The recent Supreme Court of Canada decision in Keays v. Honda Canada appears to be the continuation of a shift toward a more moderate judicial approach to employment-related issues. While the trial judge’s decision made headlines in 2005 due to the sheer magnitude of the damages awarded, the Supreme Court’s decision has done so by dramatically reducing the amounts awarded and also by substantially overhauling the state of the law with respect to damages in wrongful dismissal claims. Ultimately, it should be welcome news for employers.
Background
Kevin Keays suffers from chronic fatigue syndrome, which caused him to miss work frequently. While at Honda, he continually received negative commentary regarding his attendance, despite otherwise positive reviews. At one time, he was off on disability leave, but the insurer eventually deemed him fit to return to work. After being “coached” for exceeding the allowance number of absences, Keays raised the issue of his disability and was enrolled in Honda’s disability program, designed to exempt disability-related absences from discipline.
Subsequently, Keays’s absences began to exceed his doctor’s estimate that he would miss four days of work per month, while the notes from his doctor became more cryptic over time. Eventually, the relationship deteriorated as Honda began to scrutinize his absences more closely. Concerned by Honda’s apparent scepticism regarding his condition and absences, Keays retained a lawyer. Honda retained the services of Dr. Brennan, an occupational medicine specialist, and directed Keays to meet with him. Keays’s lawyer demanded information regarding the “purpose, methodology and parameters” of the proposed meeting, but Honda declined to provide further information. Keays did not attend the meeting and was subsequently dismissed for cause after 14 years of service. He sued for wrongful dismissal and sought damages arising out of the dismissal and the alleged discrimination and harassment on the part of Honda.
The Lower Courts
Justice McIsaac’s judgment after the trial shocked the legal and business worlds. Not only did he award 15 months’ pay in lieu of notice, he then added a “Wallace extension” of nine months due to the bad faith that he found to have been exhibited by Honda in the course of dismissal. Then he went on to award $500,000 in punitive damages. To put this in context, the previous high-water mark for punitive damages in an employment law case was in the $100,000 range. Rarely awarded in employment law claims, such damages are typically in the $15,000 to $20,000 range when they are granted.
The decision was based largely upon a finding that Honda discriminated against Keays on the basis of his disability and failed to accommodate him as required. It caused many employers to hesitate in addressing legitimate attendance issues involving a known disability.
The Court of Appeal agreed that 15 months’ pay in lieu of notice was appropriate, and did not overturn the nine-month Wallace extension. However, the Court found that some of the trial judge’s findings of fact, which were used to justify the award of punitive damages, were not supported by the evidence. As a result, the majority reduced the trial judge’s award to $100,000. While still a remarkable amount of punitive damages, this was a substantial reductions.
The Supreme Court Decision
In a surprising decision, the only element of the lower courts’ decisions upheld by the Supreme Court was the 15-month notice period. The court overturned the Wallace damages, the punitive damages, and a portion of the costs award.
Punitive Damages
In finding that punitive damages were not appropriate in this case, the Supreme Court explicitly confirmed that “punitive damages are restricted to advertent wrongful acts that are so malicious and outrageous that they are deserving of punishment on their own.” In other words, the court made it clear that it will be very difficult for a plaintiff to meet the threshold required to support an award of punitive damages. With respect to the facts of this case, the court held that Honda’s behaviour vis-à-vis Keays was not sufficiently egregious to warrant punitive damages.
The basis upon which the trial judge and the Court of Appeal had awarded punitive damages was that Honda’s discriminatory conduct was a breach of human rights legislation and therefore an independent actionable wrong. However, the Supreme Court held that since you cannot commence a civil action on such a basis, it is not an independent actionable wrong that can support an award of punitive damages, regardless of the egregiousness of the behaviour.
“The Damages Formerly Known as Wallace”
Many were surprised that the Supreme Court overturned the findings of the lower courts regarding this element of the case. However, the court found that Honda’s conduct in dismissing Keays was “in no way an egregious display of bad faith.” As a result, the court held that there was no basis for the nine-month “Wallace bump” awarded to Keays.
The Supreme Court then took the opportunity to address a number of issues and criticisms that had emerged in the years since it created the remedy of “Wallace damages.” At that time, the Court held that employers have a duty to act in good faith at the time of termination. The Court ruled that in situations where employers breached this duty, the applicable notice period should be extended. This somewhat arbitrary approach met with substantial criticism.
In Keays, the Supreme Court completely revamped the manner in which employer bad faith would be compensated. The court held that “in cases where damages are awarded, no extension of the notice period is to be used to determine the proper amount to be paid.” Instead, following another recent decision, the court held that any compensation will be based upon actual damages suffered by the employee. This is likely to result in fewer awards of damages, but may also lead to larger awards when the individual can prove that they suffered substantial damages.
Double-Compensation
The Supreme Court recognized that the lower courts had effectively used the same set of facts in order to justify multiple forms of damages. The court held that our courts should “avoid the pitfall of double-compensation or double-punishment.” Essentially, if the award of actual damages will compensate the victim, penalize the wrongdoer, and deter future misconduct, then no punitive damages should be awarded in the absence of sufficiently egregious behaviour.
The Doctors’ Notes Requirement
This case arose out of Honda Canada’s efforts to balance attendance management and disability accommodation. The trial judge’s analysis of this issue left much to be desired, essentially assuming that any time an individual with a disability is absent from work, that absence must be work-related. By asking for a doctor’s note to distinguish disability-related absences from other absences, Honda was found to have breached its duty to accommodate Keays’ disability.
Miller Thomson LLP was retained by the Human Resources Professionals Association (HRPA) in order to intervene before the Supreme Court of Canada and address this issue. We put forward the position that not all of a disabled employee’s absences will be disability-related, and employers need to be able to identify those which are in order to accommodate them. Conversely, those absences which are unrelated to disability are not entitled to accommodation and should be treated in the same manner as absences of employees without disabilities.
The Supreme Court confirmed 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.” The court went on to hold that Honda’s doctors’ note requirement was part of its accommodation process, essentially allowing it to identify disability-related absences and exempt them from discipline.
Conclusion
Previously, Keays v. Honda Canada was perhaps the most infamous employment law case of this decade (at least from the employer perspective). Among other things, it led to a dramatic increase in the number of claims for punitive damages arising out of wrongful dismissals. The Supreme Court’s decision should allow employers to adopt reasonable efforts to address attendance issues, even when a disability is involved, without fear of a crippling award of damages. The decision also provides more clarity and certainty regarding the types of damages that can be awarded in employment law cases. In short, the Supreme Court’s decision in Keays:
• recognizes employers’ need to control absenteeism and their responsibility for managing their own workforce;
• confirms that the threshold for punitive damages is high and that only exceptional cases will justify such an award;
• discourages duplication of damages based upon the same set of facts;
• rejects breaches of human rights legislation as independent actionable wrongs; and
• replaces the arbitrary “Wallace bump-up” for bad faith in the course of dismissal with a compensatory approach.
When all is said and done, Keays may end up being the best news that employers have had in quite some time.
Stuart Rudner is a Partner in Miller Thomson LLP’s Labour & Employment Law Group.