Opening the Floodgates: Wrongful Dismissal and Punitive Damages in Keays v. Honda Canada Inc.

An important employment law case is on its way to the SCC. Leave was recently granted in Keays v. Honda Canada Inc., [2008] 2 SCR 362 [Keays],  a wrongful dismissal case that readers should add to their “must watch” list of cases pending before the Supreme Court of Canada (“SCC”).

Kevin Keays, who worked in the Quality Engineering Department at Honda Canada and was described as a “dedicated and conscientious” employee was terminated by Honda. During the course of his employment, Keays developed Chronic Fatigue Syndrome (“CFS”) and for a period of time, received both short and long term disability benefits. Eventually, Honda’s insurer terminated the benefits and determined that Keays was able to return to work. Despite protests from his physician and himself, Keays returned to work, but soon began to experience intermittent work absences, which resulted in discipline reports.

Eventually, Honda introduced a requirement that Keays present a doctor’s note validating each absence from work; however, employees with “mainstream” illnesses did not have to meet this requirement. As Keays’ absences became more frequent, Honda required that Keays meet with the company doctor, who Keays alleges threatened to move him back to his previous position at the physically demanding production line. Following this encounter, Keays retained counsel who wrote Honda a conciliatory letter offering to work toward a resolution of their differences. Honda responded by meeting with Keays in a confrontational manner and demanded that Keays meet with their occupational medicine specialist. On the advice of his lawyer, Keays refused to meet with this physician until Honda clarified the purpose, methodology, and parameters of the proposed assessment. After refusing to provide Keays with this information and sending a final warning letter, Honda terminated Keays for insubordination after he failed to meet with Honda’s occupational medicine specialist. He later suffered significant medical consequences and was unable to work.

Keays sued for wrongful dismissal and the trial court agreed that Keays had been terminated without just cause. Fifteen months was fixed as the period of reasonable notice and an additional nine months were added for the “flagrant bad faith” displayed by Honda in the manner of terminating Keays and the resulting medical consequences he suffered. Honda was also ordered to pay $500,000 in punitive damages because their treatment toward Keays was found to be discrimination and harassment contrary to the Ontario human rights legislation, as well as “high-handed and outrageous”. In addition, Keays was awarded costs on a substantial indemnity basis, together with a premium.

Honda appealed these findings and alleged bias on the part of the trial judge. The Court of Appeal for Ontario, however, found neither bias nor error in the trial judge’s findings, except with respect to the amount of punitive damages awarded and the costs premium. While the court unanimously agreed that punitive damages were appropriate in these circumstances, they disagreed as to the quantum. Justice Goudge, dissenting, agreed with the $500,000 award on the grounds that there was a rational basis for such extraordinary punitive damages because of Keay’s vulnerability as an employee and as a sufferer of CFS. In the majority’s view, however, the $500,000 award could not be sustained and was reduced to $100,000. The majority did not find extraordinary circumstances that could justify such a high award and compared the case to Whiten v. Pilot Insurance Co., [2002] 1 SCR 595 [Whiten].

Whiten requires that the award be proportionate to the blameworthiness of the defendant’s conduct. In Whiten, the misconduct occurred for two years without any rational justification; in this case, the conduct only existed for seven months. The majority also was unable to find either that Honda’s conduct was malicious or any special factors requiring deterrence, such as a pattern of abuse or exploitation.

With the initial $500,000 punitive damages award, Keays seemed to be an invitation for more wrongful dismissal claims involving punitive damages, as prior to this case, punitive damages were generally in the range of $15,000 to $50,000 and in rare circumstances, up to $75,000. The floodgates concern regarding punitive damages was somewhat tempered with the large reduction in the award and the Court of Appeal’s emphasis on the punitive damages requirement for exceptional cases; however, the court did not dispute the trial judge’s conclusions with respect to an employer’s duty to accommodate employees with disabilities. If an employer’s conduct toward his employee is performed in a manner that fails to protect the employee’s dignity and equality, or in a manner that is dishonest and in bad faith, employers may be liable and subject to considerable sanctions. In addition to the duty employers owe to employees with respect to accommodation for disabilities, the case also stands for the validity of CFS.

On March 29, 2007, Honda was granted leave to appeal to the SCC. Given the importance of this case from an employment law standpoint, it should be interesting to see if the SCC further opens or closes the door to punitive damages in wrongful dismissal claims. This will have a significant impact on employers and their duty to employees who suffer with disabilities. Hopefully the SCC will also address the standard by which judges calculate punitive damage awards. Currently, the award amount appears to be somewhat arbitrarily decided on a case-by-case basis. This appeal is a good opportunity for the SCC to provide further guidance and detail about the approach behind calculating punitive damage awards. This case is certainly worth keeping an eye on considering its importance to both employers and employees with disabilities in all fields.





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