Honda v. Keays: A Landmark Case For Employment Rights

Last Friday the Supreme Court handed down its ruling on Honda v. Kevin Keays, 2008 SCC 39. Considered a watershed employment law case, Keays had no less than nine intervenors and has been the subject of much attention in both the legal community and the media. TheCourt.ca contributor Michael Lynk provided a useful analysis of the case in February that can be read here. At issue in Keays is whether a breach of human rights legislation should attract punitive damages in cases of wrongful dismissal.

Mr. Keays, an employee at Honda Canada Inc., was diagnosed with chronic fatigue syndrome and was placed in the company’s disability program. The program allowed him to miss work on the condition that he provide a doctor’s note confirming that his absences were related to his disability. Honda alleged, however, that as Mr. Keays’s absences became more frequent, his doctor’s notes grew cryptic, causing the company to suspect that the notes were not an independent assessment of Mr. Keays’s fitness to work.

Honda arranged for Mr. Keays to see a company-approved doctor but he refused, stating that Honda needed to first explain the purpose and methodology behind their request. Eventually Honda terminated Mr. Keays’s employment for failure to proceed with the medical assessment they had proposed and for failing to return to work.

Keays sued Honda for wrongful dismissal and the Ontario Superior Court awarded him fifteen months’ salary in lieu of notice and an additional nine months’ salary for Honda’s misconduct in the manner of dismissal. It also awarded him an unprecedented $500,000 in punitive damages – the largest in Canadian employment history – for Honda’s “high-handed and outrageous” behaviour in breaching the Ontario Human Rights Code. Although the Ontario Court of Appeal later reduced this sum to $100,000, observers have read both decisions as a sign that employers could be punished harshly for discrimination and failing to accommodate disabled employees. The Supreme Court holding, however, represents a defeat for employee and disability rights advocates, as the 7-2 majority threw out all punitive damages and reduced Keays’s award to the standard fifteen months’ salary given in lieu of notice.

Writing for the majority, Bastarache J. found “considerable duplication in the award of damages for conduct in dismissal and punitive damages,” and sought to clarify the difference between the two:

Damages for conduct in the manner of dismissal are compensatory; punitive damages are restricted to advertent wrongful acts that are so malicious and outrageous that they are deserving of punishment on their own. This distinction must guide judges in their analysis. (para. 62)

Bastarache J. found that neither type of remedy applied to Keays. With regard to Honda’s conduct during termination and Keays’s subsequent mental aggravation, Bastarache held that any “damages attributable to conduct in the manner of dismissal are always to be awarded under the Hadley principle” of contract law (para. 59). Hence an employer is only liable for damages flowing from a wrongful dismissal that were in her reasonable contemplation, typically because she was acting in bad faith. Furthermore, “the normal distress and hurt feelings resulting from dismissal are not compensable” (para. 56). Bastarache J. concluded that, contrary to the trial judge’s findings, Honda did not act in bad faith and thus there was no reason to award damages for Honda’s conduct in dismissal.

More importantly, with regard to punitive damages the Court dismissed Keays’s argument that a separate tort of discrimination – argued unsuccessfully in Seneca College of Applied Arts and Technology v. Bhadauria, [1981] 2 S.C.R. 181 – should be reconsidered. Instead, the court held steadfastly to the Bhadauria precedent, which determined that “a plaintiff is precluded from pursuing a common law remedy when human rights legislation contains a comprehensive enforcement scheme for violations of its substantive terms” (para. 63). Tor the purposes of punitive damages, a wrongful dismissal amounting to a breach of the provincial human rights code does not constitute an actionable wrong per se. Instead, the presence of an independent actionable wrong is just one factor to consider when awarding punitive damages; just as important is evidence of extreme and malicious behaviour on the part of the employer. The majority did not believe Honda’s conduct was acutely vindictive or reprehensible enough to attract punitive damages.

LeBel J. and Fish J. partially dissented. They agreed with the law set out by the majority and that punitive damages were inapplicable here, but found that there was enough evidence to conclude that Honda was acting in bad faith. They also felt “it was not necessary…to preclude all common law actions based on all forms of discriminatory conduct,” thus inviting further future challenges to the Bhadauria ruling.

Although the Court’s decision in Keays greatly clarifies how damages should be assessed in cases of wrongful dismissal, the Court was silent on another pertinent issue (posed by Michael Lynk in the article previously referred) of the scope of the employer’s duty to accommodate an employee’s disability. As Honda did not challenge the trial court’s finding of wrongful dismissal, the Supreme Court focused solely on remedial concerns without revisiting the question of whether Honda made reasonable efforts in addressing Keays’s disability. It will therefore be difficult for advocates of disability rights to interpret Keays’s ultimate contribution to the employer’s duty to accommodate.