On June 27, 2008, the Supreme Court of Canada (“SCC”) released its decision in Keays v. Honda Canada Inc. and overturned the decision of the Ontario Court of Appeal and narrowed the scope of Wallace damages for the “bad faith” manner of dismissal.
This decision arises from a decision of the Ontario Superior Court of Justice which awarded $500,000 in punitive damages to a dismissed employee in addition to 24 months salary in lieu of notice. The Ontario Court of Appeal subsequently reduced the punitive damage award to $100,000, but maintained the 24 months’ reasonable notice (which comprised of 15 months’ reasonable notice plus nine months’ additional notice for “bad faith” dismissal, known as Wallace damages).
The SCC set aside both the punitive damage award and the additional nine months notice awarded for the bad faith manner of dismissal.
Background Facts
Mr. Keays was dismissed by Honda Canada Inc. (“Honda”) in March 2000 after 14 years of service with the Company. Shortly after he began employment Mr. Keays started to experience health problems that impacted his ability to attend at work on a regular basis. He was ultimately diagnosed as having chronic fatigue syndrome.
After an extended period of accommodation, Honda required Mr. Keays to see one of Honda’s doctors. Mr. Keays had a negative encounter with Honda’s doctor and refused to meet with the doctor again without receiving clarification from Honda as to the purpose of the meeting and parameters of the medical assessment. Honda refused to provide the requested parameters and dismissed Mr. Keays for insubordination for disobeying its direction to be assessed by the doctor.
Wallace Damages
The SCC overturned the lower courts award of nine months extended notice for Wallace damages on the basis that the trial record showed that Honda’s conduct was “in no way an egregious display of bad faith justifying an award of damages for conduct in dismissal.” The SCC held that the following did not constitute bad faith: (i) requiring an employee to see a company physician after an extended period of accommodation; (ii) the employer’s reliance on the doctor’s assessment even if the doctor had a “hardball” approach to workplace accommodation issues; (iii) an employer’s refusal to deal with a employee’s lawyer while the employee was still employed by the company; and (iv) the employee’s medical condition deteriorating subsequent to termination without evidence that the disability was caused by the manner of termination.
The SCC engaged in a review of the concept of Wallace damages and held that these damages should not be awarded in the ordinary circumstances of dismissal nor should judges arbitrarily increase notice periods when awarding Wallace damages. Rather, Wallace damages are only available where the employee “can prove that the manner of dismissal caused mental distress that was in the contemplation of the parties” and that Wallace damages “will be awarded not through an arbitrary extension of the notice period, but through an award that reflects the actual damages.” Examples of conduct of dismissal resulting in additional damages for the bad faith manner of dismissal include:
Attacking the employee’s reputation by declarations made at the time of dismissal;
Misrepresentation regarding the reason for the decision to dismiss the employee;
Dismissals meant to deprive the employee of a pension benefit or other right;
Wrongfully accusing an employee of theft;
Reassuring an employee about their job security while simultaneously contemplating the employees’ termination;
Firing an employee upon return from disability leave; and
Advertising the employee’s position prior to advising the employee that he/she is terminated.
As a result, employees claiming Wallace damages will have to prove an actual loss as a result of the employer’s conduct opposed to the court arbitrarily selecting an increased notice period. In addition, the SCC reiterated that “the normal distress and hurt feelings resulting from dismissal are not compensable”. Rather, the conduct of the employer at the time of dismissal must be particularly egregious to justify awarding additional damages for the bad faith manner of dismissal.
Punitive Damages
Punitive damages are additional damages designed to deter and denounce particularly egregious conduct. In the wrongful dismissal context they are only recoverable where the employer’s conduct gives rise to an independent “actionable wrong”. This means that there must be an independent legal claim, in addition to the termination of employment, to justify an award of punitive damages.
The lower courts held that discriminatory behaviour that violates the Ontario Human Rights Code constituted an independent actionable wrong. The SCC overturned the punitive damages decision holding that a breach of human rights legislation cannot serve as an independent actionable wrong. Further, the SCC confirmed that human rights claims are to be dealt with by human rights tribunals, not by the courts.
If you would like more information on the issues discussed in this briefing please contact any member of the Labour and Employment Group.
© 2008, Lawson Lundell LLP. All rights reserved. This brief is provided for general information purposes only and should not be relied on as legal advice or opinion.
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