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Bad Faith in the Course of Dismissal: “The Damages Formerly Known as Wallace” are Still Relevant

Damages | Discipline and Dismissals

Generally speaking, an employee whose employment has been terminated is not entitled to additional damages for disappointment, embarrassment, or other psychological effects flowing from the loss of employment. However, if the employee can prove bad faith conduct by the employer in the manner of the dismissal, then the employee may be entitled to bad faith/moral damages, or as Stuart dubbed them in various articles and his text on just cause for dismissal, “The Damages Formerly Known as Wallace”.

This is what happened in the recent Ontario Superior Court of Justice case of Johnston v. The Corporation of the Municipality of Arran-Elderslie. The employee was able to prove that his employer acted in bad faith and that this bad faith caused him to suffer damages distinct from any damages caused by losing his job.    


In March 2003, the Plaintiff, Craig Johnston (“Johnston”), was appointed by the Defendant, The Corporation of the Municipality of Arran-Elderslie (the “Municipality”), as its Chief Building Official (“CBO”).

In April 2009, following growing concerns about Johnston’s conduct, the Municipality commissioned an audit of his files. The audit highlighted many shortcomings in the Municipality’s building department, but no wrongdoing was found on the part of Johnston personally. Not satisfied with the outcome of the audit, the Municipality asked KPMG to conduct a forensic audit. Again, Johnston was cleared of wrongdoing.

Despite this, at a meeting on June 25th, 2009, Johnston’s employment was terminated for cause. The Municipality alleged that Johnston was operating in a conflict of interest with respect to two projects within the Municipality and they also alleged that Johnston engaged in deceit and fraud in trying to conceal that he had a conflict of interest.


The Court found that Johnston had been wrongfully terminated and awarded him damages for wrongful dismissal, as well as moral and punitive damages.

The Court concluded that the Municipality acted in bad faith when they asked Johnston to attend the Municipality building on June 25, 2009, and then “surprised him with another audit.” The Court concluded that the result of that audit was pre-determined, as the Municipality had already decided to terminate Johnston’s employment earlier in the month and they had already prepared a termination letter and press release. The Court was also satisfied that Johnston’s mental distress on and after the date of his dismissal went beyond that

“reasonably expected of any employee whose employment is terminated. Johnston’s suffering included weight loss, loss of appetite, irritability, sleeping problems, the break down of his marriage and social isolation.”

The Court accepted the evidence of Johnston, his mother and to some extent the Municipality’s in-house counsel in support of these findings. As a result, Johnston was awarded $100,000.00 in moral damages.     

Whereas moral damages are said to be “compensatory in nature”, requiring proof of actual harm, punitive damages are awarded to punish, deter and denounce wrongful conduct by an employer. The Court found that Johnston’s career never recovered, despite applying for numerous building department jobs at various municipalities as all his applications were unsuccessful. His marriage also ended, in part as a result of the incidents leading up to his dismissal and the day of the dismissal itself. As a result of the media coverage of his dismissal, which was partly inaccurate, in a small area, caused Johnston embarrassment and humiliation. The Court found that the manner of Johnston’s termination was very unfair and as a result, the Court awarded him $200,000.00 in punitive damages.      

Take Away

This case reinforces the point that courts will penalize employers for their bad faith conduct in carrying out a termination.

Our team is here to assist you. Whether you are an employer faced with the decision of terminating an employee or someone who has been terminated.

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