FACTS

Kevin Keays, a Honda Canada employee, suffered from chronic fatigue syndrome. At one point, his condition was such that he was off work for more than two years on LTD. However, his LTD benefits eventually were terminated by the insurer. Keays appealed the insurer’s decision but was unsuccessful and accordingly, he returned to work. However, his absenteeism continued to be a concern, even after “coaching” by his supervisor. Ultimately, he was placed in Honda’s Disability Program which permitted disabled employees to be absent without disciplinary repercussions provided each absence was supported by a medical note.

Keays’ rate of absenteeism eventually exceeded even his  own doctor’s prediction. As well, the tone of the medical notes changed, leaving Honda with the impression that the doctor was simply repeating what Keays had said to him rather than independently evaluating each absence.  Accordingly, Honda asked Keays to meet with an occupational medical specialist it had retained in order to determine how his disability could be accommodated.

Keays retained legal counsel due to his concern that he was heading toward termination. His lawyer wrote to Honda expressing concern and requesting that Keays not be required to provide a doctor’s note for each absence on the grounds that such requirement was unfair and unnecessarily extended his absences (due to difficulty in scheduling doctors appointments). He also offered to work toward a resolution of the situation. However, Honda did not respond. 

After a further meeting with Honda representatives, Keays agreed to meet with the specialist. However, the next day, he advised Honda that on the advice of his lawyer, he would not attend the consultation without first receiving an explanation as to its purpose, methodology and parameters. Honda responded by providing Keays with a letter indicating it had no additional information for him and warning that he would be terminated if he did not cooperate. Keays’ maintained his position and accordingly, he was dismissed for insubordination after 14 years of service.

BACKGROUND - THE LOWER COURTS

Keays sued for wrongful dismissal and included other related claims. He won a resounding victory at trial, where he was awarded 15 months pay in lieu of notice plus an additional 9 months pay as “Wallace” damages plus a further $500,000.00 in punitive damages plus costs on a substantial indemnity level plus a 25% cost premium. The trial judge, who was extremely critical of Honda, peppered his judgment with strong comments such as:

-                “[Honda displayed] egregious bad faith…in the manner of its termination and the medical consequences flowing therefrom”

-                “Honda committed a litany of acts of discrimination and harassment in relation to [Keays’] attempts to resolve his accommodation difficulties”

-                “[Honda engaged in] a conspiracy to insinuate [the doctor it had retained] into [Keays’] long-established medical relationship with his own doctors and, hopefully, to exclude them from any participation in advocating for [Keays’] rights”.

The trial judge also held that as a general proposition, a complaint that an employer had acted contrary to the Ontario Human Rights Code could constitute an “independent actionable wrong” which could trigger an award of punitive damages (however, on the facts of the particular case before him, the trial judge declined to award such damages).

Honda’s appeal to the Ontario Court of Appeal achieved only limited success - it ordered that the punitive damages award be reduced to $100,000 and that the costs premium be reduced by approximately 50%. Otherwise, the trial decision was not disturbed in any significant way.

SUPREME COURT OF CANADA

The Supreme Court had a very different take on the matter. While it agreed that Keays had been wrongfully dismissed and therefore was entitled to 15 months pay in lieu of notice, it otherwise found that Honda’s conduct essentially was acceptable. Accordingly, it struck down the awards of punitive damages and Wallace damages, set aside the cost premium and ordered that costs be based on the “regular” scale rather than on the substantial indemnity scale.

The analysis by the Court included the following:

Ø “Wallace” Damages

the Court substantially overhauled the law regarding “Wallace” or aggravated damages (i.e., damages arising from an employer’s bad faith conduct at the time of dismissal); it stated that awarding an “arbitrary extension of the notice period” as compensation for such conduct was inappropriate; rather, it stated that damages to compensate for mental distress caused by a bad faith dismissal are appropriate only if the employee demonstrates that he/she has suffered actual, compensable damage (such as a longer period of unemployment or reduced re-employment prospects);

Ø Punitive Damages

the Court set a very high threshold for the award of punitive damages, stating that such awards are appropriate only in exceptional cases where there are “advertent wrongful acts that are so malicious and outrageous that they are deserving of punishment on their own”; the Court stated that punitive damages are warranted only if there is conduct that is “harsh, vindictive, reprehensible and malicious” as well as “extreme in its nature and… deserving of full condemnation and punishment”.

      Ø Discrimination Not an Independent Actionable Wrong

the Court confirmed that an act of discrimination under the Human Rights Code does not constitute an independent actionable wrong and therefore cannot constitute grounds for an award of punitive damages; rather, the Court stated that discrimination claims must be addressed under the relevant human rights legislation (it should be noted, however, that recent amendments to the Ontario Human Rights Code, which expand the Courts’ powers to deal with discrimination issues in the context of wrongful dismissal claims, arguably diminish the impact of this portion of the decision);

Ø Double Compensation

the Court expressed concern that awarding damages for bad faith conduct at the time of dismissal as well as punitive damages may result in “double compensation” for the Plaintiff and “double punishment” for the Defendant; the court therefore stated that if an award of compensation for actual damages arising out of bad faith conduct serves to compensate the employee as well as deter future misconduct by the employer, then absent other sufficiently egregious or outrageous behavior, no additional (punitive) damages are warranted.

Ø The Employer’s Right To “Manage” Disability

the Court held that there was no evidence that the Company’s occupational medical specialist took a “hardball attitude” towards workplace absences or that Keays was being “set up”; rather, the Court found that Honda was simply seeking to confirm Keays’ disability and that it could not be faulted for seeking to rely on the advice of its medical experts in regard to accommodation; significantly, the Court explicitly confirmed that “in light of the very nature of the employment contract and responsibility of the employer for the management of its workforce”, employers have a “bona fide need to monitor attendance” of employees who are regularly absent from work; the Court also stated that requiring doctor’s notes was a legitimate attendance management tool. 

Ø Reasonable Notice

the Court confirmed that reasonable notice can only be determined on a case-by-case basis, having regard to the employee’s age, length of service, character of employment, training qualifications, experience and availability of similar employment; the Court clarified that no one factor should be given disproportionate weight, noting that the trial judge erred by over-emphasizing the relevance of Honda’s flat management structure when determining the notice period (however, the Court did not disturb the award of 15 months notice).

CONCLUSION

This decision is a welcome one for employers. It continues the Supreme Court’s recent trend of issuing decisions that are more “employer friendly” than in the past, and which are more responsive to the day-to-day realities faced by employers.