The much-anticipated decision of the Supreme Court of Canada (SCC) in the appeal of Keays v. Honda Canada Inc. is favourable to employers for three key reasons:

  1. It eliminates the largest award of punitive damages awarded in a Canadian wrongful dismissal action.
  2. It limits the scope of damage awards in wrongful dismissal claims.
  3. It takes significant steps in strengthening an employer’s ability to manage absenteeism in the workplace.

Background

Kevin Keays, a Honda employee, was diagnosed with Chronic Fatigue Syndrome and was receiving Long-Term Disability (LTD) benefits. Keays returned to work following a work capacity evaluation and the cessation of his LTD benefits, although he continued to be absent from work sporadically.

Honda initially exempted Keays from its attendance-related progressive discipline policy but required him to provide medical documentation for each absence and to meet with a doctor retained by Honda to assess his condition and functional abilities. Keays refused to meet with Honda’s doctor and hired a lawyer. Honda eventually cancelled the accommodation, rendering Keays subject to Honda’s attendancerelated discipline policy. When Keays continued to refuse to meet with Honda’s doctor, Honda terminated his employment for insubordination.

The Lower Courts’ Decisions

The trial court found that Honda’s termination of Keays’ employment was a disproportionate response and that he had been wrongfully dismissed. The trial judge awarded Keays 15 months’ notice, as well as a nine-month extension of the notice period (i.e., a “Wallace bump-up”) as a result of Honda’s alleged bad faith actions in the manner of dismissal. The trial judge also awarded $500,000 in punitive damages as a result of Honda’s alleged discriminatory and harassing treatment of Keays in the course of his employment.

The Court of Appeal upheld both the 15-month notice period and the nine-month extension. However, the Court of Appeal reduced the punitive damages award from $500,000 to $100,000, as some of the trial judge’s findings of fact were not supported by the evidence and the award violated the fundamental principle of proportionality.

The Supreme Court’s Decision

While the SCC agreed that Keays had been wrongfully dismissed and upheld the 15-month notice period, the SCC struck out the ninemonth extension of the notice period as the evidence did not demonstrate that Honda’s manner of dismissing Keays was an egregious display of bad faith.

Further, the SCC effectively eliminated the concept of the Wallace bump-up and held that in cases where bad faith damages are claimed, the employee must be able to prove that he or she suffered actual, compensable damages as a result of the employer’s conduct in the manner of dismissal.

The SCC also struck out the $500,000 punitive damages award as Honda’s conduct was not sufficiently egregious or outrageous to warrant such an award.

Finally, the SCC held that the lower courts erred in concluding that Honda’s “discriminatory conduct” amounted to an independent actionable wrong for the purposes of punitive damages. As a result, the SCC did not deal with Keays’ request for recognition of a distinct tort of discrimination.

McCarthy Tétrault Notes:

What does the Supreme Court’s decision mean for employers?

  1. In order for an employee to obtain damages for mental distress caused by an employer’s bad faith manner of dismissal, the employee must demonstrate that he or she has in fact suffered actual, compensable damages.
  2. Punitive damages may be awarded only in “exceptional cases” where the employer’s “advertent wrongful acts … are so malicious and outrageous that they are deserving of punishment on their own.”
  3. The SCC stated that courts must “avoid the pitfall of double-compensation or double-punishment” exemplified by employment cases that provide both bad faith damages and punitive damages where such damages are not warranted or proven. If an award of actual damages serves to compensate the employee, as well as to deter future misconduct by the employer, absent any other sufficiently egregious or outrageous behaviour, no additional punitive damages should be awarded.
  4. The SCC reaffirmed the principle that a civil action cannot be based directly on a breach of the Ontario Human Rights Code as “discrimination” cannot constitute an independent actionable wrong and the Code “provides a comprehensive scheme for the treatment of claims of discrimination.”
  5. Finally, the SCC confirmed that an employer’s “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.” This will strengthen an employer’s ability to manage absenteeism in the workplace and to pursue information and documentation from its employees in the context of such an exercise.

For a detailed discussion of this case, please see the article published on our website.