In our Spring 2005 newsletter we reported on the Keays v. Honda Canada Inc.(1) decision in which the Ontario Superior Court of Justice awarded a dismissed employee $500,000 in punitive damages in addition to 24 months salary in lieu of notice (15 months’ reasonable notice plus nine months’ additional “Wallace” damages for “bad faith” dismissal).

In a decision issued on September 9, 2006, a majority of the Ontario Court of Appeal reduced the punitive damage award to $100,000 but upheld the 24 months’ notice.

The Facts
Mr. Keays’ employment was terminated by Honda Canada Inc. (“Honda”) in March 2000 after 14 years of service with the company. Shortly after he began his employment, Mr. Keays started to experience health problems that impacted on his ability to attend at work on a regular basis. He was ultimately diagnosed with chronic fatigue syndrome.

After an extended period of accommodation, Honda required Mr. Keays to see one of its medical doctors. Mr. Keays had a negative encounter with the doctor and refused to meet with the doctor again without receiving clarification from Honda as to the purpose of the meeting and the parameters of the medical assessment. Honda refused to provide the requested clarification and dismissed Mr. Keays for insubordination in disobeying the direction to be assessed by its doctor.

Notice Period
The Court of Appeal unanimously upheld the award of an additional nine months notice based on Wallace v. United Grain Growers Ltd. The Court noted that while the nine month extension might be “very generous” it must be viewed from the circumstances of the employee and that Mr. Keays “shared the vulnerability of any employee at the time of termination but had the added vulnerability of his disability.”

Punitive Damages
All three judges of the Court of Appeal concluded that punitive damages were appropriate. However, the majority reduced the punitive damage award to $100,000 on the basis that the trial judge relied on findings of fact that were not supported by the evidence and the award was not proportional to the conduct alleged.

In the proportionality analysis, the Court paid particular attention to the duration of Honda’s misconduct, noting that it took place over a seven month period, not five years as the trial judge stated. In addition, the Court found that there was no evidence to suggest that Honda’s conduct was malicious or high handed.

The Court cautioned against placing too much emphasis on the size of the corporate defendant, which had been an important factor for the trial judge. However, the Court did recognize that the size of a corporate defendant could be a factor where it can rationally be concluded that a lesser award would fail to achieve deterrence.

In reducing the punitive damage award, the Court also took into consideration the total damages awarded, specifically the nine month Wallace damages.

The facts which the Court relied on to justify the $100,000 punitive damage award included:
- Honda’s intent to intimidate and eventually terminate Mr. Keays’ employment for the purpose of depriving him of the accommodation that he was entitled;
- Honda knew it had an obligation to accommodate Mr. Keays and that it was wrong to terminate the accommodation and dismiss Mr. Keays;
- Honda knew Mr. Keays was dependent on Honda for disability benefits;
- Honda knew Mr. Keays was particularly vulnerable because of his medical condition; and
- Honda’s failure to disclose a damaging document until late in the trial.

Impact on Employers
While the decrease in the punitive damage award is good news for employers, the $100,000 award is still the highest punitive damage award in the employment context in Canada.

In order to ensure that punitive damages are not awarded against them, employers should, among other things, ensure that they act in good faith when complying with the duty to accommodate disabled employees.

Nicole Skuggedal