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Posted on March 1st 2009 in Employment Law

Damages for Bad Faith Dismissals

Recently, Canada’s top court clarified and redefined some important aspects of the law of damages in the context of wrongful dismissal. Honda Canada Inc. v. Keays, 2008 SCC 39 is a case that made headlines because of the $500,000 punitive damage award allowed by the trial judge who heard the case.

The Facts
The case involved Kevin Keays, who had spent his adult years working for the Honda plant in Alliston, Ontario. In 1997, after 11 years with Honda, Keays was diagnosed with chronic fatigue syndrome. He stopped working and began receiving disability benefits. After a year, the benefits were discontinued, since the insurer felt that Keays was ready to return to work.

Upon his return to work, Keays was placed into a program that Honda had instituted for employees who needed to absent themselves from work on a regular basis because of disability. However, when Keays began to miss work more frequently, his employer became concerned and asked him to meet with their occupational medical specialist. Despite his initial willingness to do so, Keays ultimately refused on the advice of his lawyer.
Keays subsequently missed a week of work. When he returned to work, he was given a letter by the employer summarizing their earlier meeting with him, requesting that he see their specialist and indicating that his employment would be terminated if he did not do so. When he continued to refuse, they terminated his employment. Keays sued for wrongful dismissal.

The Lower Court Decisions
The trial judge concluded that Keays had been wrongfully dismissed and that he had been entitled to 15 months notice. Based on what he described as the “egregious bad faith displayed by Honda in the manner of this termination and the medical consequences flowing therefrom”, the trial judge increased the notice period by an additional nine months, to 24. In addition, the trial judge found that Honda was part of a conspiracy to interfere with Keays’ medical treatment. On this basis he was awarded punitive damages in the amount of $500,000.

The Ontario Court of Appeal essentially upheld the trial judge’s findings and award. It did however, reduce the punitive damage award to $100,000.

The Supreme Court of Canada
Although the Supreme Court agreed that Keays had been wrongfully dismissed, they found that the trial judge had made a number of significant overriding and palpable factual errors, such that most of the award could not be supported.

As mentioned above, this case provided Canada’s highest court with the opportunity to address some of the key issues which should be canvassed in a wrongful dismissal case.

The Notice Period
They addressed the factors which should be considered in determining the length of the notice period, including:
o Character of the employment.
o Length of service.
o Age of the employee.
o Availability of similar employment, having regard to the experience, training and qualifications of the employee.

The Court also reiterated that no one factor was more significant than another and therefore none should be given any disproportionate weight.

Damages for Bad Faith Conduct
The second point they looked at involved the “Wallace damages”. Wallace was a 1997 Supreme Court of Canada decision that set out the principle that an employee is entitled to additional compensation if there is bad faith conduct in the manner of dismissal. Since that decision, Canadian courts have been awarding Wallace damages by simply extending the amount of notice a dismissed employee is entitled to. The Court in the Honda case referred to this method of calculating damages as “an arbitrary extension of the notice period.”

The Court has now clarified that if the employee can prove that the manner of dismissal caused him/her mental distress and that this was in the contemplation of the parties, those damages will be compensated through an award that reflects the actual damages suffered. In other words, rather than simply increasing the notice period, bad faith conduct should be compensated in the same way as other damages.

The Court went on to provide some examples of what would constitute bad faith conduct, including:
o attacking the employee’s reputation by declarations made at the time of dismissal.
o misrepresentation regarding the reason for the decision.
o dismissal meant to deprive the employee of a pension benefit or other right.

Punitive Damages
A third issue canvassed by the Court was in respect of when punitive damages should be awarded. The Court had this to say, “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.” (Emphasis added.) The Court further stated that courts should resort to punitive damages only in exceptional cases.

With respect to a punitive damage award, the court also indicated that one must ask whether “the allocation of punitive damages was necessary for the purposes of denunciation, deterrence and retribution,” in cases where damages for conduct in dismissal are awarded.

The Decision in Honda
The Supreme Court agreed that Keays had been wrongfully dismissed and that the award of 15 months notice should be maintained. However, the evidence did not support the trial judge’s findings that Honda had behaved egregiously when it dismissed Keays. Rather, its request for a meeting between Keays and its medical specialist was normal in the circumstances. For this reason, the additional nine months was disallowed. For similar reasons, the punitive damage award was also disallowed.

The Lessons
This case demonstrates that in situations where an employee’s health concerns must be accommodated, that all parties must participate in a solution. Therefore, if you are an employee who is experiencing a period of disability it is important to cooperate with your employer’s reasonable requests for medical information.

If you are an employer you should always strive to treat your employees fairly and with dignity. This does not mean, however that a proactive approach to getting employees back to work will be seen negatively by the courts.

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