The Supreme Court of Canada (SCC) released its much-anticipated decision in the appeal of the landmark case Keays v. Honda Canada Inc. on Friday, June 27, 2008.
The decision, which is summarized below, is very favourable for employers for three key reasons:
- It eliminates the largest award of punitive damages in a wrongful dismissal action in Canadian history, thereby eliminating what had previously been seen as a very expensive precedent for employers;
- It limits the scope of damage awards in the context of wrongful dismissal claims by doing away with the Wallace bump-up (i.e. extensions of a reasonable notice period as a result of bad faith conduct during termination) and restricting the availability of punitive damages awards; and
- It takes significant steps in strengthening an employer's ability to manage absenteeism in the workplace.
Kevin Keays joined Honda in 1986. Keays began receiving LTD benefits in 1996 and was diagnosed with Chronic Fatigue Syndrome (CFS) in 1997. His LTD benefits ceased after December 1998 following a work capacity evaluation conducted on behalf of the insurer.
Following his return to work, Honda exempted Keays from its attendance-related progressive discipline policy. However, Keays was required to provide a medical note for each and every absence, which was not required of employees suffering from "mainstream" illnesses.
Keays' sporadic absences continued and Honda hired Dr. B to assess Keays. In response, Keays hired a lawyer, who wrote a letter that the trial judge characterized as "conciliatory in the extreme." The lawyer sought clarification of the purpose of the meeting with Dr. B. Honda refused to deal with Keays' lawyer, refused to clarify the purpose of the meeting with Dr. B and unilaterally cancelled the accommodation, thus making Keays subject to the attendance-related discipline policy. When Keays continued to refuse to meet with Dr. B without Honda clarifying the purpose of the meeting, Honda terminated his employment for insubordination.
The Trial Judge's Decision
At the trial court level, it was found that Honda's termination of Keays' employment was a disproportionate response to his alleged insubordination and therefore he had been wrongfully dismissed.
The trial judge awarded Keays 15 months' notice as well as a 9 month extension of the notice period (i.e. a Wallace bump-up) as a result of Honda's bad faith actions in the manner of dismissal. The trial judge also awarded $500,000 in punitive damages as a result of Honda's discriminatory and harassing treatment of Keays in the course of his employment.
For a more detailed discussion of the Trial Court's decision, please see our E-Alert published October 21, 2006.
The Court of Appeal's Decision
The Court of Appeal upheld the 15-month notice period, finding that Keays was wrongfully dismissed and that his termination for insubordination was a disproportionate response. The Court of Appeal also upheld the 9-month extension of the notice period on account of Honda's bad faith dealings with Keays as well as Keays' added vulnerability as a result of his disability.
Finally, while the Court of Appeal upheld the principle of a punitive damages award, they reduced the award itself from $500,000 to $100,000 on the basis that some of the trial judge's findings of fact were not supported by the evidence and that the award violated the fundamental principle of proportionality.
For a more detailed discussion of the Court of Appeal's decision, please see our E-Alert published October 21, 2006.
The Supreme Court's Decision
The SCC upheld the finding that Keays' employment was terminated without just cause and that he had been wrongfully dismissed. In making this determination, the SCC did not provide any express opinion on the propriety of Honda's medical requests. However, the SCC did note that an employer has a bona fide need to monitor the absences of employees who are regularly absent in light of the very nature of the employment contract and responsibility of the employer for the management of its workforce.
Reasonable Notice Period?
The SCC expressly held that the trial judge and the Court of Appeal had erred by over-emphasizing the importance of Honda's "flat management structure" when assessing the appropriate notice period. The SCC held that the "flat management structure" did not describe the responsibilities and skills of Keays as a worker, nor did it describe the character of his lost employment.
The SCC reiterated that the reasonableness of the notice period must be decided with reference to each particular case, having regard to the character of the lost employment, the employee's length of service, the age of the employee, and the availability of similar employment having regard to the experience, training and qualifications of the employee. These factors can only be applied on a case-by-case basis and no one factor should be given disproportionate weight.
Despite the foregoing errors, the SCC ultimately found that the lower courts determination was not unreasonable in light of the entirety of the circumstances of this case. As a result, the SCC upheld the 15 months' notice period.
Extension of the Reasonable Notice Period for Bad Faith (i.e. Wallace bump-up)?
The SCC found that Honda's behaviour did not warrant an extension of the notice period because the evidence did not support a finding that Honda's manner of dismissing Keays was an egregious display of bad faith.
Furthermore, the SCC effectively eliminated the concept of the "Wallace bump-up" and held that in cases where damages are attributable to an employer's conduct in the manner of dismissal, there will no longer be an extension of the notice period. Rather, the amount to be fixed should accord with all other cases dealing with moral damages. In other words, if an employee can prove that the manner of dismissal caused mental distress and that the distress was in the contemplation of the parties, "those damages will be awarded not through an arbitrary extension of the notice period, but through an award that reflects the actual damages."
The SCC held that there was no basis for awarding any punitive damages against Honda. They held that courts should only resort to punitive damages in exceptional cases and Honda's conduct was not sufficiently egregious or outrageous to warrant such damages. Furthermore, the SCC expressed concern that damages for conduct in dismissal and punitive damages often result in unnecessary overlap in damage awards. As a result, the SCC is now asking adjudicators to question whether punitive damages are necessary in addition to damages for conduct in dismissal.
The SCC went on to find that both the trial judge and the Court of Appeal erred in concluding that Honda's "discriminatory conduct" amounted to an independent actionable wrong for the purposes of allocating punitive damages. The Ontario Human Rights Code provides a comprehensive scheme for the treatment of claims of discrimination. A breach of the Code cannot constitute an actionable wrong; therefore the legal requirement for the common law remedy of punitive damages was not met.
The SCC concluded that there was no evidence of discrimination in this case to support such a claim under the Code. Furthermore, they found that no breach of human rights legislation serves as an actionable wrong. As a result, the SCC concluded that there was no need to deal with Keays' request for recognition of a distinct tort of discrimination.
What does the Court's Decision Mean for Employers?
To read the Supreme Court's full decision, please click here.
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.