On June 27, 2008, the Supreme Court of Canada released its long-awaited decision in Honda Canada Inc. v. Keays.1 The Supreme Court allowed Honda's appeal and stripped Keays of the largest award of punitive damages ever granted (as at the time of trial) in Canadian employment law. In addition to providing a welcome respite for employers from seemingly limitless scrutiny of their conduct, the Supreme Court also took the opportunity to clarify its approach to the grant of damages laid down in Wallace and to affirm an employer’s right to effectively manage absenteeism in the workplace.

THE FACTS

Kevin Keays, an employee at Honda’s assembly plant in Alliston, Ontario, was diagnosed in 1997 with chronic fatigue syndrome. He received disability benefits until 1998, when the insurer terminated the benefits due to a medical opinion that Keays could return to work. Upon his return to work, Keays’ rate of absence continued to increase and the content of the doctor’s notes he provided to Honda was unsatisfactory. In late 1999, Keays visited an independent doctor at Honda’s request. When Keays’ absences continued to increase in early 2000, Honda required him to attend another appointment with a second doctor hired by the company to assess his condition and propose possible accommodations. Keays then hired a lawyer, who advised him not to attend the second medical appointment without an explanation as to its purpose. After sending Keays a letter on March 28, 2000, which included a medical opinion from both company doctors that there was no basis for Keays’ absences, Honda terminated Keays’ employment for insubordination. At the time of his termination, Keays had 14 years of service.

TRIAL LEVEL

The trial judge held that Honda’s direction to Keays to meet with the second doctor was unreasonable and that Honda had no cause for termination. The Court assessed the reasonable notice period to be 15 months but added 9 months (for a total of 24 months) based on Honda’s “bad faith conduct” in the manner of dismissal, as per the Wallace doctrine. The Court also held that Honda had committed a breach of the Ontario Human Rights Code which constituted an “independent actionable wrong”, warranting $500,000 in punitive damages. In addition, the trial judge awarded a costs premium and costs on a substantial indemnity scale totalling $610,000.

ONTARIO COURT OF APPEAL

The Ontario Court of Appeal dismissed Honda’s appeal. The Court of Appeal found no basis on which to interfere with the trial judge’s findings with respect to the notice period and the Wallace extension. The Court held that Honda’s request for Keays to attend the second appointment without clarifying the purpose of the meeting was unreasonable. Although the Court of Appeal upheld the trial judge’s finding that Honda committed an independent actionable wrong when it breached the Ontario Human Rights Code, it lowered the punitive damages award to $100,000.

SUPREME COURT OF CANADA

The Supreme Court found no basis on which to disturb the 15 month notice period, given the traditional analysis of Keays’ length of service, age, and availability of similar employment (Honda did not appeal the lower court rulings that it did not have cause for Keays’ termination). However, the Court found that the trial judge committed several “palpable and overriding errors of fact,” and held that the evidence did not support either a Wallace doctrine increase in the notice period or punitive damages.

No Basis for Bad Faith “Wallace” Damages

The Supreme Court took the opportunity in Keays to revisit and comment upon the concept of Wallace damages and their application. In particular, the Supreme Court appears to state that Wallace damages are only available where the employer engages in bad faith conduct during the course of dismissal and the employee correspondingly proves that he or she has suffered mental distress as a result and that distress was reasonably contemplated by the parties. This approach may effectively eliminate the automatic Wallace “bump” in the reasonable notice period that seems to have characterized every statement of claim since 1997. Wallace damages are no longer, if they ever were, an automatic right. The Supreme Court further acknowledged that damages are not appropriate to compensate for “normal distress and hurt feelings resulting from dismissal.”

No “Independent Actionable Wrong”

In order to have a legal foundation for awarding punitive damages, the trial court needed to establish that Honda committed an independent actionable wrong separate and apart from the wrongful dismissal. The trial court and the Court of Appeal asserted that the independent actionable wrong was a breach of Keays’ right under the Ontario Human Rights Code to be free from harassment and discrimination on account of disability. The Supreme Court held that the Code provides a comprehensive scheme to deal with discrimination claims and that the decision in Seneca College v. Bhadauria2 still stands for the proposition that a breach of the Code is not an independent actionable wrong. The Court rejected Keays’ request to set aside the decision in Bhadauria and to recognize a separate tort of discrimination.

No Basis for Punitive Damages

The Supreme Court criticized both the trial court and the Court of Appeal for failing to question the necessity of punitive damages, even if they were warranted, given that Wallace damages had already been awarded. An overlap in damages based essentially on the same principle, namely, that of compensating for the employer’s misconduct, was not appropriate. The Supreme Court was clear that the facts in Keays should not have been the basis for punitive damages in any event, as Honda had not discriminated against Keays.

MESSAGE FOR EMPLOYERS

The Supreme Court of Canada has provided Canadian employers with a sound decision that provides guidance with respect to their obligations in dealing with a very difficult matter: managing the attendance of a vulnerable employee. The decision affirms the employer’s right to manage the attendance of such an employee; indeed, the Supreme Court held that “…the need to monitor the absences of employees who are regularly absent from work is a bona fide work requirement in light of the very nature of the employment contract and responsibility of the employer for the management of its workforce.”

In light of this statement, it is important to note that the Court declined to revisit Bhadauria on these specific facts given that Honda had not treated Keays in a discriminatory manner. The Court did not say that an employer’s misconduct could never constitute an independent actionable wrong warranting punitive damages. In that regard, the lower courts’ emphatic restatement of the importance of the employer treating vulnerable employees with dignity, respect, and equality is still the standard by which employers should govern themselves. This extends to the creation and implementation of attendance and disability management programs.