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Supreme Court closes floodgates to punitive damages |
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| Honda v. Keays appeal successful |
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Written by Malcolm J. MacKillop and Hendrik Nieuwland
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After the appeal in Honda Canada Inc.
v. Keays, employers were holding their breath to see what the Supreme
Court of Canada would do about claims of punitive damages in wrongful dismissal claims. The
wait is over - employers can rest assured that the Supreme Court set
things straight. Punitive damages will only be available in rare cases.
In wrongful dismissal cases, the onus is on the employer to establish
just cause for termination. If the employer fails to do so, the court
will award the employee a sum of money that represents his or her
reasonable notice of termination, as well as any other damages and
costs that the court deems appropriate.
In the recent case of Honda Canada Inc. v. Keays
(June 27, 2008), the Supreme Court of Canada took the opportunity to
clarify the proper allocation of damages in wrongful dismissal cases.
The court set down several important principles that other courts are
likely to follow in the future. The judgment provides some valuable
guidance to employers with regards to appropriate termination practices
and procedures, especially when the termination involves disabled
employees.
In summary, the original trial judge held that Keays
was entitled to 15 months notice, but extended the notice period to 24
months based on the "egregious bad faith displayed by Honda in the
manner of this termination and the medical consequences flowing
therefrom" ("Wallace" damages). The trial judge also awarded $500,000 in punitive damages. Honda appealed.
The Ontario Court of Appeal upheld
the trial judge's ruling regarding the appropriate notice period
required under the circumstances. The appeal court went on to find that
the award of punitive damages was a rational response on the part of
the trial judge. The majority of the court did, however, reduce the
punitive damages award to $100,000. Honda appealed to the Supreme Court.
The
first issue addressed by the Supreme Court was what factors should be
considered when allocating compensatory damages in lieu of notice for
wrongful dismissal. The court stated these factors include, but are not
limited to, the character of the employment, length of service, the age
of the employee, and the availability of other employment. The court
summarized that it was the particular circumstances of the individual
employee that are the concern of the courts in determining the
appropriate period of reasonable notice. In the circumstances of the Keays case, there was no basis to interfere with the 15 month notice period awarded by the trial judge.
The
Supreme Court next addressed the basis for, and the calculation of,
damages for conduct in dismissal. Justice Bastarache, in writing for
the majority, took the unusual step of finding that the trial judge
made a number of significant errors in findings of fact. More
specifically, Justice Bastarache found that the trial judge made the
following errors:
- Honda's letter to Keays
requesting that he meet with the company's doctor was not callous and
insensitive. It conveyed to Keays that Honda wanted him to meet with
their doctor, because their experts had advised them that his condition
did not preclude him from working. Honda was entitled to rely on their
experts. The context indicated that Honda recognized Keays had a
disability that had to be dealt with.
- Honda's decision
to stop accepting doctors' notes was not reprisal for Keays seeking
legal counsel. Honda was simply seeking to confirm Keays' disability.
- It was improper to consider Keays' disability subsequent to
termination, because there was no evidence that the disability was
caused by the manner of termination.
The Supreme Court found
that the overriding and palpable factual errors made by the trial judge
formed the foundation that justified his award of Wallace
damages. In light of the errors, the appropriate notice period in this
case was reduced from 24 months to 15 months. The court clarified that
if the employee proves that the manner of dismissal caused mental
distress, damages will be awarded through an award that reflects the
actual damages, not an extension of the notice period. Examples of
conduct that would attract this form of compensable damages include
attacking the employee's reputation by making declarations at the time
of dismissal, misrepresentation regarding the reason for dismissal, or
dismissal intended to deprive the employee of a pension benefit.
Another
significant aspect of the Keays judgment was the Supreme Court's
discussion of awards of punitive damages in the context of a wrongful
dismissal case. The court distinguished between damages for conduct in
the manner of dismissal, which are compensatory in nature, and punitive
damages, which intended to punish. While damages for conduct in the
manner of dismissal are available if the manner of dismissal caused
mental distress, as outlined above, for punitive damages to be awarded
there must be an independent actionable wrong on the part of the
defendant.
After determining whether there is an independent
actionable wrong, an award of punitive damages is only warranted where
there is harsh, vindictive, and malicious conduct on the part of the
defendant. In Keays, Justice
Bastarache again found the trial judge committed overriding and
palpable errors in findings of fact. He overturned the trial judge and
accepted that Honda's program requiring medical notes to establish that
absences were related to the disability was justified. Honda's conduct
was not sufficiently egregious or outrageous to warrant a punitive
damages award.
In summary, the decision in Keays
will have a significant impact on employers' future termination
practices and procedures. Indeed, it is an important case for
establishing that damages for conduct in dismissal will be paid out in
accordance with the actual damage sustained, not in the form of an
extended notice period. Furthermore, the court's comments on punitive
damages limits the applicability of these awards to rather narrow
circumstances. Employers should continue to proceed carefully when
terminating employees, especially when the employee has a disability
and will thus likely be considered particularly vulnerable in the eyes
of a court.
Malcolm MacKillop is a partner with the firm Hodgson Shields DesBrisay O'Donnell MacKillop Squire LLP of
Toronto. He can be reached at
This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
Meighan
Ferris-Miles is an association with the firm Hodgson Shields DesBrisay
O'Donnell MacKillop Squire LLP of Toronto.
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