Marshall v. Watson Wyatt & Co. c.o.b. as Watson Wyatt Worldwide [Indexed as: Marshall v. Watson Wyatt & Co.]

57 O.R. (3d) 813

[2002] O.J. No. 84

Docket No. C33134

Court of Appeal for Ontario

Carthy, Laskin and Goudge JJ.A.

January 17, 2002

Civil procedure -- Evidence -- Trial judge erring in refusing to permit defendant to lead evidence at trial which was contrary to position it had taken on examination for discovery -- Counsel for plaintiff was aware of defendant's trial position as result of pre-trial conference and delivery of witness statement -- Trial judge's ruling was overly technical and unfair to defendant.

Employment -- Wrongful dismissal -- Damages -- Notice -- Plaintiff employed by defendant for one year as Director of Organizational Communications Practice for Canada -- Jury's award of damages based on nine-month notice period extended by further three months because of defendant's bad faith conduct in manner of dismissal affirmed on appeal.

Employment -- Wrongful dismissal -- Damages -- Punitive damages -- Jury award of punitive damages in amount of $75,000 set aside on appeal -- Trial judge failing to instruct jury of need for independent actionable wrong and need for jury to be satisfied that compensatory award did not adequately express its repugnance at defendant's conduct -- No independent actionable wrong existing and jury's compensatory award more than adequate to express jury's disapproval and to deter similar conduct in future.

The plaintiff was a communications consultant. She accepted the defendant's offer of employment over a competing offer when told that she would be offered an equity position and a future role internationally. She was given the title of Director of Organizational Communications Practice Canada. Her employment was terminated a year later. She brought an action for damages for wrongful dismissal. The defendant alleged cause for dismissal, but by the time of the trial no longer disputed its liability to the plaintiff. Damages alone were in issue. The case was tried before a jury. The jury found that the plaintiff was entitled to damages equivalent to 12 months' notice, consisting of 9 months' reasonable notice and a further 3 months for bad faith conduct in the way the defendant dismissed her. The jury also awarded punitive damages of $75,000. The defendant appealed.

Held, the appeal should be allowed in part.

The trial judge properly instructed the jury on the traditional factors that affect the notice period: the nature of the plaintiff's employment, how long she worked for the defendant, whether she was induced to leave her previous job or whether she was employed when hired by the defendant, and whether she had enough expertise to not require further training. It was unnecessary for the trial judge to have also given examples of typical notice periods, and the defendant's contention on appeal that she should have done so rang hollow in the light of its approval of the trial judge's charge in advance and its failure to object afterwards.

Nine months' notice was generous but not unreasonable. Although the plaintiff worked for the defendant for only a year, she held a senior and responsible position, had 17 professional staff reporting to her, brought a lot of business to the company and generated substantial revenue. She was hired in the face of a competing offer for her services on the promise of an international role in the defendant's business.

In calculating the plaintiff's compensable revenue, the jury included revenue generated by the defendant's Montreal office. The defendant contended that her compensable revenue was to be calculated only on the revenue generated by the Toronto office. On examination for discovery of a representative of the defendant, counsel for the defendant undertook to advise the plaintiff's counsel if the defendant did not agree that the Montreal office revenues should be included. The defendant never qualified this discovery answer. However, at the pre- trial conference, the defendant filed a pre-trial memorandum in which it was expressly stated that the Montreal revenues were not included in the plaintiff's compensation, and defence counsel subsequently delivered a witness statement to counsel for the plaintiff confirming the defendant's position that Montreal revenues were excluded. The trial judge held that the defendant was precluded from leading evidence at trial to show that the plaintiff's compensation did not include revenues generated by the Montreal office as it could not lead evidence contrary to the position it took on discovery. This ruling was overly technical and failed to take account of the knowledge of counsel for the plaintiff that the inclusion of Montreal revenues was disputed. The trial judge's ruling was fundamentally unfair to the defendant and also ran counter to rule 1.04(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, which requires that all rules be "liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits" and to rule 53.08(1)(d), which required the trial judge to permit the evidence to be led unless doing so would have prejudiced the plaintiff or unduly delayed the trial. A new trial should be ordered to determine whether the plaintiff was entitled to revenues generated by the Montreal office.

There was no reason to set aside the jury's award of an additional three months' notice for breach by the defendant of its obligation of good faith and fair dealing in the way it dismissed the plaintiff. The trial judge properly instructed the jury on the employer's duty of good faith and fair dealing, and was not required to give the jury examples of when an extension can be granted on this basis. Moreover, both sides approved the charge before it was given and did not object to it after it was given. By permitting the issue to go to the jury, the defendant implicitly acknowledged an evidentiary basis for awarding an extension of the notice period. Thus, to set aside the extension, the defendant had to show that the jury's finding was unreasonable. This the defendant failed to do. The record at trial amply supported a finding of bad faith and unfair dealing. The defendant made allegations of cause for dismissal and maintained them from the time it filed its statement of defence until shortly before the tri al began. In addition, the defendant refused to pay the plaintiff approximately $80,000 in commission revenues acknowledged to be owing to her and delayed for several months before sending her the record of employment required for her unemployment insurance benefits. The defendant practised in the sort of "hard ball" with the plaintiff when dismissing her which the bad faith extension of the notice period is designed to deter.

The award of punitive damages should be set aside. To be entitled to punitive damages, the plaintiff must first show that the defendant's conduct is exceptionally harsh, vindictive, reprehensible or malicious. Second, the plaintiff must establish that the defendant committed a separate or independent actionable wrong causing damage to the plaintiff. Third, punitive damages may only be awarded if the compensatory damages are considered to be insufficient to express repugnance at the defendant's conduct and to punish and to deter. The trial judge instructed the jury on the first requirement for punitive damages but did not refer either to the requirement of an independent actionable wrong or to the need for the jury to be satisfied that its compensatory award did not adequately address its repugnance at the defendant's conduct. Even accepting that the defendant's conduct was sufficiently reprehensible to attract punitive damages, it was doubtful that the defendant committed an independent actionable wrong. The failure to pay the $80,000 in commission revenue acknowledged to be owing was not an actionable wrong separate from the plaintiff's wrongful dismissal. The unpaid commissions formed part of the plaintiff's breach of contract claim and the compensatory damages awarded at trial. Finally, an award of punitive damages in this case served no rational purpose. The plaintiff was awarded generous compensation equal to nine months' notice. That nine months was increased by three months because of the jury's finding that the way the defendant dismissed the plaintiff was unfair or in bad faith. Undoubtedly the jury relied on much the same evidence for both extending the notice period by three months and awarding punitive damages. The overall compensatory award of 12 months' notice was more than adequate to express the jury's disapproval of the defendant's conduct and to deter similar conduct in the future.

APPEAL by a defendant from an award of damages in a wrongful dismissal action.

Wallace v. United Grain Growers Ltd., 1997 332 (SCC), [1997] 3 S.C.R. 701, 123 Man. R. (2d) 1, 152 D.L.R. (4th) 1, 219 N.R. 161, 159 W.A.C. 1, [1999] 4 W.W.R. 86, 36 C.C.E.L. (2d) 1, 97 C.L.L.C. 210-029, 3 C.B.R. (4th) 1, consd Other cases referred to G.K. v. D.K. (1999), 1999 935 (ON CA), 122 O.A.C. 36; Hill v. Church of Scientology of Toronto, 1995 59 (SCC), [1995] 2 S.C.R. 1130, 24 O.R. (3d) 865n, 126 D.L.R. (4th) 129, 184 N.R. 1, 30 C.R.R. (2d) 189, 25 C.C.L.T. (2d) 89, affg (1994), 1994 10572 (ON CA), 18 O.R. (3d) 385, 114 D.L.R. (4th) 1, 20 C.C.L.T. (2d) 129 (C.A.), revg in part (1992), 1992 7516 (ON SC), 7 O.R. (3d) 489 (Gen. Div.); McKinley v. BC Tel, 2001 SCC 38, [2001] 2 S.C.R. 161, 91 B.C.L.R. (3d) 1, 200 D.L.R. (4th) 385, [2001] 8 W.W.R. 199, 9 C.C.E.L. (3d) 167; Minott v. O'Shanter Development Co. (1999), 1999 3686 (ON CA), 42 O.R. (3d) 321, 168 D.L.R. (4th) 270, 40 C.C.E.L. (2d) 1, 99 C.L.L.C. 210-013 (C.A.), affg (1997), 30 C.C.E.L. (2d) 123 (Ont. Gen. Div.); Tsalamatas v. Wawanesa Mutual Ins. Co. et al. (No. 2) (1982), 1982 3305 (ON CA), 141 D.L.R. (3d) 322, [1983] I.L.R. 1-1603, 31 C.P.C. 257 (Ont. C.A.); Vorvis v. Insurance Corp. of British Columbia, 1989 93 (SCC), [1989] 1 S.C.R. 1085, 36 B.C.L.R. (2d) 273, 58 D.L.R. (4th) 193, 94 N.R. 321, [1989] 4 W.W.R. 218, 42 B.L.R. 111, 25 C.C.E.L. 81, 90 C.L.L.C. 14,035; Whiten v. Pilot Insurance Co. (1999), 1999 3051 (ON CA), 42 O.R. (3d) 641, 170 D.L.R. (4th) 280, [1999] I.L.R. 1-3659, 32 C.P.C. (4th) 3 (C.A.) [Appeal to S.C.C. allowed, 2002 SCC 18], revg (1996), 1996 8109 (ON SC), 27 O.R. (3d) 479, 132 D.L.R. (4th) 568, 47 C.P.C. (3d) 229 (Gen. Div.) Statutes referred to Courts of Justice Act, R.S.O. 1990, c. C.43, s. 134(6), (7) Rules and regulations referred to Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rules 1.04(1), 53.08(1)(d) [now 53.08(2)4 [as am.]] Authorities referred to Ontario Law Reform Commission, Report on Exemplary Damages (Toronto: The Commission, 1991) Sopinka, J., S.N. Lederman and A.W. Bryant, The Law of Evidence in Canada, 2nd ed. (Toronto: Butterworths, 1999)

David Harris and K. Alexander, for respondent. Geoff R. Hall and Michally A. Iny, for appellant.

The judgment of the court was delivered by

LASKIN J.A.: --

A. Introduction

[1] In December 1994, the appellant Watson Wyatt & Co., a human resources consulting firm, hired the respondent Shirley Marshall to head its organizational communications practice in Canada. A year later, Watson Wyatt fired her. Ms. Marshall sued for wrongful dismissal and Watson Wyatt defended by alleging it had just cause, an allegation it abandoned shortly before trial.

[2] The case was tried before a jury, which awarded Ms. Marshall damages of $516,242.82. The jury found that Watson Wyatt was obligated to pay Ms. Marshall compensation equivalent to 12 months' notice -- consisting of a nine-month reasonable notice period and a further three months for bad faith conduct in the way it dismissed her. The jury also awarded punitive damages of $75,000.

[3] Watson Wyatt appeals most aspects of the jury's award. It makes six submissions:

1. The jury's award of nine months' notice was unreasonable.

2. The trial judge erred by refusing to permit Watson Wyatt to lead evidence to show that Ms. Marshall's compensation did not include revenues generated by its Montreal office.

3. The jury's finding that Ms. Marshall's base salary for the year beginning July 1, 1996 was $225,000 contradicted the written terms of her employment contract.

4. The jury erred by awarding Ms. Marshall a $45,000 bonus after it had found that the bonus was not payable.

5. The jury's award of a three-month extension of the notice period based on Wallace v. United Grain Growers Ltd., 1997 332 (SCC), [1997] 3 S.C.R. 701, 152 D.L.R. (4th) 1 should be set aside because of inadequate instructions to the jury and the lack of conduct justifying the extension.

6. The jury's award of $75,000 in punitive damages should also be set aside because of inadequate instructions and a failure to meet the requirements for such an award.

For the reasons that follow, I would allow part of the appeal by giving effect to submissions 2 and 6.

B. Background Facts

[4] Ms. Marshall is a communications consultant. Before being hired by Watson Wyatt, she worked for Towers Perrin for eight years as a senior consultant. By the summer of 1994, she was "up for partnership" with Towers Perrin. Around the same time, a search firm acting for Watson Wyatt asked to meet with her. She declined.

[5] Later in the fall of 1994, she decided not to pursue a partnership in Towers Perrin. Instead, she called the search firm and asked to meet with its representatives and their client. By mid-November 1994, she had met with three senior employees of Watson Wyatt, all of whom indicated a desire to hire her. She was also being pursued by another company, the Juran Institute, which orally offered her a position. On November 16, 1994, Towers Perrin terminated her employment.

[6] Ms. Marshall then had to decide between the Juran Institute and Watson Wyatt. The Juran offer was for $140,000 base salary, a percentage of sales, and "other perks". She disclosed this offer to Ian Durrell, Watson Wyatt's Director for Canada and managing consultant for its Toronto office, who said he would offer her an equity position, which Juran had not done, and a future role internationally. He said that Watson Wyatt's new business direction would bring her practice area to the forefront of the company's business. She decided to accept Watson Wyatt's offer.

[7] On December 22, 1994, Ms. Marshall and Watson Wyatt signed two letter agreements -- one dated December 8, 1994 and the other dated December 9, 1994 -- setting out the basic terms of her employment. Her claim is based on these two letters and a few other terms that she says were agreed to orally.

[8] Ms. Marshall was given the title of Director of Organizational Communications Practice Canada. She was told to focus on setting up the Toronto office but was also given responsibility for Watson Wyatt's Montreal office, and later for the company's offices in Western Canada.

[9] For the first stage of her employment, which the jury found covered the 18-month period January 1, 1995 to June 30, 1996, Ms. Marshall was to be paid a base salary of $120,000 "plus 10 [per cent] of revenue generated directly and indirectly" through her efforts and earned during the period. Under the letter agreements, this 10 per cent of revenue was called Ms. Marshall's "compensable revenue". For the next stage of her employment, covering the period July 1, 1996 to June 30, 1997, Ms. Marshall was to be paid a minimum base salary of $140,000, which could be increased depending on her compensable revenue (or "initial year revenues") during the previous 18 months, plus a discretionary bonus up to a maximum of 40 per cent of her base salary.

[10] Ms. Marshall started working for Watson Wyatt at the beginning of January 1995. From mid-October to early December 1995, she was away from the office with pneumonia. She then took three weeks' vacation, returning to the office on January 8, 1996. She was fired that day.

[11] By the time of trial, Watson Wyatt no longer disputed its liability to Ms. Marshall. Damages alone were in issue. The jury assessed Ms. Marshall's damages by answering 14 questions. They found that Watson Wyatt owed Ms. Marshall $143,165.82 in compensable revenue for the first stage of her employment, $298,049 on account of her dismissal, which included a bonus of $45,000, and $75,000 in punitive damages for a total award of $516,214.82. The amount awarded for compensable revenue earned before she was fired is not in issue in this appeal.

C. The Grounds of Appeal

[12] Before dealing with the six submissions raised by Watson Wyatt, I will briefly discuss three general considerations that have a bearing on the outcome of this appeal. First, this was a jury trial, which means that an appellate court is justified in intervening only if the jury's verdict was "plainly unreasonable". In McKinley v. BC Tel, 2001 SCC 38, [2001] 2 S.C.R. 161, 200 D.L.R. (4th) 385, the Supreme Court of Canada recently reaffirmed the reasonableness standard of review for jury verdicts in wrongful dismissal cases. Iacobucci J. wrote at paras. 59-60:

This Court has repeatedly used a test of "reasonableness" when considering whether to set aside a jury's verdict. In Vancouver-Fraser Park District, [1974 196 (SCC), [1975] 2 S.C.R. 831], at p. 839, de Grandpré J. held that while jury verdicts must be treated with considerable respect and be accorded great weight, they should not be regarded with awe. Rather, where it is found that the evidence "did not permit a jury acting judicially to reach the conclusion" that it did, an appellate court is entitled to set it aside.

Similarly, in McCannell v. McLean, [1937 1 (SCC), [1937] S.C.R. 341, [[1937] 2 D.L.R. 639]], Duff C.J. stated the reasonableness test as follows at p. 343:

[T]he verdict of a jury will not be set aside as against the weight of evidence unless it is so plainly unreasonable and unjust as to satisfy the Court that no jury reviewing the evidence as a whole and acting judicially could have reached it.

In addition, an appellate court that finds there was "no evidence" supporting a particular verdict has "the right and the duty" to set aside that verdict (see Gray Coach Lines Ltd. v. Payne, [1945 6 (SCC), [1945] S.C.R. 614, at p. 618 [[1945] 4 D.L.R. 145]]). Although these two tests are distinct, in neither case may the appellate court set aside a verdict on "mere doubts [it] may entertain" or on its "reaching on the reading of the evidence a conclusion different from that the jury reached" (see Scotland v. Canadian Cartridge Co. (1919), [1919 12 (SCC), 59 S.C.R. 471, at p. 477, [50 D.L.R. 666]], per Davies C.J.).

[13] The second general consideration is that in a civil case s. 134(6) of the Courts of Justice Act, R.S.O. 1990, c. C.43 precludes this court from ordering a new trial "unless some substantial wrong or miscarriage of justice has occurred".

[14] The third general consideration concerns the effect of a party's failure to object to the trial judge's charge to the jury or to some other aspect of the trial proceedings. Although the failure to object at a civil trial is not always fatal to a party's position on appeal, an appellate court is entitled to give it considerable weight, indeed, ordinarily more weight than the failure to object at a criminal trial. In most civil cases where a party's failure to object is in issue, the appellant seeks a new trial because of the alleged error. For this reason, civil cases on the failure to object have typically focused on the question of whether a substantial wrong or miscarriage of justice has occurred.

[15] Even apart from the question whether a new trial should be ordered, however, a party in a civil case generally should not bring an appeal on the basis of some aspect of the trial proceeding to which it did not object. For example, if no objection is made to the admissibility of evidence in a civil trial, an objection on appeal will usually be unsuccessful: see Sopinka, Lederman and Bryant, The Law of Evidence in Canada, 2nd ed. (Toronto: Butterworths, 1999), at p. 47. Similarly, an objection to the charge to the jury in a civil case will generally be unsuccessful if raised for the first time on appeal. Thus, this court has held that where a party on appeal argues non-direction of the jury "in civil cases, failure to object . . . is usually fatal", G.K. v. D.K. (1999), 1999 935 (ON CA), 122 O.A.C. 36 at p. 42. A failure to object at trial to an incomplete jury instruction weighs heavily against a litigant bringing an appeal because "it is an indication that trial counsel did not regard as importa nt or necessary the additional direction now asserted", Tsalamatas v. Wawanesa Mutual Insurance Co. et al. (No. 2) (1982), 1982 3305 (ON CA), 141 D.L.R. (3d) 322 at p. 326, 31 C.P.C. 257 (Ont. C.A.). This court will relieve against the failure to object only if the interests of justice require it.

[16] In this case, both parties approved the trial judge's charge before it was given and counsel for Watson Wyatt did not object to the charge after it was given. Yet on three of its grounds of appeal -- the reasonable notice period, the "Wallace" extension and punitive damages -- Watson Wyatt complains about non-direction in the trial judge's instructions to the jury. In each case, Watson Wyatt complains not about what was contained in the jury charge but instead about what was omitted. On a fourth ground of appeal -- the jury's finding of an annual base salary of $225,000 beginning on July 1, 1996 -- Watson Wyatt questions the admissibility of Ms. Marshall's oral evidence though it did not object to her giving that evidence at trial. I will now address Watson Wyatt's six grounds of appeal.

1. Was the jury's award of nine months' notice unreasonable?

[17] Ms. Marshall was entitled to reasonable notice of her dismissal and to be paid compensation for that notice period. Apart from the three months' extension awarded for Watson Wyatt's bad faith, the jury found that the appropriate notice period was nine months. Watson Wyatt contends that this court should set aside the nine months and substitute a period of two to six months. It makes two submissions: first, the trial judge's charge on reasonable notice was inadequate; and second, nine months was unreasonable because Ms. Marshall worked for Watson Wyatt for only one year. We did not call on counsel for Ms. Marshall to respond to these submissions.

[18] The first submission has no merit. The trial judge instructed the jury on the traditional factors that affect the notice period: the nature of Ms. Marshall's employment, how long she worked for Watson Wyatt, whether she was induced to leave her previous job or whether she was employed when hired by Watson Wyatt, and whether she had enough expertise to not require further training. The trial judge elaborated on these factors and set out the competing positions of the parties. But Watson Wyatt contends that the trial judge should also have given examples of typical notice periods. Examples were unnecessary. Moreover, Watson Wyatt's contention rings hollow in the light of its approval of the trial judge's charge in advance and its failure to object afterwards.

[19] The more important question is whether nine months' notice is excessive. The reasonableness standard of review of a jury award dovetails with the standard of appellate review of notice periods in wrongful dismissal cases. As we said in Minott v. O'Shanter Development Co. (1999), 1999 3686 (ON CA), 42 O.R. (3d) 321 at pp. 343-44, 168 D.L.R. (4th) 270:

Determining the period of reasonable notice is an art not a science. In each case trial judges must weigh and balance a catalogue of relevant factors. No two cases are identical; and, ordinarily, there is no one "right" figure for reasonable notice. Instead, most cases yield a range of reasonableness. Therefore, a trial judge's determination of the period of reasonable notice is entitled to deference from an appellate court.

In short, an appellate court is not justified in interfering unless the notice period fixed by the trier of fact is unreasonable.

[20] Here, nine months' notice was generous but not unreasonable. Although Ms. Marshall worked for Watson Wyatt for only a year, she held a senior and responsible position within the company. She was director of the organizational communications practice for all of Canada, which at first included responsibility for the Toronto and Montreal offices, and then for the offices in Western Canada. She was the Canadian representative on the company-wide Canadian practice committee and was appointed to the management committee of the Toronto office. She had 17 professional staff reporting to her. She brought a lot of business to the company and generated substantial revenue in her one year on the job. She was hired in the face of a competing offer for her services on the promise of an international role in Watson Wyatt's business. All these considerations demonstrate that nine months' notice was not outside of a reasonable range. This ground of appeal therefore fails.

2. Did the trial judge err in refusing to permit Watson Wyatt to lead evidence to show that Ms. Marshall's compensation did not include revenues generated by its Montreal office?

[21] In calculating Ms. Marshall's compensable revenue, the jury included revenue generated by the Montreal office of Watson Wyatt. Although Ms. Marshall had responsibility for the Montreal office, Watson Wyatt contended that her compensable revenue was to be calculated only on the revenue generated by the Toronto office. The trial judge ruled, however, that Watson Wyatt could not lead evidence to establish this contention because of an answer given by it on discovery. Watson Wyatt submits that the trial judge erred in so ruling. I agree with this submission.

[22] To put this submission in context, I will briefly review what occurred. A representative of Watson Wyatt was examined for discovery in January 1999, about nine months before the trial began. When asked whether Ms. Marshall's compensable revenue should include revenue from both the Montreal and Toronto offices, Watson Wyatt's representative gave no answer. Counsel for the company undertook to advise Ms. Marshall's counsel if Watson Wyatt did not agree that the Montreal office revenues should be included:

Q. And apart from any issues we may have with respect to Exhibit 27 and 31, is there any dispute that Ms. Marshall's compensable revenue should include revenue from Montreal and the Toronto office?

A. I can't comment on that.

Mr. Harris: What's the company's position on that Mr. Hall?

Mr. Hall: We'd have to go back to the agreement. I think your statement is fair but why don't we leave it on the basis that I will advise you if we disagree.

Mr. Harris: All right.

Mr. Hall: I think it is fair for now but I'll advise you if we disagree.

[23] Although Watson Wyatt satisfied various undertakings given on discovery, it never qualified this discovery answer on Montreal revenue. But at the pre-trial conference held in September 1999, Watson Wyatt filed a pre-trial memorandum in which it expressly stated that Montreal revenues were not included in Ms. Marshall's compensation. Then, at the beginning of October, Watson Wyatt's counsel delivered a witness statement to Ms. Marshall's counsel reaffirming the company's position that Montreal revenues were excluded.

[24] At the beginning of the trial, both on a motion to strike the jury notice and in opening to the jury, counsel for Ms. Marshall indicated that the inclusion of Montreal revenues in his client's compensation was disputed by Watson Wyatt. Ms. Marshall was the first witness called at the trial and on her examination in chief her counsel elicited evidence that her compensation was based on Montreal revenues as well as on Toronto revenues. But when Watson Wyatt's counsel began to cross-examine Ms. Marshall on whether the Montreal revenues were included, he was met with the objection that his client's discovery answer precluded questioning on this issue. The trial judge upheld the objection, ruling that Watson Wyatt could not lead evidence contrary to the position it took on discovery. Based on the different purposes of pre-trial conferences and examination for discovery, she found that "[n]otice within the format of a pretrial memorandum is not notice in satisfaction of the undertaking".

[25] Discovery and pre-trial settlement conferences do serve different purposes. Yet it seems to me that, in ruling as she did, the trial judge took an overly technical position and failed to take account of the knowledge of Ms. Marshall's counsel's that the inclusion of Montreal revenues was disputed. He had two sources of this knowledge: the statement in Watson Wyatt's pre-trial memorandum and the subsequent witness statement. The trial judge was only made aware of the first source, not the second. Even so, from counsel's argument on the motion to strike the jury notice and from his opening address to the jury, it must have been obvious that he knew Watson Wyatt did not accept the inclusion of Montreal revenues in the calculation of Ms. Marshall's compensation.

[26] Watson Wyatt should have corrected its discovery answer in a subsequent letter to Ms. Marshall's counsel. But fairness should have been the trial judge's guide. Although the purposes of discoveries and pre-trials differ, in the light of what Ms. Marshall's counsel knew, the trial judge's ruling was fundamentally unfair to Watson Wyatt. Her ruling also ran counter to rule 1.04(1) [Rules of Civil Procedure, R.R.O. 1990, Reg. 194], which requires that all rules be "liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits"; and to rule 53.08(1)(d), which required the trial judge to permit the evidence to be led unless doing so would have prejudiced Ms. Marshall or unduly delayed the trial. Ms. Marshall's counsel claims to have relied on Watson Wyatt's admission that the Montreal revenues were included when he did not conduct further discovery on this issue. Yet any claim of prejudice is answered by his failure to request further discovery even after the pre-trial and by his receipt of the witness statement fully setting out Watson Wyatt's position.

[27] Having concluded that the trial judge's ruling was wrong, I am left with determining the appropriate remedy. A new trial is generally to be avoided and should not be ordered unless the erroneous ruling caused a substantial wrong. No substantial wrong would have been caused by the ruling if Watson Wyatt's position on the Montreal revenues had no merit. But even Ms. Marshall did not suggest that the company's position was unmeritorious. Thus, I see no alternative but to order a new trial on this issue. See s. 134(7) of the Courts of Justice Act. The parties agree that the amount of Ms. Marshall's compensation attributable to revenues generated by the Montreal office was $46,330.30. I would order a new trial to determine whether Ms. Marshall is entitled to this money.

3. Did the jury's finding that Ms. Marshall's base salary for the year beginning July 1, 1996 was $225,000 contradict the written terms of the employment contract?

[28] The December 8, 1994 letter fixed Ms. Marshall's base salary for the year beginning July 1, 1996. It provided in part: "If initial year revenues (on an annualized basis) are at least $1,000,000, base salary will be $175,000". Ms. Marshall, however, testified that the parties supplemented this written agreement by an oral agreement. According to her evidence, the oral agreement set her base salary on a sliding scale depending on her initial year revenues. At revenues of $2 million, her base salary was to be $225,000. Her evidence was not refuted by Watson Wyatt and was accepted by the jury. The jury set Ms. Marshall's base salary from July 1, 1996 at $225,000, based on its estimate that she would have generated revenues of $2 million on an annual basis until that date.

[29] Watson Wyatt acknowledges that its agreement with Ms. Marshall was partly written and partly oral. But it submits that oral evidence on the amount of Ms. Marshall's base salary runs afoul of the parol evidence rule, which holds that parol evidence contradicting the express words of a written contract is inadmissible. Here Watson Wyatt accepts the jury's estimate that Ms. Marshall's initial year revenues were $2 million but argues that the December 8, 1994 letter agreement unequivocally fixed her base salary at $175,000 for any amount of revenues exceeding $1 million. Therefore, her evidence of a sliding scale of base revenue conflicts with the parties' written agreement.

[30] I do not accept Watson Wyatt's argument. Again, counsel for Watson Wyatt did not object to Ms. Marshall's oral evidence on how her base salary was to be set. Nor did he object to the trial judge's instructions to the jury that it could award a base salary greater than $175,000. I therefore do not think that on appeal Watson Wyatt can complain about the admissibility of Ms. Marshall's evidence. Equally, Watson Wyatt cannot complain about the jury acting on this evidence. Moreover, her evidence does not directly conflict with the December 8, 1994 letter because that letter does not expressly preclude a base salary higher than $175,000. Accordingly, I would not give effect to this ground of appeal.

4. Did the jury err in awarding Ms. Marshall a $45,000 bonus?

[31] Under the terms of her employment agreement, for the 12 months beginning July 1, 1996, Ms. Marshall was entitled to a bonus, at the discretion of management, of up to 40 per cent of her base salary. The jury found her base salary to be $225,000. Thus, she could earn an annual bonus of up to $90,000 and a bonus of up to $45,000 for the last six months of her notice period, July 1, 1996 to December 31, 1996. The jury awarded her $45,000.

[32] Watson Wyatt submits, however, that the jury's award cannot stand because it gave contradictory answers to two questions -- questions 7 and 11 -- and its answer to question 7 must prevail. Questions 7 and 11 and the jury's answers are as follows:

7. After the period of time specified in the answer to question #1, what fiscal year end bonus would Ms. Marshall have received had she still been employed by Watson Wyatt at that time?

Nothing. Bonus not applicable.

11. What income would Ms. Marshall have earned from Watson Wyatt during the notice period determined in the answer to question #10, had she still been employed there?

i.e. Calendar yr. '96:

January-June '96 -- $160,000 ($60,000 + 10 [per cent] of 1 .)

July-Dec. '96 -- $157,000 ($112,500 + 45,000) (40 [per cent] bonus) 317,500

[33] These two answers are not contradictory. Question 7 asks what bonus Ms. Marshall would have received "[a]fter the period of time specified in the answer to question #1". The period of time specified in question 1 was the 18 months ending June 30, 1996. The jury properly answered question 7 "Nothing. Bonus not applicable" because, under the terms of her contract, Ms. Marshall was not entitled to a bonus for this 18-month period. Therefore, I would not give effect to this ground of appeal.

5. Should the jury's award of a three month extension of the notice period be set aside?

[34] The jury found that Ms. Marshall was entitled to compensation equivalent to 12 months' notice. Having first awarded her nine months' reasonable notice, the jury added a further three months' notice because Watson Wyatt breached its "obligation of good faith and fair dealing" in the way it dismissed her. The three months' extension is grounded in the Supreme Court of Canada's decision in Wallace, supra. Watson Wyatt argues that the trial judge failed to adequately instruct the jury on the Wallace principles and that its conduct did not merit extending the notice period. I would not give effect to either argument. Before dealing with these arguments, however, I will briefly review the duty imposed on employers by Wallace.

[35] Wallace established that when an employer dismisses an employee, it is obliged to deal with the employee fairly and in good faith. Breach of that obligation may be compensable by extending the period of reasonable notice to which the employee is otherwise entitled. Underlying the employer's duty of good faith and fair dealing is the recognition that employment relationships differ from other commercial relationships because of the importance of work to a person's dignity and self worth and because of the power imbalance between the parties and the corresponding vulnerability of the employee. And employees are most vulnerable and most in need of protection when they are dismissed.

[36] Yet for many employees, the way they are dismissed is as important as the fact of their dismissal. Losing one's job is traumatic enough; when an employer compounds that loss by acts of bad faith and unfair dealing, the employee's self-esteem may be devastated. Thus, in colloquial terms, Wallace is a call for employers not to "play hard ball" with employees when dismissing them.

[37] To ensure that employees are adequately protected, a court may extend the notice period to compensate a dismissed employee for the intangible injuries to the employee's dignity and self-worth caused by the employer's unfair or bad faith manner of dismissal. Although showing an adverse effect on future job prospects would be a further reason for adding to the notice period, employees may be awarded an extension even if the unfair way they were dismissed did not adversely affect their ability to find other work. I turn now to Watson Wyatt's two arguments on why the jury's award of a three-month extension should be set aside.

[38] Watson Wyatt submits that the trial judge's charge on Wallace was inadequate. The trial judge instructed the jury on the employer's duty of good faith and fair dealing by quoting a long passage from the majority reasons of Iacobucci J. in Wallace and by reviewing some of the evidence that might support a finding of bad faith. Watson Wyatt argues that she should also have given some examples of when a Wallace extension could be granted. I do not think this additional direction was required in this case. The jury understood the principle. Both sides approved the charge before it was given and did not object to it after it was given.

[39] Watson Wyatt also submits that its conduct did not amount to bad faith or unfair dealing. By permitting the issue to go to the jury, Watson Wyatt implicitly acknowledged an evidentiary basis for awarding a Wallace extension. Thus, to set aside the extension, Watson Wyatt must show that the jury's finding was unreasonable. This it cannot do.

[40] The record at trial amply supports a finding of bad faith and unfair dealing. Although management told the human resources department that the reason for Ms. Marshall's dismissal was a corporate restructuring, in its statement of defence Watson Wyatt claimed it had just cause to fire her. Watson Wyatt pleaded that Ms. Marshall "was insubordinate in her dealings with her superiors", that on several occasions she "wilfully disobeyed direct and specific instructions from her superiors", that she "was unable to deal properly, politely and effectively with subordinates", that she "did not succeed in achieving the level of performance which was expected of her", and that throughout her employment she "demonstrated an inability to work as a team player, an inability to get along with her colleagues, inadequate customer service methodology and generally unprofessional behaviour". Watson Wyatt maintained these allegations from at least the time it filed its statement of defence in March 1997 until shortly befor e the trial began in October 1999.

[41] In addition, Watson Wyatt refused to pay Ms. Marshall approximately $80,000 in commission revenues acknowledged to be owing to her and delayed for several months before sending her the record of employment required for her unemployment insurance benefits. Ms. Marshall testified that Watson Wyatt's conduct affected her ability to market herself and deprived her of money needed to start her own business. All of this evidence shows that a three-month extension of the notice period was justified. Watson Wyatt practised the kind of "hard ball" the Supreme Court of Canada warned against in Wallace. I would not give effect to this ground of appeal.

6. Should the jury's award of $75,000 in punitive damages be set aside?

[42] In addition to extending the notice period by three months, the jury awarded Ms. Marshall $75,000 in punitive damages. It found that the conduct of Watson Wyatt was "so highhanded or egregious as to merit an award of punitive damages". Watson Wyatt submits that this award cannot stand for two reasons. First, the company argues that the trial judge's instruction on punitive damages were inadequate. Second, it argues that Ms. Marshall has no legal entitlement to punitive damages on the facts of this case.

[43] I agree with these submissions. The trial judge's instructions were inadequate. And even if their inadequacy can be overlooked because Watson Wyatt did not object to them, I have concluded that Ms. Marshall is not entitled to punitive damages. I doubt Watson Wyatt committed an actionable wrong separate from its breach of the employment contract and even if it did, punitive damages would not serve any rational purpose in this case.

[44] Punitive damages are not compensatory. Their purpose is to punish and deter unacceptable conduct. In Canada, they have rarely been awarded in breach of contract cases largely because the requirements to obtain them are appropriately onerous. To be entitled to punitive damages a plaintiff must meet a threefold burden. First, the plaintiff must show that the defendant's conduct is so "harsh, vindictive, reprehensible and malicious" or "so malicious, oppressive and high handed that it offends the court's sense of decency". See Vorvis v. Insurance Corp. of British Columbia, 1989 93 (SCC), [1989] 1 S.C.R. 1085 at p. 1108, 58 D.L.R. (4th) 193; Hill v. Church of Scientology of Toronto, 1995 59 (SCC), [1995] 2 S.C.R. 1130 at p. 1208, 126 D.L.R. (4th) 129. Second, the plaintiff must establish that the defendant committed a separate or independent actionable wrong causing damage to the plaintiff. Although the requirement of an independent actionable wrong does not easily explain some of the breach of contract cases where punitive damages have been awarded and though it has been criticized by several academics, it remains the current law in Canada. See Vorvis, supra; Wallace, supra; McKinley, supra, and Whiten v. Pilot Insurance Co. (1999), 1999 3051 (ON CA), 42 O.R. (3d) 641, 170 D.L.R. (4th) 280 (C.A.), leave to appeal to S.C.C. granted, [1999] S.C.C.A. No. 157 [appeal allowed, 2002 SCC 18].

[45] Third, even if the requirements of reprehensible conduct and an independent actionable wrong are met, a trier of fact should only award punitive damages "if the compensatory damages are considered by the jury to be insufficient to express its repugnance at the conduct of the defendant and to punish and deter". In other words, punitive damages must serve a rational purpose. See Hill v. Church of Scientology of Toronto (1994), 1994 10572 (ON CA), 18 O.R. (3d) 385, 114 D.L.R. (4th) 1 at p. 70 (C.A.), affd, supra (S.C.C.). This last requirement is important in this case because of the jury's generous compensatory award, which was then augmented by the Wallace extension.

[46] The trial judge instructed the jury on the first requirement for a punitive damages award -- that Watson Wyatt's conduct must be "exceptionally harsh, vindictive, reprehensible or malicious" -- but she did not refer either to the requirement of an independent actionable wrong or to the need for the jury to be satisfied that its compensatory award did not adequately express its repugnance at Watson Wyatt's conduct.

[47] Counsel for Watson Wyatt did not object to these two omissions at trial. But unlike the failure to object in connection with the other grounds of appeal, I do not consider that the failure to object to the instruction on punitive damages is fatal to Watson Wyatt's position. I say that for two reasons. First, an appellate court has a wider latitude to review a punitive damages award than it has to review a compensatory award. An appellate court is entitled to intervene if punitive damages do not serve a rational purpose. See Hill v. Church of Scientology of Toronto, supra (S.C.C.). Second, objection or not, the plaintiff must be legally entitled to an award of punitive damages.

[48] In this case, even accepting that Watson Wyatt's conduct was sufficiently reprehensible to attract punitive damages, Ms. Marshall was not entitled to these damages for either of two reasons. First, I doubt that Watson Wyatt committed an independent actionable wrong. Ms. Marshall submits that the independent wrong was Watson Wyatt's failure to pay the $80,000 in commission revenue it acknowledged owing to her for her work in 1995. She contends that the failure to pay this amount was an actionable wrong separate from her wrongful dismissal. But that wrong was not independent of Ms. Marshall's breach of contract claim. Those unpaid commissions formed part of that claim and the compensatory damages awarded at trial.

[49] Still, I have considerable sympathy for Ms. Marshall's position that punitive damages should be available in breach of employment contracts cases where the employer refuses to honour an admitted contractual obligation to pay money. Her position finds support in the Ontario Law Reform Commission's 1991 Report on Exemplary Damages (Toronto: The Commission) at pp. 97-99, cited in Whiten, supra, at p. 651 O.R., p. 292 D.L.R.:

There is at least one type of case of breach of contract where the arguments in favour of punitive damages are compelling. This is the case where the defendant breaches the contract deliberately, and refuses or fails to tender compensation known to be owing to the plaintiff. This could be a case where, without justification, the defendant fails to perform and does not tender damages for the breach, or a case where the defendant declines to honour a known contractual obligation to pay money. Of course, the court would have to distinguish between a true case of denying contractual obligations known to exist, and a bona fide dispute over the existence or extent of liability.

The case for punitive damages in these circumstances is much the same as it is in the tort for profit situation, and may be justified on both retributive and deterrence grounds. The fact that the defendant refuses to honour a known obligation to pay money suggests that there exists some imbalance of power in the relationship that makes it worthwhile for the defendant to do so.

[50] Even if the Commission's view satisfies the independent actionable wrong requirement, and I doubt whether it does, a punitive damages award in this case serves no rational purpose. Ms. Marshall was awarded generous compensation equal to nine months' notice. That nine months was increased by three months because of the jury's finding that the way Watson Wyatt dismissed Ms. Marshall was unfair or in bad faith. Undoubtedly the jury relied on much the same evidence for both extending the notice period by three months and awarding punitive damages. In my view, the overall compensatory award of 12 months' notice -- which included a base salary of $112,500 for the second six months and a maximum bonus of $45,000 -- was more than adequate to express the jury's disapproval of Watson Wyatt's conduct and to deter similar conduct in the future. I would therefore set aside the award of $75,000 in punitive damages.

D. Disposition

[51] I would allow the appeal in part by setting aside the punitive damages award ($75,000) and directing the trial of an issue on the compensable revenue awarded Ms. Marshall in connection with the Montreal office ($46,330.30). I would therefore reduce Ms. Marshall's damages from $516,214.82 to $394,884.52. Correspondingly, I would reduce the amount of damages on which interest is to be paid from $441,214.82 to $394,884.52.

[52] Before addressing costs, I would give both parties an opportunity to make submissions in writing on both the costs of the trial and of the appeal. These submissions should be delivered within 30 days of the release of the court's reasons.

Appeal allowed in part.