Wrongful Dismissal by Cristen Gleeson

Two types of damages commonly received for wrongful dismissal: (1) conduct in the manner of dismissal and (2) punitive damages

In a decision called Honda Canada Inc. v. Keays, Mr. Justice Bastarache of the Supreme Court of Canada reduced the amount employers will pay for two types of damages commonly received for wrongful dismissal: (1) conduct in the manner of dismissal and (2) punitive damages.

It is worth noting the facts of the case. Mr. Keays had worked for 11 years as an assembly line employee and later in data entry for Honda Canada. In 1997, Mr. Keays was diagnosed with chronic fatigue syndrome. Mr. Keays went off work in 1997 and received disability benefits from his employer’s insurer until 1998 when he returned to work. When he returned to work, Mr. Keays was placed in a disability program that allows employees to take absences from work if they provide a doctor’s note confi rming their absences are related to their disability. The employer became concerned about the frequency of Mr. Keays’ absences. The employer asked Mr. Keays to meet with an occupational medicine specialist in order to determine how Mr. Keays’ disability could better be accommodated. Mr. Keays consulted his lawyer, who advised him not to meet with the specialist. In March of 2000, the employer gave Mr. Keays a letter stating that it supported Mr. Keays’ full return to work, but that Mr. Keays’ employment would be terminated if he refused to meet with the specialist. Mr. Keays remained unwilling to meet with the specialist and the employer terminated Mr. Keays’ employment. Mr. Keays sued the employer for wrongful dismissal, and at trial received $500,000 in punitive damages, in addition to damages for conduct in the manner of dismissal. Mr. Keays’ total award was $610,000 which included an extension of the notice period to 24 months. The Ontario Court of Appeal, reviewing the trial judge’s decision, reduced the period of damages award to $100,000 and otherwise upheld the trial level decision.

Before discussing the decision in Keays v. Honda Canada further, it might be useful to outline some of the basic principles of wrongful dismissal. What is wrongful dismissal? There is an implied obligation in every employment contract for the employer to give reasonable notice of an intention to terminate its relationship with the employee in the absence of just cause. If an employer fails to provide reasonable notice of termination to the employee, the employee may have a claim for wrongful dismissal.

The Supreme Court of Canada in Keays v. Honda Canada established that only a contract intending that a party secure a psychological benefit requires damages to be awarded for mental distress as the result of a breach of the contract. The Supreme Court of Canada described a contract of employment as being one that is subject to cancellation on notice without regard to the ordinary psychological impact of the decision. The Court reasoned that because dismissal is a clear legal possibility at the time the employment contract is formed, the parties do not contemplate psychological damage at the time of forming the employment contract. For this reason, the Court stated that additional damages for the manner in which the employee was terminated are not generally available in the context of employment contracts. This constitutes a clear shift in the law from wrongful dismissal cases decided prior to Keays v. Honda Canada.

The Court stated that damages will be available for the manner in which an employer dismisses its employee only where the employer is clearly unfair or acts in bad faith by being, for example, untruthful, misleading or unduly insensitive, attacking the employee’s reputation by declarations made at the time of the dismissal, misrepresentation regarding the reason for the dismissal or dismissing an employee to deprive the employee of a pension benefit or other right. The Court also clarified that where damages are awarded for the manner in which the employer dismissed the employee, the Court should not use an extension of the notice period to calculate the amount of the award, but should simply fi x the amount of damages by picking an appropriate dollar amount which the Court considers to be adequate compensation.

The Supreme Court of Canada, unlike the trial decision and that of the Ontario Court of Appeal, found that Mr. Keays was not entitled to damages for the manner in which Honda Canada had dismissed him from his employment.

The Supreme Court of Canada also addressed punitive damages. Prior to the decision in Keays v. Honda Canada, employees who successfully sued their employer for wrongful dismissal frequently received damages for both the manner of the dismissal and punitive damages.

Punitive damages preceding the decision in Keays v. Honda Canada were not only awarded frequently, but they were often significant. Mr. Keays’ $500,000 punitive damages award provides only one such example.

Punitive damages are restricted to damages for advertent wrongful acts that are so malicious and outrageous that they are deserving of punishment on their own. The Supreme Court of Canada clearly set out that a trial judge must first assess the amount of damages already awarded in determining whether or not to award punitive damages and must be alive to the fact that damages already awarded have a punishing effect against the employer in their own right.

The trial judge in Keays v. Honda Canada had found the following conduct by Honda Canada warranted punitive damages:

The fact that Honda Canada discriminated against Mr. Keays by asking him to bring in a doctor’s note to justify each absence;

The insinuation that Mr. Keays should consider taking a position with a lighter physical component; and

The conclusion by the trial judge that Honda Canada had cancelled its accommodation of Mr. Keays to retaliate against Mr. Keays for his decision to retain a lawyer.

The Supreme Court of Canada overturned the punitive damages award, thereby eliminating Mr. Keays’ $500,000.

The decision in Keays v. Honda Canada is the Supreme Court of Canada’s largest step away from the traditional very high liability of the employer for punitive damages and damages for conduct in the manner of dismissal. Even despite this decision, however, an employer’s liability for wrongful dismissal can be significant.

Employers must be cautious in treatment of employees. Seeking independent legal advice from an experienced lawyer is recommended. Employees should be aware that they are entitled to due notice prior to any termination by their employer that is without just cause.