bullying “in the manner of dismissal” is a more complicated issue. In both Britain and Canada, the application of implied terms governing fair dealing to the manner of dismissal appears to have been thwarted by the respective high courts of each nation, which continue to be reluctant to intervene in a manner that might increase the costs to, or restrict the flexibility of employers in relation to dismissals. But even if Wallace precludes the application of implied
197. But see discussion in England et al., “Employment Law in Canada”, supra note 5, describing cases in which courts have awarded damages for breach of various implied terms governing fair dealing by employers.
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terms of fair dealing to the “manner of dismissal” in Canada, it does not foreclose the development of these implied terms to the employer’s conduct during the “performance of the contract.” The issue then arises where the line is to be drawn between these two moments. The most difficult case is that of bullying conduct amounting to a constructive dismissal, which straddles the fence between conduct in the performance and conduct in the manner of dismissal. I have argued that the “manner of dismissal” should be defined narrowly, to include only employer conduct occurring during the announcement of a decision to dismiss and conduct thereafter. All conduct preceding this moment would constitute conduct in the “performance of the contract”. An important benefit of this approach is that it would allow employees to argue that the abusive conduct that forced them to quit their employment constituted an independently actionable breach of contract. Damages for injury suffered by an employee due to employer abuse prior to the announcement of the decision to dismiss would still need to be proven, a task that will often prove difficult for employees. But in constructive dismissal cases and other instances of employer bullying occurring prior to a dismissal involving breach by an employer of the ID-Decency or IDTC and causing identifiable and provable injury, damage awards would not be constrained by common law caps on what constitutes reasonable notice. I have cautioned, however, that the positive progression of the law in this direction is threatened by the unlikely emergence of the RWB approach identified in Shah. Although it may appear at first glance to be a positive development for employees, because it removes the requirement of establishing a breach of a term of the contract in employer bullying cases, the RWB threatens to extinguish the development of implied terms of fair dealing such as the ID-Decency and IDTC in Canada. If the RWB approach effectively supplants the RBB approach as the dominant legal approach to employer bullying in Canadian employment contract law, then these implied terms would be rendered superfluous. This would mean a lesser scope of protection for employees, because implied terms of fair dealing such as the ID-Decency and IDTC are sufficiently broad to govern employer conduct that occurs does not terminate the contract. Moreover, the possibility of the law evolving to recognize a right of recovery of separate damages for
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breach of an independently actionable implied term governing fair dealing in employment would be impeded if not permanently extinguished. This is precisely why the RWB approach may prove enticing to judges who, while not necessarily condoning employer bullying, nevertheless wish to resist the evolution of a new independent head of damages in contract flowing a breach of implied terms of fair dealing. The RWB approach enables the courts to hold bullying employers responsible for the breakdown of the employment relationship, while maintaining at the same time the spirit of the limitations on damages in wrongful dismissal attributable to the line of cases flowing from Addis. I have argued in this paper that employees who suffer injury due to employer bullying during the performance of the employment contract should resist the possible temptation to rely solely on the RWB approach and should continue to argue that bullying conduct breaches an implied term of the contract governing fair dealing by employers. I have identified a number of candidates for this term, but the IDDecency and the IDTC appear to be the most likely terms to take root in Canadian law. Either approach (RWB or RBB) can result in a decision that the employer has repudiated the contract by its bullying behaviour, and thereby entitle the employee to damages for reasonable notice of termination. However, the RBB approach offers the additional potential to recover separate damages for the independently actionable breach of the implied term prohibiting bullying.
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