Canada: Gallea v. Wal-Mart – An Expensive Lesson For Employers

In December, 2017 an Ontario court issued a surprising decision that should be noted by employers across Canada.  In Gallea v. Wal-Mart, the Ontario Superior Court of Justice awarded an eye-popping $1.67 million to a former executive in a wrongful dismissal action.  $750,000 of that was moral and punitive damages awarded because of the employer's conduct towards the employee before, during and after her dismissal.

There are a number of important lessons employers can take from Gallea:

  1. This award emphasized the importance of honesty and fairness in the employment relationship. A key factor in these high awards was that Wal-Mart misled the employee into thinking she had a bright future only to bring her crashing down.  This decision could signal a trend where courts increasingly scrutinize not just how a dismissal was conducted but also whether the employer misled the employee prior to the dismissal.
  2. The amount of punitive damages awarded in this case is the largest ever awarded in a wrongful dismissal case in Canada. While punitive damages are rare this could indicate that courts are more willing to resort to these damages to punish companies, especially large companies.
  3. The Court did not require the employee to show medical evidence that she suffered damages as a result of the method of her dismissal. It was enough for the employee to show the subjective effect of the conduct on her mental health.  It is possible that this will make it easier for plaintiffs' to succeed in moral damage claims.
  4. When assessing moral damages the Court took into Wal-Mart's conduct before, during and after the dismissal, including conduct during the litigation process. Therefore, it is possible that courts will take a broader look when assessing whether moral damages are appropriate.

The facts of the case are as follows:

  1. The employee's employment started with Wal-Mart in 2002 in a management position and received multiple promotions, ultimately ending in her becoming the Vice-President, General Merchandising in 2008. At the time of this last promotion she signed a Non-Competition Agreement that provided her with a two-year severance payment for a without cause dismissal.
  2. The employee received very positive performance reviews and it was even suggested that one day she would be placed in a high level executive position. In light of her positive reviews, the Employee believed that she would ultimately be promoted to Chief Merchandising Officer.
  3. In January 2010 the employee was removed from her position and was told it was due to a re-structuring. She was also told that the company did not know what it would do with her.
  4. Over the next month, Wal-Mart tried to identify new roles for the employee, however, none of them were for positions with the same level of responsibility and some were overseas in South America or Asia.
  5. In February 2010 the employee was made Senior Vice-President Merchandising-Strategic Initiatives. This was seen as a demotion because she now had to report to someone who had previously been on the same seniority level in the organization.  This was especially humiliating for the employee because Wal-Mart announced the decision via e-mail to over 500 Wal-Mart employees.  She also was not told what her duties would be for at least ten days and when she asked she was told Wal-Mart still did not know what her role would be.
  6. Throughout 2010 the employee became aware that a Wal-Mart executive had changed her internal performance review scores making her ineligible for any promotion.
  7. In September 2010 the employee attended an 8-week course at Harvard. When she returned her belongings were removed from her office.
  8. On November 9, 2010 the employee attended a meeting where she was offered a lower position (which included a new, extended probation period) or severance pay.
  9. On November 19, 2010 the employee was dismissed.
  10. Under the terms of the 2008 Non-Competition Agreement the employee was entitled to a severance package of two years. Wal-Mart began paying these amounts by salary continuance but stopped all payments only 11.5 months later.

The employee sued Wal-Mart for wrongful dismissal where she was awarded  $1.67 million.  Approximately $950,000 of that amount was contractual damages for the 12.5 months of severance owing under the Non-Competition Agreement.  More significant for employers was the $750,000 awarded as moral and punitive damages.

The Court found that Wal-Mart's conduct caused the employee to suffer humiliation when they led her to believe she would be promoted only to unilaterally demote her, placed her effectively in limbo for most of 2010, and changed her performance score so she was not promotable.  In addition, during the subsequent litigation Wal-Mart delayed in responding to various information requests.

The Court awarded the employee $250,000 in moral damages.  Moral damages are damages awarded to compensate an employee for being dismissed in a dishonest, misleading or unduly insensitive manner.

The Court also awarded the employee $500,000 in punitive damages.  Punitive damages are designed to punish the company for malicious, oppressive and highhanded behaviour.

Overall, the Court was very critical of Wal-Mart's conduct.  The Court found that Wal-Mart caused the employee to suffer humiliation by leading her to believe she would be promoted only to unilaterally demote her, placing her effectively in limbo for most of 2010, and changing her performance score so she was not promotable.  In addition, during the subsequent litigation Wal-Mart delayed in responding to various information requests.

This decision should serve as a warning to employers that courts can punish employers for conduct the courts deem to be dishonest or unfair.  Employers should be looking at all aspects of the employment relationship, especially dismissal, through this lens of risk.

About Norton Rose Fulbright Canada LLP

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Wherever we are, we operate in accordance with our global business principles of quality, unity and integrity. We aim to provide the highest possible standard of legal service in each of our offices and to maintain that level of quality at every point of contact.

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