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Wal-Mart Canada’s Wrongful Termination Case

Wal-Mart Canada’s Wrongful Termination Case

One of the most discussed recent employment law decisions of the last year has to be Galea v. Wal-Mart Canada Corp., 2017 ONSC 245.  Since its release on December 7, 2017, the decision has become the benchmark in employment law as what employer conduct will attract punitive damages. Wal-Mart Canada was ordered to pay the plaintiff $250,000.00 in moral, aggravated damages and $500,000.00 in punitive damages for its treatment of an executive in the months prior to and immediately after termination in addition to the damages stemming from the wrongful termination which exceeded over $300,000.00.

Wal-Mart Employment Contract

Galea was hired by Wal-Mart Canada (“Wal-Mart”) in September 2002 as a District Manager-in-Training, under the leadership of the President and CEO of Wal-Mart, Mario Pilozzi.  Galea was compensated with a base salary of $120,000.00, a bonus program, staff discount and other extended benefits.  Shortly after being hired, Galea was promoted to a District Manager position and was given an increase to her base salary to $125,000.00.  The following year, Galea was again promoted to Regional Vice-President which provided an incentive bonus of up to 40% of her base salary.  Galea continued to be promoted and eventually was appointed to the position of General Merchandise Manager earning a base salary of $215,000.00 plus the 40% incentive bonus, stock options, etc.  In this position, Galea was required to execute a Non-Competition Agreement (“NCA”) with Wal-Mart that prevented her from employment at any other big box retailer for a period of two years after the end of her employment, regardless of cause or reason for the termination.  The NCA operated in absolute terms and would make Galea essentially unemployable by any mass retailer in Canada or the USA, however, the terms of the NCA provided for transitional payments to be made to Galea in the event of termination and had to comply with the terms of the NCA for the two-year term.

In 2006, Galea was selected by Wal-Mart and a team of executives from Wal-Mart International to participate in an Accelerated International Management Program.  In 2008, Galea was promoted to Vice-President, General Merchandise, with a base salary of $272,000.00 and an eligibility to earn $474,000.00 – $642,000.00 per year with bonuses.  Galea had 16 people reporting directly to her and 400 people reporting indirectly through them. In 2010, Galea was selected to attend an Executive MBA program at Harvard University by Wal-Mart.

Wal-Mart Restructuring: Job Elimination and Dismissal

However, in January 2010, Galea was called to a meeting where she was unexpectedly removed from her position as Vice President, General Merchandising, and relieved of her responsibilities associated with that role.  Wal-Mart was undertaking a significant restructuring and Galea’s position was being eliminated as a result. Galea was advised that she would likely be relocated to a smaller Wal-Mart market in India or Brazil. However, in reality, Wal-Mart did not have any idea what to do with Galea and was in the process of exploring options regarding her continued employment somewhere within the organization.

Eventually, Wal-Mart placed Galea in a position as Senior Vice-President Merchandising-Strategic Initiatives and announced the new position to the staff.  However, despite the title, the position was not a senior management position but rather a supporting role – representing a demotion for Galea. In the months that followed no real responsibilities were assigned to Galea in her new role, and she started inquiring about opportunities within the corporation in Chile, the U.K. or elsewhere.  Shortly thereafter at a meeting at Wal-Mart’s head office, it was determined by executives that Galea was no longer promotable.

In 2010, as planned Galea attended the executive MBA program at Harvard and upon her return from the 8-week program, found her personal effects had been packed up and her office was moved to another location, cutting off all access she might otherwise have to the President of Wal-Mart.  In late 2010, Galea was offered the position of Senior Vice President E-Commerce, a position that was not comparable to her experience.  The position was offered to her on a probationary basis and on other employment terms that favored Wal-Mart.

Employment Termination

Shortly thereafter, Galea was unceremoniously terminated from her employment with Wal-Mart.  Wal-Mart continued severance payments to Galea pursuant to the NCA for a period of 11.5 months and then unilaterally stopped without prior warning or explanation.  Additionally, Wal-Mart failed to provide Galea with her earned incentive bonus of $129,047.00.

Galea commenced a claim against Wal-Mart for damages stemming from breach of contract regarding the NCA as well as for moral damages to compensate her for the mental and emotional distress caused by Wal-Mart’s breach of its duty to her as her employer to treat her in good faith, and to deal fairly with her in the manner of terminating her employment.

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Court’s Analysis

In the court’s analysis of the case, reference was made to the often cited Supreme Court of Canada decision, Reference Re Public Service Employee Relations Act (Alberta), [1987] 1 S.C.R. 313, where the Court held:

Work is one of the most fundamental aspects of a person’s life, providing the individual with a means of financial support and, as importantly, a contributory role in society. A person’s employment is an essential component of his or her sense of identity, self‑worth and emotional well‑being.

And then relied on the Wallace v. United Grain Growers Ltd., [1997] 23 S.C.R. 701 decision to reiterate that “the manner in which a person is terminated from her or his employment is as important as the employment itself”. Justice Iacobucci determined that “it is on termination of employment that a person is most vulnerable, and it is at that time that a person is most in need of protection.”  In the interpretation of the NCA between Galea and Wal-Mart, the court held that Wal-Mart breached its agreement by unilaterally terminating the payments to Galea only 11.5 months into the two-year requirement.  In breach of its own NCA, Wal-Mart was held liable to Galea for the losses incurred, including payment of her salary for the entire two year term, continuation of extended health and dental benefits, entitlement to bonuses earned, however the court refused to continue entitlement to stock options available to continuously employed associates on the basis that the plan only applied to uninterrupted employment, and as Galea’s employment was terminated so too was entitlement to stock options.  This represented a significant portion of Galea’s claim totaling approximately $922,315.00.

With regard to moral damages, the court addressed the employers implied duty of good faith and fair dealing in the course of dismissing an employee as established in Wallace v. United Grain Growers Inc.  and then confirmed and enhanced in the Supreme Court of Canada decision, Keays v. Honda Canada Inc., 2008 SCC 39,  which held,

Damages resulting from the manner of dismissal must then be available only if they result from the circumstances described in Wallace, namely where the employer engages in conduct during the course of dismissal that is “unfair or is in bad faith by being, for example, untruthful, misleading or unduly insensitive”.

Supreme Court Decisions

Based on the Supreme Court decisions, the court in Galea put forth the following test for determination of whether moral damages should be awarded to an employee for the conduct of an employer:

From the cases, I consider the following factors to summarize when moral damages may be available to a plaintiff:

  1. Where an employer has breached its duty of good faith and fair dealing in the manner in which the employee was dismissed;
  2. Conduct that could qualify as an employer’s breach of good faith or the failure to deal fairly in the course of a dismissal includes an employer’s conduct that is untruthful, misleading or unduly insensitive, and a failure to be candid, reasonable, honest and forthright with the employee;
  3. Where it was within the reasonable contemplation of the employer  that the manner of dismissal would cause the employee mental distress;
  4. The wrongful conduct of an employer must cause the employee mental distress beyond the understandable distress and hurt feelings that normally accompany a dismissal; and
  5. The grounds for moral damages must be assessed on a case by case basis.

In its analysis, the court held that Wal-Mart had breached its implied duty of good faith as owed to Galea and that resulted in mental distress to her.  It was clear from the evidence that Wal-Mart made a conscious decision to denigrate or demote Galea to the point that she would resign.  She was placed in a position “left to twist in the wind” and search for other employment opportunities internationally. The mental distress that Wal-Mart knew its actions would cause Galea did not stop there. In the course of the litigation, Wal-Mart was either purposely dilatory in instructing its counsel to provide disclosure and to conduct examinations for discovery, including the legal obligation to provide answers and supporting documents to fulfill undertakings on a timely basis. Alternatively, Wal-Mart was indifferent to Galea’s claims. As a result, this purposeful delay or indifference caused mental distress for Galea that exceeded the normal stress and hurt feelings that accompany a dismissal. The court held:

It is for these reasons that I find that Wal-Mart’s conduct was misleading at best, and dishonest at worst, in the way the company treated Ms. Galea. Only Wal-Mart knew that Ms. Galea’s career was over long before she was actually terminated. To keep her in suspended animation was unduly insensitive conduct. The ten months she was left to seek a new foothold qualifies as a manner of dismissal that caused Ms. Galea mental distress and qualifies her for aggravated damages.

With regard to punitive damages, damages designed to punish the wrongdoer, the court relied on the Supreme Court of Canada decision in Whiten v. Pilot Insurance Company, 2002 SCC 18 and the Keays v. Honda case and held,

[289]        I am of the view that Wal-Mart’s conduct when dealing with Ms. Galea between January 29, 2010, and November 19, 2010, was callous, highhanded, insensitive and reprehensible, deserving of an award for punitive damages. Where I have made findings of fact to award contractual damages or moral damages to Ms. Galea leading up to the date of her termination on November 19, 2010, I do not rely upon any findings of fact after that date to award her punitive damages.

[290]        All of Wal-Mart’s conduct that justifies an award of punitive damages occurred between January 29, 2010, and November 19, 2010, when Wal-Mart would make representations to Ms. Galea about her career prospects while making decisions that detracted from or even defeated that purpose. It is not that Wal-Mart set Ms. Galea up to fail; it is that Wal-Mart built her up, only to let her down that much more. That corporate behavior was not just unduly insensitive, it was mean.

Summary of Galea’s Damages

Based on the aforementioned, the court summarized Galea’s damages as follows:

  1. damages for the annual salary she was receiving at the date of termination for two years, less $281,755.60 for salary paid: $299,644.00;
  2. damages for Wal-Mart’s portion of the health and dental benefits it was paying her behalf as of the date of termination for 12.5 months under the NCA: $3,851.46;
  3. damages for the MIP in the amount she would have received for two years under the NCA: $288,552.00;
  4. damages for the unpaid MIP she was to have received for FYE 2011 up to November 19, 2010 ($ $144,282.00 divided by 12 x 9.6 months): $115,420.00;
  5. damages for the contributions to the DPSP she would have received annually for two years under the NCA: $36,342.00;
  6. damages for the unpaid contribution or balance of the DPSP she was to have received for FYE 2011 ($18,171.00 divided by 12 x 9.6 months): $14,534.00;
  7. damages for payments she would have received under the ERP for two years under the NCA: $112,540.00;
  8. damages for the unpaid amounts she would have received under the ERP for FYE 2011 ($56,270.00 divided by 12 x 9.6 months): $45,014.00;
  9. payment of any balance remaining in trust, or to the account of Gail Galea at Wal-Mart or any affiliate or agent for amounts granted, paid or redeemed in the MIP, DPSP, ERP or their predecessor plans,  to which she was legally entitled to receive upon notice as of November 19, 2010. If there is a dispute about Galea’s prior entitlement under any plan, that issue may be spoken to at the next attendance before the court;
  10. Moral damages, including aggravated damages and damages for mental distress: $250,000.00;
  11. Punitive damages: $500,000.00; and
  12. Such prejudgment interest and costs as may be ordered.

What does this case mean for employees and employers going forward?

The case is demonstrative that the court will, in exceptional cases, award punitive and moral (or aggravated) damages to an employee in circumstances were the employer breaches their implied duty of good faith to the employee in either the conduct leading to and even following the termination.  While it is arguable that the punitive damages here are particularly high because of Wal-Mart’s sheer size and value, even proportionately awarded punitive damages can result in significant damages to employers.  As punitive damages are designed to punish the wrongdoer, in this case, Wal-Mart’s value and size justified a higher than the normal award of punitive damages as the court needed them to take notice that their conduct was reprehensible.

Scott Chambers is an Employment and Human Resources lawyer at Doak Shirreff Lawyers LLP.  Scott can be reached at [email protected] or 250-979-2527.  You can also follow Scott on Twitter at @DSEmploymentLaw and on LinkedIn at www.linkedin.com/in/scottdchambers.