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SCC Revisits Damages in Employment Law
July 4, 2008

On June 27, 2008, the Supreme Court of Canada released its decision in Honda Canada Inc. v. Keays. The decision significantly changes many aspects of Canadian employment law.

Background

Mr. Keays, an employee of Honda, was diagnosed with chronic fatigue syndrome. He was placed on long-term disability which was ultimately discontinued by his insurance carrier. Keays then returned to work at Honda and, over a two-year period, was frequently absent from work. Honda requested that Keays meet with an occupational medical physician to assess how his medical condition could be accommodated in the workplace. In response, Keays retained a lawyer, and acting on legal advice, refused to meet with Honda’s doctor without a number of pre-conditions. In response, Honda instructed Keays that he would be terminated unless he agreed to attend the assessment with the physician.

After ignoring several warnings from Honda, Keays was fired. He sued for wrongful dismissal and claimed aggravated and punitive damages for allegedly insensitive conduct on the part of Honda.

At trial, Keays was awarded 15 months, pay in lieu of reasonable notice. The trial judge concluded Honda had committed acts of discrimination, harassment and misconduct against Keays and awarded him an additional nine months pay for bad faith (or “Wallace“) damages and $500,000 in punitive damages. On appeal, the Ontario Court of Appeal did not vary the decision except to reduce the punitive damage award to $100,000.

In its 7-2 majority decision, the Supreme Court of Canada struck out the claims for Wallace and punitive damages entirely. In the context of doing so, the Court made a number of significant changes and clarifications to Canadian employment law.

Assessment of Notice Periods

The Supreme Court of Canada affirmed that the traditional Bardal v. Globe and Mail factors used to assess the period of reasonable notice remain appropriate. These factors include, but are not limited to, the character of employment, the length of service, the age of the employee and the availability of similar employment.

However, the Court reiterated that an assessment of the period of reasonable notice must be undertaken on a case-by-case basis and that no one Bardal factor should be given inordinate weight. This may blunt the trend in recent years for courts to presume that senior employees are entitled to significantly higher notice periods.

Going forward, employees will have to present evidence of their specific duties and how the character of their employment actually impacts the period of reasonable notice.

Attendance Management – Right to Medical Information

The Supreme Court recognized that the need to monitor the absences of employees who are regularly absent from work is a bona fide occupational requirement in light of the nature of the employment contract and the responsibility of every employer to manage its workforce. This statement is in stark contrast to recent pronouncements from the British Columbia Human Rights Tribunal respecting attendance management programs.

In addition, the Supreme Court confirmed that employers have the right to obtain medical information which is necessary to determine if and how an employee can be accommodated in the workplace. Reasonable demands for this medical information, including requests for an employee to be seen by a company physician, should not constitute a basis for damages against an employer.

Wallace / Bad Faith Damages

In its 1997 decision in Wallace, the Supreme Court concluded that where an employer engaged in bad faith conduct in the manner of dismissal, an employee could claim additional “bad faith” damages. These damages took the form of an extension of the reasonable notice period. If an employee wished to claim additional aggravated damages from an employer, they had to demonstrate an independent actionable wrong – that is, conduct by an employer which stood apart from the dismissal as a distinct cause of action.

While Wallace damages have been consistently awarded since 1997, the treatment of claims for aggravated damages in the employment law context was clouded by the 2006 decision of the Supreme Court of Canada in Fidler v. Sun Life Assurance Co. of Canada 2006 SCC 30. There, the Supreme Court concluded that it was no longer necessary in law that there be an independent actionable wrong before damages for mental distress could be awarded for breach of a contract. While Fidler did not concern an employment contract, it did create uncertainty for employers.

The Court revised the test for an award of Wallace damages, eliminating the previous distinction between ‘true aggravated damages’ resulting from a separate cause of action and ‘moral damages’ resulting from the manner of dismissal. Now, if an employee can prove the manner of dismissal caused mental distress that was, in the contemplation of, or foreseeable by, the parties, damages will be awarded to reflect the actual harm suffered. The normal hurt and distress arising from the dismissal itself is not compensable. Damages will no longer be awarded based on an arbitrary extension of the period of reasonable notice.

Damages for the manner of dismissal are foreseeable where the employer’s conduct is “unfair or in bad faith, for example, untruthful, misleading or unduly insensitive.” Examples of such conduct identified by the Supreme Court include attacking the employee’s reputation, misrepresenting the reason for the dismissal or dismissal meant to deprive the employee of a pension benefit or other right.

Punitive Damages

The Supreme Court also reviewed the law of punitive damages in the employment context. It has confirmed that punitive damages are meant to punish the employer and should only be awarded in exceptional cases. On the facts in Keays, an award of punitive damages was not justified.

For an employee to succeed with an award of punitive damages, the employer’s conduct must be “vindictive, reprehensible, malicious”, or so extreme that it is “deserving of full condemnation and punishment.” The employee must still demonstrate an independent actionable wrong to succeed with a claim for punitive damages.

Importantly, the Supreme Court concluded that an employer’s breach of human rights legislation does not constitute the basis for an award of punitive damages. This removes some uncertainty in the law in British Columbia (and certain other jurisdictions) that such breaches could serve as the “independent actionable wrong” upon which to base a claim for punitive damages.

Tort of Discrimination

Since the decision of the Supreme Court of Canada in Seneca College of Applied Arts and Technology v. Bhadauria, [1981] 2 S.C.R. 181, it has been accepted that there is no common law tort of discrimination, as human rights legislation provides a complete code for redress for victims of discrimination.

Despite a cross-appeal from Keays seeking that a separate common law tort of discrimination be recognized, the Supreme Court refused to revisit this issue and, for the time being, employers have some certainty that non-unionized employees alleging discrimination must pursue their remedy under provincial or federal human rights legislation.

Right to Legal Representation

Helpfully for employers, the Supreme Court has concluded that there is no legal obligation on the part of an employer to deal with an employee’s counsel while that employee is still employed. Employers and employees are always entitled to deal with each other directly.

Conclusion

The Keays decision represents a welcome swing of the pendulum towards the rights of employers to effectively manage their workplace without raising the spectre of massive damages awards.

If you have any que
stions arising from the above decision, please feel free to contact any member of the Harris & Company LLP employment law group.

Honda Canada Inc. v Keays 2008 SCC 39