Originally published in Blakes Bulletin on Labour
& Employment, June 2008
In a decision released on Friday, June 27, 2008, the Supreme
Court of Canada overturned the decision of the Ontario Court of
Appeal in Keays v. Honda Canada Inc. and determined
that the plaintiff, Kevin Keays, should not have been awarded
any damages beyond damages for Honda's failure to
provide reasonable notice of termination. The only aspect of
the original trial decision that survived this appeal was the
determination that the plaintiff was entitled to a 15-month
notice period. The Supreme Court found that
neither extended notice period damages
("Wallace" damages, so named after the 1997
Supreme Court of Canada decision in which extended notice
period damages were awarded in a wrongful dismissal case) nor
punitive damages should have been awarded or upheld in the
lower courts. In addition, the Supreme Court reversed the lower
court decisions on costs and set aside the cost premium Keays
Keays was terminated by Honda after 14 years of employment.
By the time of his termination, Keays had been diagnosed as
suffering from Chronic Fatigue Syndrome. He was dismissed after
refusing to see Honda's physician following a
protracted dispute with Honda over Honda's efforts to
manage his attendance. The trial judge found that Keays had
been wrongfully dismissed and that Honda had been "callous
and insensitive" in its treatment of Keays. In addition to
finding that Keays was entitled to a 15-month notice period,
the trial judge extended the notice period by nine months
because of the employer's "bad faith" conduct
in relation to Keays dismissal, and awarded Keays C$500,000 in
punitive damages. The Ontario Court of Appeal reduced the
punitive damages award to C$100,000, but did not otherwise
disturb the damages awarded to Keays by the trial judge.
The Supreme Court held that an award of extended notice
period damages was not justified on the facts of the case. It
found that the trial judge had made several serious errors in
making his award of such damages. With respect to punitive
damages, the Supreme Court found that such damages had to be
reserved for cases where the facts revealed deliberate wrongful
acts that are "so malicious and outrageous" that they
are deserving of punishment on their own.
The decision of the Supreme Court warns trial judges to
avoid duplication in damages awards. It also changes the law
with respect to how damages are awarded in respect of the
employer's conduct at the time of dismissal. This
decision does away with the Wallace concept of an
extension of the notice period as a response to an
employer's bad faith actions. Now, to the extent that
an award of damages is justified because an employer acts in
bad faith in the manner of dismissal, damages will be awarded
on the same basis as in all other cases dealing with damages
for mental distress arising from a breach of contract. Among
other things, this means that damages will be awarded in an
amount that reflects the actual damages resulting from the
employer's actions. Of note is the fact that the
judgment makes it clear that damages will not be available for
the normal distress and hurt feelings experienced by an
employee because of a termination of employment. The Supreme
Court gave three examples of the type of conduct that could
result in compensable damages to an employee: attacking the
employee's reputation by declarations made at the time
of dismissal, misrepresentation regarding the reason for the
decision, or dismissal meant to deprive the employee of a
pension benefit or other right.
Employers will also be interested in the Supreme
Court's statements concerning attendance management
programs. In support of its finding that there was no evidence
of discrimination by Honda, the Supreme Court expressly
accepted that the need to monitor the absences of employees who
are regularly absent from work is a bona fide
requirement in light of the nature of the employment contract
and the responsibility of the employer for the management of
In the result, this decision is good news for employers.
Although the Supreme Court declined to decide whether a breach
of human rights legislation could found an award for punitive
damages, the Supreme Court set the bar very high for awards of
punitive damages and damage awards for bad faith in the manner
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