Originally published in Blakes Bulletin on Labour & Employment, October 2006
On September 29, 2006, the Ontario Court of Appeal released its much-anticipated decision in Keays v. Honda Canada Inc. (Keays). In a 2-1 decision, the Court of Appeal upheld the trial judge’s award of 24 months’ pay in lieu of notice, but significantly reduced the punitive damages award from CAD 500,000 to CAD 100,000.
Kevin Keays’ (Keays) employment had been terminated by Honda Canada (Honda) on March 29, 2000, after 14 years with the Company. Keays started to suffer from Chronic Fatigue Syndrome (CFS) shortly after commencing his employment with Honda, although he was not diagnosed with CFS until 1997. Keays was dismissed after refusing to be assessed by Honda’s physician following a protracted dispute with Honda over the severity of his disability and the scope of Honda’s duty to accommodate him. Keays sued Honda for wrongful dismissal.
The trial judge found that Keays had been terminated without cause, and awarded him 15 months’ pay in lieu of reasonable notice, a nine-month extension of the notice period for "bad faith" discharge, and ordered Honda to pay a further CAD 500,000 in punitive damages, based on the discrimination and harassment that Keays had endured at Honda.
The Court of Appeal reduced this punitive damage award for two reasons: (1) because the trial judge had relied on several findings of fact that were not supported by the evidence; and (2) because the CAD 500,000 award failed to accord with the principle of "proportionality".
In applying this principle to the facts of this case, the Court held that a punitive damage award must be proportionate to the blameworthiness of the employer’s conduct, with particular attention paid to the duration of the misconduct. In Keays, the misconduct for which Honda was responsible took place over a seven-month period, not the five-year period to which the trial judge had referred. The Court also considered whether Honda’s conduct in relation to Keays was malicious and high-handed. While the Court acknowledged the gravity of some of the misconduct found by the trial judge, it concluded that Honda’s conduct could not be characterized as "malicious."
The decision of the Court of Appeal also cautions against placing too much weight on the relative size of the corporate defendant in assessing punitive damages, recognizing that "Indiscriminate use of the relative power of the defendant and the plaintiff as a significant factor would lead to unprincipled awards." Although the Court recognized that a defendant’s financial power could become relevant where it may rationally be concluded that a lesser award would fail to achieve deterrence, such circumstances did not exist in Keays because there was no pattern of abuse of other Honda employees.
As part of the proportionality analysis, the Court also considered the totality of all other damages assessed against Honda, including the compensatory damages awarded to Keays. Since the trial judge had already increased Keays’ notice entitlement by nine months based on "bad faith" conduct, which was essentially the same conduct that attracted the punitive damage award, the majority of the Court was of the view that the trial judge should have reduced the punitive damage award accordingly. (Justice Goudge, dissenting on this point, would not have reduced the punitive damage award.)
While the net result of this appeal is positive news for employers, the CAD 100,000 punitive sanction imposed on Honda (in addition to a 24-month notice award) still sends a powerful message to all employers to act in good faith in complying with their duty to accommodate a disabled employee to the point of undue hardship.
Although an award of punitive damages is still the exception rather than the rule in wrongful dismissal cases, Keays demonstrates that employer misconduct which amounts to a violation of an employee’s human rights can justify such an award. As articulated in that part of the reasons written by Justice Goudge :
"Where it [the employer] proceeds in bad faith and seeks to evade its legal obligation to accommodate those rendered vulnerable through disability by wrongfully terminating them, compensation and punishment are both justified."
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