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On March 17, 2005, the Ontario Superior Court of Justice released a decision that contains one of the highest awards for damages in an employment law case that Canada has ever seen. In the controversial decision of Keays v. Honda Canada Inc. ([2005] O.J. No. 1145), Mr. Justice McIsaac granted a total of 24 months' salary in lieu of notice and an additional $500,000 in punitive damages to a 14-year employee of Honda Canada Inc., who he found had been wrongfully terminated for insubordination. Given the unprecedented nature of this award, most lawyers expect the decision to be appealed. If upheld, this decision could break new legal ground for the quantum of damages awarded in employment law cases. Moreover, because the punitive damages were awarded for a breach of the duty to accommodate under the Ontario Human Rights Code, future complainants may seek a civil remedy rather than file a complaint under the Code.

The facts

Kevin Keays worked as an associate in the Quality Engineering Department at the Honda plant in Alliston, Ontario. Keays was responsible for instructing his colleagues on the performance and operation of the new Honda global computer system. After an eight-year exemplary employment record, Keays began experiencing health problems, which his physician diagnosed as Chronic Fatigue Syndrome ("CFS"). As a result of this condition, Keays was frequently absent from work. This impacted on his ability to provide sufficient attendance to satisfy the requirements of Honda's "lean" operations. His health deteriorated to the extent that Keays was absent on short-term and long-term disability for a period of two years. He returned to work following the termination of his insurance benefits.

Upon his return to work, Keays continued to miss work on a regular basis. As a result, he was "coached" by way of a written report, which was the first step in Honda's attendance management program. When Keays complained that his illness prevented him from meeting Honda's attendance expectations, he was informed of a program that exempted employees from attendance-related discipline if they had a disability recognized under the Code. The accommodation program also required Keays to validate each of his absences with a note from his physician. In the meantime, Keays retained legal counsel and his absences continued to increase in number.

The nature and severity of Keays' CFS disorder was also controversial. An internal physician at Honda expressed concerns about the treatment Keays' personal doctor had recommended. He also expressed the view that Keays should be on a graduated return-to-work program. Consequently, Honda engaged the services of a medical specialist, who was asked to review Keays' medical file and consider whether his absences were justified. In order to obtain a better understanding of his medical condition, the specialist requested that Keays attend at his office for an assessment. By letter from his legal counsel, Keays declined to attend this meeting "pending clarification of the purpose, methodology and the parameters of the assessment." As Honda did not believe such an explanation was necessary, it made another request for Keays to attend at the physician's office. When Keays refused again, he was formally terminated for insubordination. Keays responded with a lawsuit against Honda, claiming wrongful dismissal.

The decision

Throughout the decision, the Court expressed its astonishment at Honda's "callous and insensitive treatment" of Keays, given his vulnerable state of health and his conscientious attitude towards work. In holding that Keays had been wrongfully dismissed, the Court found that Honda had been unreasonable in refusing to give Keays an explanation for the purpose of the proposed meeting and that Keays therefore had a legitimate excuse for not attending the meeting. The Court also held that Honda's decision to terminate Keays was completely disproportionate to his alleged insubordination. Accordingly, the Court concluded that Keays had been justified in refusing to follow his employer's directions.

The damage award

On the basis of Keays' age, length of employment, character of employment and the availability of similar employment, the Superior Court ruled that he was entitled to 15 months' pay in lieu of notice. The Court also stressed Honda's flat and egalitarian management structure as a reason for a longer notice period, despite Keays' relatively low-level position.

The Court also awarded an additional nine months' pay for "bad faith" damages, relying on the Supreme Court of Canada decision in Wallace v. United Grain Growers Ltd. [(1997), 152 D.L.R. (4th) 1], which held that the extension of notice periods is permitted where the employer engages in bad faith conduct in the course of dismissal. Honda had displayed bad faith behaviour towards Keays, the Court held, by alleging that Keays' claims concerning his condition were false, by unilaterally cancelling the accommodation program, and by making a "planned and deliberate" attempt to terminate Keays.

In what is perhaps the most remarkable aspect of the judgment, however, the Court decided that in addition to the 24-month notice period, the case also warranted an award of punitive damages. The trial judge found that Keays had been harassed and discriminated against by his employer. In very strong language, the judge criticized Honda for terminating Keays' employment when all he was seeking was accommodation of his disability, as was his right under the Code. The judge specifically noted that the maximum penalty of $10,000 under the Code did not come close "to an appropriate deterrence and denunciation of the outrageous and high-handed conduct of this defendant." Taking all this into consideration, the Court stated that Honda's conduct was deserving of "significant denunciation" and, as a result, awarded punitive damages in the amount of $500,000.

The bottom line for employers

The ultimate impact this case will have on employers is not yet clear. Many are concerned that it will open up a floodgate of wrongful dismissal claims from employees seeking limitless amounts of damages. If upheld on appeal, this case will certainly raise the stakes in many wrongful dismissal cases. It may also signal that, in certain cases, complainants will turn to the civil courts rather than the Human Rights Commissions in order to obtain larger damage awards. Much will depend on what the Court of Appeal decides to do in this case.

In the meantime, the Honda case stands, at the very least, as a strong reminder of the risks of litigation and the failure to accommodate disabled employees. However, employers can take some comfort in the knowledge that the Honda decision is quite anomalous. Punitive damages are quite rare in employment law cases and, when they have been awarded, have seldom topped $25,000. For example, in Quebec, where courts are generally reluctant to award punitive damages, according to Article 1621 of the Civil Code of Québec, the amount of such damages may not exceed what is sufficient to fulfil their preventive purpose.

In contrast to the Honda decision, in a recent decision of Mr. Justice Scott Echlin of the Ontario Superior Court of Justice, Yanez v. Canac Kitchens ([2004] O.J. No. 5238), the Court strongly admonished plaintiffs' counsel for indiscriminately claiming "Wallace" damages in too many cases. According to the Yanez decision, "Wallace" damages should be asserted only in cases where the employer has truly engaged in bad faith behaviour that, for example, causes the employee humiliation, embarrassment or injury to his or her self-esteem. The Court also went so far as to say that in future cases, plaintiffs should be deterred from asserting "Wallace" damages which are clearly unjustified and should not have been claimed. Hopefully, this case and others that reflect a similar position, will help to narrow the application of the Honda decision at least until the Ontario Court of Appeal has had the opportunity to weigh in on this matter.

The purpose of this document is to provide information as to developments in the law. It does not contain a full analysis of the law nor does it constitute an opinion of Ogilvy Renault or any member of the Firm on the points of law discussed.

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