On June 27, 2008, in an Ontario wrongful dismissal case, the Supreme Court rendered a judgment whereby it clarified certain aspects of the rules of compensation for wrongful termination of an employment relationship[1].

In this case, after 11 years of service with Honda Canada Inc. (hereinafter "Honda"), Mr. Keays (hereinafter the "Employee") stopped working on account of chronic fatique syndrome. After receiving disability benefits for two years, he returned to work following a decision by the insurance company declaring that he was capable of resuming his job. Due to his frequent absences, Honda put the Employee in a disability management program which required that every time he was absent, he hand in a doctor’s note stating that his absence was warranted due to his disability. The increasing number of the Employee’s absences and the ambiguity of the doctor’s notes led Honda to ask him to visit a specialist to determine how to accommodate his disability. The Employee refused to meet the specialist unless he was first given an explanation of the purpose, methodology and parameters of the consultation. Honda refused to give him any additional information and advised the Employee that if he did not visit the specialist, he would lose his job. Still refusing to submit to the examination, the Employee was dismissed.

The Ontario Superior Court of Justice[2] found in favour of the action for wrongful dismissal brought by the Employee and awarded him 15 months notice. It also gave him an additional 9 months notice because of "the flagrant bad faith Honda demonstrated when it dismissed him and the repercussions that had on his health". It also granted him $500,000 in punitive damages, finding that Honda had committed multiple acts of discrimination and harassment.

The Court of Appeal for Ontario[3] confirmed that the dismissal was wrongful and upheld the notice period awarded by the trial judge (24 months). However, it reduced the punitive damages to $100,000.

The Supreme Court, by a majority of 7 to 2 judges, allowed the appeal from the Court of Appeal judgment.

1. The Court refused to award damages related to the dismissal circumstances

In view of the criteria for determining reasonable notice in cases of employment termination (such as seniority, age, type of job and the likelihood of finding a new position), the Supreme Court upheld the 15 months notice awarded by the lower courts.

Moreover, the Supreme Court recalled that "the normal distress and hurt feelings resulting from dismissal are not compensable", while mental distress due to the employer’s unfair conduct or bad faith at the time of termination is compensable. According to the Supreme Court, such compensation should not be by way of an extension of the notice period, but " through an award that reflects actual damages."

In this case, the Supreme Court cancelled the additional 9 months notice, finding that Honda had not demonstrated bad faith when it dismissed the Employee. Indeed, Honda could not be blamed for relying on the opinion of its physicians, asking the Employee to undergo an examination or requesting proof of disability. Nor was there anything proving that the circumstances of the dismissal were the cause of subsequent disability.

2. The Court refused to award punitive damages

In the Supreme Court’s view, the awarding of punitive damages is restricted to cases of "advertent wrongful acts that are so malicious and outrageous that they are deserving of punishment on their own." Such damages relate to reprehensible conduct by the employer and are awarded for purposes of denunciation, deterrence and retribution.

In this case, the Supreme Court completely quashed the award of punitive damages, finding that the institution of a disability management program cannot be "equated with a malicious intent to discriminate against persons with a particular affliction." Indeed, it is up to the employer to follow up on employees who are frequently absent. Honda’s conduct is therefore neither outrageous nor reprehensible.

This Supreme Court’s decision stands out by drawing a clear distinction between the wrongful dismissal circumstances that allow for the allocation of compensatory damages and punitive damages. Thus, whereas the former presupposes the existence of unfair conduct or bad faith by the employer at the time of dismissal, the latter requires, in addition, a deliberately malicious and outrageous act.