The latest development in employment law is the release of the much anticipated Supreme Court of Canada decision in Honda Canada Inc. v. Keays, 2008 SCC 39, rendered on June 27, 2008.
As background to this decision, Mr. Kevin Keays began working for Honda Canada Inc. in 1986, working his way up to a managerial position with the company. Soon after Mr. Keays began his employment with Honda, he began to suffer from health problems, which were later diagnosed as Chronic Fatigue Syndrome. His health problems led to periods of absence from work and long-term disability benefits, until the insurer terminated the benefits.
Honda originally accommodated Mr. Keays absences and required that Mr. Keays submit medical letters confirming that each absence from work was related to his disability. Honda requested Mr. Keays to meet with an occupational medicine specialist of the company’s choice because of the increasing frequency of absences. Mr. Keays retained counsel, as he felt he was being discriminated against by the company because of the nature of his illness. Counsel for Mr. Keays requested Honda to clarify the reason for the request to see the new physician. Honda refused this request. When Mr. Keays refused to meet with the new physician without receiving further clarification from Honda of the purpose of the meeting, Honda terminated his employment.
At Trial, the Judge determined that Mr. Keays had been wrongfully dismissed and ordered Honda to pay 15 months salary in lieu of notice, with an additional bump-up of 9 months for “Wallace damages”. The Trial Judge further ordered that Honda pay to Mr. Keays the unheard of amount of $500,000 for punitive damages, finding Honda’s actions constituted a “separate actionable wrong” for the discriminatory conduct towards Mr. Keays.
This matter was appealed by Honda to the Ontario Court of Appeal, where the court unanimously upheld the Trial Judge’s award of 15 months salary in lieu of notice and the additional 9 month bump-up for “Wallace damages”. In regard to the punitive damages, the majority of the Ontario Court of Appeal upheld the Trial Judge’s determination that punitive damages should be ordered in this case for Honda’s discriminatory conduct towards Mr. Keays, however the Court of Appeal reduced the amount for punitive damages to $100,000. The reduction in punitive damages was based on the Trial Judge’s award of $500,000 not being rationally connected to the severity of Honda’s conduct towards Mr. Keays.
This brings us forward to the recent decision by the Supreme Court of Canada on the further appeals in this case. The Supreme Court upheld the 15 months notice period awarded to Mr. Keays determining that he was wrongfully dismissed. However, the Supreme Court overturned the “Wallace damages” award of the 9 month bump-up and the punitive damage award of $100,000.
The Supreme Court provided the following explanation in regard to its decision on “Wallace damages:
“damages resulting from the manner of dismissal will be available if they result in circumstances, 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”.” These damages should be awarded through an award that reflects actual damages rather than by extending the notice period. The Court found that the employer’s conduct in dismissing Mr. Keays, was in no way an egregious display of bad faith justifying an award of Wallace damages for conduct in dismissal. The court held that, these damages should be awarded through an award that reflects actual damages instead of an extension of the notice period.
The Supreme Court held in regard to punitive damages, that such damages should not be awarded in this case. Punitive damages are restricted to advertent wrongful acts that are so malicious and outrageous that they are deserving of punishment on their own. The Supreme Court held, the facts of this case demonstrated no such conduct by Honda. The majority further held, courts should only resort to punitive damages in exceptional cases and the employer’s conduct here was not sufficiently egregious or outrageous to warrant such damages. It was held that the lower courts got it wrong, when they determined that the conduct of Honda was discriminatory which constituted an independent actionable wrong and supported a punitive damages award for Mr. Keays.
The Honda decision gives employers a clearer understanding of how the courts will interpret damages in a wrongful dismissal case. The determination for whether “Wallace damages” and punitive damages should be awarded, has been clarified by the Supreme Court through the establishment of a rigid test for circumstances when said damages will be awarded. Where the employer engages in conduct during the course of dismissal that is “unfair or is in bad faith” Wallace damages are awarded. When Wallace damages are awarded, the award should reflect actual damages and should no longer be an extension of the notice period. Punitive damages are awarded when acts by the employer are so malicious and outrageous that the acts are deserving of their own punishment.
Like the Supreme Court’s Wallace decision of several years ago, the ramifications of this case will almost certainly be felt for years to come. If you would like to discuss the implications of this decision, please contact us.
Dated: July 2008