In the much-anticipated and landmark case of
Honda Canada Inc. v. Keays, the Supreme Court of Canada overturned one of the largest punitive damages awards ever granted to a wrongfully dismissed employee at trial.
The case is very significant and favourable for employers. It will likely represent a judicial shift to limit the scope of damages awarded in wrongful dismissal cases.
FACTSKevin Keays was employed by Honda for approximately 11 years before he was diagnosed with chronic fatigue syndrome in 1997. He ceased work and received disability benefits until 1998, when Honda’s insurer discontinued his benefits.
Keays returned to work and was placed in a disability program which allowed employees to take absences from work on the condition that they produced a doctor’s note confirming that their absences were related to their disability.
Upon his return to work, Keays was chronically absent, but for just a few days at a time, because of his disability. Honda became concerned about the frequency of Keays’ absences and requested a medical evaluation to determine how his disability could be accommodated.
On the advice of his lawyer, Keays refused to meet with the medical expert without explanation of the purpose, methodology, and parameters of the consultation.
Honda refused to deal with Keays’ lawyer and, on March 28, 2000, wrote to Keays and advised him that his employment would be terminated if he refused to meet with the medical expert.
When Keays continued to refuse to meet with the doctor, Honda formally terminated his employment for insubordination. Keays then sued Honda for wrongful dismissal.
JUDICIAL HISTORY
At trial, the Ontario Superior Court of Justice found that there was no just cause for the termination of Keays’ employment and awarded him 15 months’ pay in lieu of notice of termination of employment.
In addition, the court extended the notice period by nine months because it found that Honda acted in bad faith in the manner it terminated Keays’ employment.
The court also awarded $500,000 in punitive damages on the basis that Keays had been harassed and discriminated against by Honda in an “outrageous manner.”
The trial judge criticized management at Honda for doubting the sincerity of Keays’ illness and “stonewalling” his attempts to be accommodated.
The trial judge also found that Keays was a victim of corporate conspiracy between Honda and its insurer, and that he had been intimidated and eventually terminated so that Honda could avoid its obligation to accommodate under the Ontario Human Rights Code. The decision was appealed to the Ontario Court of Appeal.
The Court of Appeal upheld the trial judgment in all respects, except for the amount of punitive damages. It agreed with the 24-month reasonable notice and bad-faith damages awarded by the trial judge.
It also confirmed that a claim for discrimination or harassment under the Ontario Human Rights Code could constitute an “independent actionable wrong” necessary to support an award of punitive damages.
However, even though the appeal court found that Honda’s conduct warranted punitive damages, it reduced the award to $100,000 because it disagreed with some of the findings of fact made by the trial judge.
Supreme Court ruling
In its June 27 decision, the Supreme Court noted a desire to “clarify and redefine some aspects of the law of damages in the context of employment.”
The court found that there was no basis to interfere with the trial judge’s award of 15 months’ pay for failure to provide notice of termination of employment.
This is because deference should be allowed to the trial judge if the court considers the traditional factors of character of employment, employee’s length of service and age, and the availability of comparable employment having regard to the experience, training, and qualifications of the employee.
The Supreme Court also confirmed that normal distress and hurt feelings resulting from a dismissal are not compensable.
NO BAD-FAITH (“WALLACE”) DAMAGESAlthough upholding the notice pay award, the Supreme Court overturned the extension of the notice award by nine months’ pay for damages for the employer’s bad faith in the manner in which it dismissed Keays.
This type of damage award extending notice had previously been approved by the Supreme Court of Canada in a case called
Wallace v. United Grain Growers Ltd.The court found that Honda’s conduct during the course of dismissal was not egregiously unfair or in bad faith by being, for example, untruthful, misleading, or unduly insensitive.
It found that Honda should not have been faulted for relying on the advice of its medical experts, requesting to meet with Keays to discuss his absences, or seeking to confirm his disability. It also held that there was no evidence to support a corporate conspiracy against Keays and that there was no reprisal against Keays as a result of his lawyer’s involvement.
More significantly, the court held that any damages for bad-faith conduct should be awarded only through an award that reflects actual damages rather than by an “arbitrary extension” of the notice period.
It expressed concern for the overlap of damages awarded by the lower courts and held that damages for psychological injury in the context of dismissal are intended to be compensatory. Therefore, courts should avoid the pitfall of making overlapping damage awards for both bad-faith and aggravated damages.
It should be noted, however, that two dissenting judges would have allowed the award of Wallace damages to stand on the basis that the trial judge did have some basis for concluding that Honda was not forthright in conveying information received from medical professionals.
NO PUNITIVE DAMAGESThe Supreme Court also held that punitive damages ought not to have been awarded to Keays because there was no egregious or outrageous misconduct warranting punishment of Honda.
The court found that Keays was not harassed by Honda. Honda’s disability program was not discriminatory, but rather was a good-faith attempt to monitor the absences of employees who were regularly absent from work.
Honda was skeptical about Keays’ condition and was taking steps to confirm it. The court also held that Honda’s refusal to deal with Keays’ lawyer was not inappropriate because there is “no legal obligation on the part of any party to deal with an employee’s counsel while he or she continues with his or her employer.”
No punitive damages available for breach of Human Rights Code
A party seeking punitive damages in a case involving breach of contract must establish an “independent actionable wrong” beyond the fact of the breach of the contract. The Supreme Court held that a breach of human rights legislation cannot constitute an “independent actionable wrong” to support for punitive damages in a civil action.
In its view, a Human Rights Code is “a comprehensive scheme for the treatment of claims of discrimination.”
A person alleging discrimination must seek a remedy pursuant to the statutory scheme of provincial human rights legislation.
IMPACT OF RULINGThe Supreme Court decision will have a significant impact on employment law litigation. It is a positive development for employers because it eliminates a leading precedent that has recently been heavily relied upon by employees in wrongful dismissal cases.
It also signals the end of the extension of the notice period in cases where the employer is found to have acted in bad faith in the manner of dismissal.
Wrongfully dismissed employees will be limited to pursuing a separate claim for fixed compensatory or aggravated damages for the employer’s bad-faith conduct.
By having to prove that actual damages were incurred as a result of the employer’s conduct in the manner of dismissal, employees may have a more onerous standard to meet to secure an award of damages.
As a result, the number of claims advanced by employees for the employer’s bad-faith conduct may be reduced.
This decision also appears to heighten the threshold required as to what “outrageous” or “reprehensible” conduct is in the employment context.
The circumstances of the misconduct must be very exceptional to attract an award of damages. Employees will also be unable to claim punitive damages solely for breach of the Human Rights Code by an employer and may be required to seek recourse by filing a human rights complaint.
Finally, the decision provides comfort to employers struggling with how to monitor ongoing absenteeism.
It recognizes an employer’s need to monitor employee absences in managing its workforce.
It suggests that the courts may be reluctant to challenge good faith steps taken by an employer to manage workplace absenteeism.
It also confirms that employees need to co-operate with employers with a view to achieving viable accommodations of any disability that may impact an employee’s performance or attendance.
However, employers should remember that Keays was awarded 15 months’ notice of termination of employment because Honda initially took the position it had just cause to terminate his employment.
Prudent employers should carefully strategize when to assert just cause and how to reduce potentially lengthy notice awards.
Andy Balaura is a member of the labour and employment law group at Pallett Valo LLP, Mississauga’s largest law firm. He can be reached at (905) 273-3022, ext. 225, or [email protected].
