The Supreme Court of Canada has released its long-awaited decision in Honda v. Keays. In that case, the employee became disabled but the employer started to have doubts about the truthfulness of the employee and his numerous absences. As such, the employer required the employee to have an assessment from its own doctor to determine the extent of the employee’s disability. The employee refused to go for the assessment, the employer treated this refusal as improper and fired the employee and the wrongful dismissal action was started.
The trial judge gave a HUGE judgment in favour of the employee. The employee received 15 months’ pay in lieu of notice, but this was then increased to 24 months on the basis of what are known as Wallace damages for improper conduct in the way that the employee was fired, and punitive damages of $500,000 were also awarded. When the decision came out, the employment lawyers in Ontario (and elsewhere) went “Whoa!”.
The case was appealed and the Court of Appeal upheld most of the trial decision, except that the punitive damage award was reduced from $500,000 to $100,000. The employment lawyers, again, went “Whoa!”. The Supreme Court has overturned the lower courts and restored what one would have expected originally from the trial judge. In doing so, they have clarified some of the rules.
In recent years, wrongful dismissal actions have sought all sorts of damages – damages for the proper notice period, aggravated damages, special damages, punitive damages, Wallace damages, you name it. The decision in Keays is likely to reduce the number of the categories of damage claimed and especially the number of claims for punitive damages.
The first item of note is that the practice by the trial courts of increasing the notice period to account for Wallace damages is to stop. The Supreme Court has said that the lower courts should instead fix an amount (eg. $10,000) for these damages. At first blush, this would seem to matter little. For example, if you had an employee making a net $2,500 per month and the court awarded an extra 4 months to the notice period, that gets you to the same point as if the court awarded a fixed amount of $10,000. The difference, though, is that the Supreme Court has noted that such increases in the notice period tend to be arbitrary. I’m not sure that this is the case, but the difference is that if a fixed amount is awarded it will have to conform with other awards given in other cases. For example, Wallace damages are awarded for compensation for things like mental suffering. Well, if the average award for mental suffering arising out of, say, car crash cases is only $5,000, then it is now going to be difficult for a court in an employment law case to award $10,000 in Wallace damages. When the number was put in the form of additional notice period time the amount ultimately being awarded was not as apparent as it will be now.
The second item deals with the surprise by employment lawyers at the size of the award originally given (and mostly upheld). The Supreme Court has held that wrongful conduct in terminating an employee is compensated by Wallace damages. To then go on and use that wrongful conduct as the basis for punitive damages amounts to double-compensation. Punitive damages should only be used to punish the employer for conduct which is not otherwise compensated for by the award of Wallace damages. This aspect will see a greatly restricted role for punitive damage claims by employees and awards for these damages by the trial courts.
The third area of interest was the refusal by the Supreme Court to recognize, at least in this case, an independent action for the “tort of discrimination”. Many years ago the Supreme Court recognized that a person could not sue in the civil courts for breaches of the Human Rights Code. It was held that if a breach occurred, then a complaint should be made to the Human Rights Commission and that was the proper approach. In Keays, part of the basis for punitive damages was the fact that Honda had allegedly discriminated against the employee on the basis of his disability. The Ontario Court of Appeal upheld this position on the basis that the prior Supreme Court ruling only applied to “direct” breaches of the Human Rights Code. Mr. Keays had tried to make such a direct claim and it was rejected by the trial judge. However, the Court of Appeal held that the breach of the Human Rights Code could be taken into account as part of the punitive damages award (ie. an indirect claim for the breach). As such, according to the Court of Appeal, the prior Supreme Court decision did not apply and punitive damages on this basis could still be awarded. Not quite, says the Supreme Court in today’s decision. On the facts they found that there was no breach of the Code, but even if there were such a breach, there was nothing to show why the old ruling should not still be applied. As such, no punitive damages can be awarded on the basis of the alleged discrimination – the employee can bring a complaint if he wishes for this aspect of the claim.
The fourth point of interest is that in reviewing the facts of the case, the Supreme Court concluded that the manner in which Mr. Keays was fired and the other surrounding circumstances were not sufficient to justify either Wallace damages or punitive damages. This is an interesting contrast in that both the trial court and the Court of Appeal (in upholding most of the trial judgment) held that Honda had acted very poorly indeed. The likely result of this aspect of the case is that future trial courts will be more “gun shy” to find that employers have acted so maliciously, etc. to justify such damage awards.
From time to time the Supreme Court issues a ruling and the trial courts seem to go crazy with it. For example, in one criminal case the Supreme Court said that criminal trials should be heard within a certain time period and, if not, the criminal is released because his/her Charter right to a speedy trial have been violated. The lower courts took the word “should” and interpreted that to mean “must” and criminals were being let go left, right and centre. A few years later the Court had to issue another ruling saying “no, we meant “should”, so stop letting all these criminals go except in truly serious cases.”
The decision in Keays is another of these types of cases. This time the Court is saying “yes, there can be Wallace damages, but you lower courts have gone a little overboard in the wrongful dismissal awards you’ve been handing out, so we’re reeling you in a bit.”
In the end, the Court has provided some guidance and employers everywhere are probably now saying “Whoa! We just dodged a bullet.”