Canada: Court Of Appeal Reduces Punitive Damage Award In "Keays v. Honda"

Last Updated: October 16 2006

On March 17, 2005, the Ontario Superior Court of Justice awarded a wrongfully dismissed employee $500,000 in punitive damages, reportedly the largest such award in a wrongful dismissal action in Canadian history. In a supplementary decision a further $610,000 was awarded in costs against the employer.

On September 26, 2006, the Ontario Court of Appeal released its much-anticipated decision in the appeal of the case. In a move that provides some small relief to employers, the Court reduced both the costs and punitive damage awards. However employers should not be overly complacent, as the underlying lessons of the Court of Appeal decision are still quite sobering: the costs award was only marginally reduced, the concept of punitive damages appears to be here to stay in wrongful dismissal actions, and the substantial notice period which the lower court awarded (24 months) was upheld on appeal.

The Facts

In 1986 Kevin Keays ("Keays") began working for Honda Canada Inc. ("Honda") on the production line of an assembly plant in Alliston, Ontario. After approximately twenty months working on the production line Keays joined the Quality Engineering Department. Keays was selected to receive training on a new computer system, created for the implementation of newly designed components into Honda vehicles, after which he was expected to instruct his fellow employees in the department on using the system.

Shortly after commencing work at Honda Keays began experiencing absences from work as a result of health problems, eventually going on a disability leave in October of 1996. Honda’s business philosophy mandates a "lean" operation; Keays absences required his already busy co-workers to undertake his responsibilities. While on leave Keays was diagnosed as suffering from Chronic Fatigue Syndrome ("CFS"). Keays returned to work in December of 1998, under protest from both Keays and his physician, following termination of his benefits by Honda’s long term disability insurer.

Keays began to again experience work absences within a month of returning to work, and received a written report from Honda for his work absences in August of 1999. "Coaching", by way of such a written report, is the first step in Honda’s progressive discipline process. Upon complaining that he was unable to live up to Honda’s attendance expectations, Keays was advised of a Honda program exempting employees from attendance-related progressive discipline based on a disability. Keays’ physician completed the necessary form for the program. The doctor informed Honda that Keays suffered from CFS and would probably miss about four days of work per month as a result.

Honda subsequently provided some accommodation for Keays’ absences, but Keays was required to provide a Doctor’s note for each absence, a requirement not imposed on other employees with "mainstream" illnesses. Following six days of absence in October of 1999, Honda asked Keays to see the company doctor. When Keays later complained to his supervisors that the doctor threatened to move Keays’ back to the production line, the supervisors told Keays that there was no intention to move him "at that time".

In January and February of 2000 Keays requested that the written report be removed from his record and that Honda reconsider the requirement that he provide a doctor’s note for each absence. Keays retained counsel who wrote Honda a letter in March of that year both outlining Keays’ concerns and extending an offer to attempt to resolve their differences. Honda had an unwritten policy discouraging third parties advocating on behalf of employees. Honda did not respond to this letter and instead informed Keays on March 21st that Honda no longer accepted he had a disability requiring him to be absent, and directed him to meet with Honda’s occupational medicine specialist.

Keays’ informed Honda that, on the advice of his lawyer, he would not meet with the occupational medicine specialist unless provided with clarification of the "purpose, methodology and the parameters of the assessment". Honda, by a letter dated March 28th, refused to elaborate on the purpose of the meeting and warned Keays that if he did not meet with the doctor he would be terminated.

Keays did not meet with the doctor and was dismissed. Subsequent to his dismissal, Keays suffered from post-traumatic adjustment disorder, was unable to work, and qualified for a total disability pension.

At trial, Justice McIsaac slammed Honda for its treatment of Keays. He found that Honda’s direction for Keays to meet with the occupational medicine specialist was unreasonable, not made in good faith and was done to subsequently terminate Keays and avoid accommodating his disability. The trial judge determined that Keays had good reasons not to comply with the direction, and his refusal to see the doctor was thus not a repudiation of his contract of employment, holding that Honda’s reaction to Keays’ refusal was disproportionate. Not only did Honda not have just cause to terminate Keays, the trial judge also found that it had failed to fulfill its obligations to Keays under the Human Rights Code. As a result, Justice McIassac awarded punitive damages in the amount of $500,000 for Honda’s "outrageous and high-handed" conduct that amounted to discrimination and harassment in employment. He also extended the notice period from 15 to 24 months due to the "egregious bad faith displayed by Honda" in the manner in which Keays’ employment was terminated and "the medical consequences flowing therefrom".

In a supplementary decision, Justice McIssac awarded costs on a substantial indemnity basis. Keays’ costs were fixed at $610,000, inclusive of disbursements and G.S.T. Included in the costs calculation were the costs of a first attempt at trial, which ended in a mistrial as a result the judge falling ill, together with a 25% premium for Keays’ tenuous economic circumstances and the risk undertaken by counsel with respect to payment for fees and disbursements.

THE COURT OF APPEAL DECISION

Justice Rosenberg, writing for the majority of the Court of Appeal, upheld the underlying rationale for awarding punitive damages. He wrote that it is:

.... clear that acts of discrimination in breach of human rights legislation may serve as a separate actionable wrong so as to give rise to a punitive damages award in a wrongful dismissal case.

However, in assessing the quantum, Justice Rosenberg felt a reduction was appropriate "because the trial judge relied on findings of fact that (were) not supported by the evidence and because the award inter alia fails to accord with the fundamental principle of proportionality". Justice Rosenberg held that there was no evidence to support the trial judge’s finding that Honda’s conduct "formed a protracted corporate conspiracy", nor any evidence to support the trial judge’s statement that "Honda ran amok as a result of their blind insistence on production ‘efficiency’":

I see nothing in this record to show that this appellant "ran amok". Certain employees in positions of responsibility, relying upon some expert advice, made decisions that were clearly wrong. But the record does not support this grave allegation of corporate malfeasance levelled at the appellant by the trial judge.

Justice Rosenberg further found that the trial judge’s assertion that Honda’s "outrageous conduct has persisted over a period of five years" was a "gross distortion of the circumstances amounting to a .palpable and overriding error". A period of seven months was substituted, being the period from the written "coaching" report to Keays’ dismissal.

Disregarding the "erroneous findings of fact" by the trial judge, the quantum of punitive damages could only be supported on the basis of the following findings:

  • Honda’s intent to intimidate and eventually terminate Keays was for the purpose of depriving him of the accommodation he had earned
  • Honda did not reveal an extremely damaging letter from the occupational medicine specialist until late in the trial;
  • Honda was aware of its obligation to accommodate and must have known it was wrong to terminate the accommodation without just cause and to terminate Keays as an act of retaliation;
  • Honda knew that Keays valued his employment and that he was dependent upon it for disability benefits;
  • Honda knew that Keays was a victim of particular vulnerability because of his precarious medical condition; and
  • Honda refused to deal with the Keays’ counsel who made a reasonable request to discuss accommodation of Keays’ disability.

The majority held that while Honda’s conduct "was sufficiently outrageous to warrant an award of punitive damages, the quantum needs to be reconsidered". While acknowledging that the punitive damage awards in Whiten v. Pilot Insurance Co. ($1 million) and Hill v. Church of Scientology of Toronto ($800,000) were on the same scale as those awarded by the trial judge, Justice Rosenberg wrote:

Punitive damage awards in other wrongful dismissal cases have been far more modest even in the face of serious misconduct such as slander of the employee. The awards in such cases have been in the range of $15,000 to $50,000 and, rarely, up to $75,000.

Justice Rosenberg held that two factors stood out in comparing the case to Whiten:

  • In Whiten the conduct persisted for two years; the seven months of misconduct for which Honda must take responsibility "was simply not on the same scale"; and
  • In Whiten the defendant persisted in a course of conduct "in the face of findings from its own experts and advisors" in comparison with Honda, who "had advice, albeit wrong and based on incomplete information, that caused it to question the respondent’s disability and it had, for almost a year, accommodated his absences".

Considering the compensatory damages already awarded, the lack of any factors requiring deterrence and the relatively short duration of the conduct Justice Rosenberg held that a punitive damages award "of no more than $100,000 can be justified".

The Reasonable Notice Period

The Court of Appeal found no reason to interfere with the finding that the order to see the doctor was unreasonable and that, in the circumstances, Keays had an excuse for not complying with the order, absent clarification of the meeting’s purpose.

The trial judge determined that it was unreasonable to compel the respondent to meet with Dr. Brennan in order to get this information when all of his medical records were either already available to or obtainable by the appellant and would answer the question best. Moreover, the ostensible basis upon which the respondent was ordered to see Dr. Brennan was that the doctor had already reviewed his file, which if completely accurate would have made the meeting unnecessary.

Ruling that the trial judge properly found that Keays was dismissed without just cause, Justice Goudge considered the trial judge’s award of 15 months’ notice reasonable, considering all of the circumstances. The Court held that the trial judge;s finding of bad faith in the termination process was supported by the evidence which, together with the "significant adverse consequences" to Keays, justified an extension of the notice period to 24 months.

Costs Premium

The trial judge’s decision to award a cost premium was also not interfered with, as the "risk undertaken and the reward achieved" justified such an award. The Court ruled that the trial judge erred in awarding a premium based solely on the quantum of damages recovered by Keays:

The premium is justified not only by the result achieved, but also, by the risk undertaken by counsel of non-payment of significant fees and disbursements ... A consideration of both factors, not just one, is required in fixing the quantum of the premium. Here, the fees and disbursements ultimately risked by the respondent’s counsel amounted to $393,000, considerably less than the recovery of almost $620,000. Keeping both in mind, and recognizing that fixing the quantum of the premium is an art not a science, I would set aside the award of $155,000 and reduce the premium to $77,500.

The costs award was thus reduced from $610,000 to $532,500.

CONCLUSION

The lessons set out in the original decision have largely been upheld by the Court of Appeal. In particular, in assessing disability, employers:

  • should not disregard medical evidence submitted by employees’ treating physicians without a reasonable basis and without providing the employee and his/her doctor the opportunity to address any employer concerns;
  • should ensure requests for medical information are reasonable and realistic having regard to the state of medical science and the reality of the experienced disability, particularly when dealing with "invisible" disabilities such as CFS;
  • should not insist upon medical evidence which does not exist and cannot simply disregard medical evidence produced because it does not rise to a level of objective scientific proof in circumstances where such objective evidence is not available because of the nature of the condition;
  • must be very careful not to denigrate, demean and belittle employees by characterizing their medical conditions in pejorative terms;
  • should strive for neutral, impartial and unbiased third party experts and should not rely upon hired guns who are known to hold a particular point of view; and
  • must ascertain the nature of the medical impairment, a function carried out primarily by the employee’s treating physicians, prior to implementing accommodations.

The Court of Appeal’s decision reinforces an employer’s obligation to be proactive and act in good faith during the accommodation process. Communications with employees, unions and employee representatives should be candid and forthright. The process should be open and transparent, rather than adversarial; workplace culture must recognize that accommodation is a fundamental human right and not an indulgence or act of charity granted by employers. Where an employer acts in "bad faith" in the accommodation process they run the risk of significant liability. While a breach of Ontario’s Human Rights Code cannot form the basis of a civil action, discriminatory conduct, if proven, can serve as a separate actionable wrong giving rise to significant punitive damages.

The decision will likely now make its way to the Supreme Court of Canada. In some recent decisions, that Court has shown a preference to reinstitute the awards of trial judges, who are much more intimately familiar with the facts and the parties, having observed them directly at trial. Whether that Court will reinstitute the original award of half a million dollars in punitive damages, or whether it will even choose to hear the case, is a matter for another day. For the meantime, employers are well advised to revisit and refresh themselves with respect to their duty to accommodate disabled employees.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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