On June 27, 2008, the Supreme Court of Canada issued its much anticipated decision in Honda Canada Inc. v. Keays 2008 SCC 39.

In the decision, which some view as a victory for employers, the court modified the manner in which Wallace damages are calculated and provided further clarification on when they, along punitive damages, should be awarded in the employment context.

As part of its analysis on Wallace damages, the SCC also provided some guidance to employers on the extent of their right to medical information in accommodation cases.

Background

Mr. Keays had been employed by Honda for 14 years when his employment was terminated in March 2000. At the time, he was in a data entry position.

In the three years prior to his employment being terminated, Mr. Keays had: (1) been diagnosed with Chronic Fatigue Syndrome; (2) been off work and receiving disability benefits from an independent insurance carrier for a period of time until they were discontinued on the basis that he was able to return to work; and (3) been placed in Honda's Disability Program.

While in the Disability Program, Mr. Keays missed more work than his physician had predicted he would and, as time wore on, Honda became dissatisfied with the "cryptic" medical notes that he submitted.

As such, Honda first retained an independent physician to evaluate Mr. Keays. It then decided to ask Mr. Keays to meet with an occupational medicine specialist to determine how his disability could be accommodated.

Around the same time, and without having met with the specialist, Mr. Keays retained a lawyer to attempt to mediate his concern that his employment would be terminated. The lawyer wrote a letter to Honda, but Honda did not respond because it was their practice to deal with employees directly, not through third party advocates.

When Honda met with Mr. Keays he agreed to see the specialist. However, the next day he advised Honda that, on the advice of his lawyer, he would not see the specialist without an advance explanation of the purpose, methodology and parameters of the consultation.

Mr. Keays then did not come to work for a week claiming his was sick. On his return, Honda provided him with a letter in which it stated that if he did not meet with the specialist, his employment would be terminated. Mr. Keays remained unwilling to do so and his employment was terminated. Subsequently, his medical condition worsened.

Trial Judge

The trial judge awarded Mr. Keays: (1) a notice period of 15 months; (2) 9 additional months in Wallace damages; and (3) $500,000 in punitive damages.

In awarding the Wallace damages, the judge pointed to the "egregious bad faith displayed by Honda in the manner of this termination and the medical consequences flowing therefrom".

In awarding punitive damages, the judge found that "Honda committed a litany of acts of discrimination and harassment in relation to his [Mr. Keays] attempts to resolve his accomodation difficulties" and found that Honda "conspired" to install its own doctor into the situation and exclude Mr. Keays' doctors.

Ontario Court of Appeal

The Ontario Court of Appeal unanimously upheld the notice period and Wallace damages, but a majority of the court held that the punitive damages should be reduced to $100,000.

Supreme Court of Canada

The Supreme Court of Canada upheld the 15 month notice period but set aside the Wallace damages and the punitive damages.

In doing do, the SCC took the opportunity to clarify and redefine some key aspects of the law of damages in the employment/wrongful dismissal context.

Wallace/Moral Damages

As it relates to what has been characterized as Wallace damages, the SCC stated:

• In cases where the manner of dismissal causes mental distress that was in the contemplation of the parties at the time of the contract was formed, the plaintiff is entitled to recover such damages.
  
• The normal distress and hurt feelings resulting from dismissal are not compensable. Damages resulting from the manner of dismissal are available if they result from the circumstances described in Wallace (i.e., unfair dealings or bad faith).

• Such damages should not be calculated by an extension of the notice period. Rather, the amount is to be fixed according to the "Hadley" principle in the same way as in all other cases dealing with "moral damages".
• There is no reason to retain a distinction between aggravated damages resulting from a separate cause of action and moral damages resulting fron the manner of  dismissal.
  

Applying this to Mr. Keays case, the SCC found that Wallace damages weren't warranted because the trial judge had made a number of palpable and overriding errors, with two in particular colouring his judgment:

1. that Honda's "misconduct" was "planned and deliberate and formed a protracted corporate conspiracy"; and
2. that Honda's "outrageous conduct had continued for five years, when in fact the problem periods was no more than seven months".

The SCC also found that Honda's request that Mr. Keays see a company physician - who took a "hardball" approach - after an extended period of accomodation did not amount to bad faith. Nor did Honda's refusal to deal with Mr. Keays' lawyer while he was still employed.

Punitive Damages

As it relates to punitive damages, the SCC noted that:

• Punitive damages are restricted to advertent wrongful acts that are so malicious and outrageous that they are deserving of punishment on their own.
  

• In order for the court to award punitive damages, the employer must have committed an independent "actionable wrong". That is, action or conduct that gives rise to an independent legal claim. Notably, the independent wrong does not require an independent tort and a breach of the contractual duty of good faith could qualify.
  

• The lower courts should question whether punitive damages are necessary for the purposes of denunciation, deterrence and retribution, in cases where Wallace damages have been awarded.

Notably, in this case, the trial judge had awarded punitive damages on the basis of discriminatory conduct by Honda.

The SCC noted, however, that based on the decision in Bhadauria, a breach of the Ontario Human Rights Code cannot constitute an independent actionable wrong.

Mr. Keays further argued that the decision in Bhadauria should be set aside and that a separate tort of discrimination should be recognized. The SCC, however, did not deal with this argument, finding on the facts that there was no evidence of discrimination to support a claim under the Ontario Human Rights Code. It also stated that the argument that Honda's Disability Program itself was discriminatory was not supported by the facts.

Finally, on a factual analysis, the SCC found that Honda's conduct was not sufficiently egregious or outrageous to warrant an award of punitive damages.

Honda Canada Inc. v. Keays, 2008 SCC 39