Honda Canada Inc. v. Keays, [2008] 2 S.C.R. 362, 2008 SCC 39
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On appeal from the court of appeal for Ontario
K had worked 11 years for the same employer, first on an assembly line and later in data entry, when, in 1997, he was diagnosed with chronic fatigue syndrome. He ceased work and received disability benefits until 1998, when his employer’s insurer discontinued his benefits. K returned to work and was placed in a disability program that allows employees to take absences from work if they provide doctor’s notes confirming that their absences are related to their disability. K’s employer became concerned about the frequency of his absences. Moreover, the notes K offered to explain his absences changed in tone, leaving the employer to believe that the doctor did not independently evaluate whether he missed work due to disability. As such, the employer asked K to meet Dr. B, an occupational medical specialist, in order to determine how K’s disability could be accommodated. On the advice of his counsel, K refused to meet B without explanation of the purpose, methodology and parameters of the consultation. On March 28, 2000, the employer gave K a letter stating that it supported K’s full return to work but that K’s employment would be terminated if he refused to meet B. When K remained unwilling to meet B, the employer terminated K’s employment.
K sued for wrongful dismissal. The trial judge found that K was entitled to a notice period of 15 months. He held that the employer had committed acts of discrimination, harassment and misconduct against K. He increased the notice period to 24 months to award additional damages dependent on the manner of dismissal. He also awarded punitive damages against the employer in the amount of $500,000, a costs premium, and costs on a substantial indemnity scale. The Court of Appeal reduced the costs premium and, in a majority decision, reduced the punitive damages award to $100,000. The Court of Appeal otherwise upheld the trial judge’s decision.
Held (LeBel and Fish JJ. dissenting in part on the appeal): The appeal should be allowed in part and the cross‑appeal should be dismissed. The award of aggravated damages for manner of dismissal and the award of punitive damages should be set aside. The cost premium should be set aside and costs should be adjusted to reflect an award on the regular scale in the lower courts. Costs are awarded to the employer at the Supreme Court level.
Per McLachlin C.J. and Bastarache, Binnie, Deschamps, Abella, Charron and Rothstein JJ.: K was wrongfully dismissed and the award of damages reflecting the need for 15 months’ notice should be maintained. In determining what constitutes reasonable notice of termination, courts should consider the character of the lost employment, the employee’s length of service, the age of the employee, and the availability of similar employment having regard to the experience, training and qualifications of the employee. These factors can only be applied on a case‑by‑case basis and no one factor should be given disproportionate weight. No presumptions about the role that an employee’s managerial level plays should be adopted in determining reasonable notice. The trial judge erred in alluding to the employer’s flat management structure rather than examining K’s actual functions; however, on the facts of this case there is no basis to interfere with the assessment of 15 months’ notice. [2] [25] [28‑30] [32]
An action for wrongful dismissal is based on an implied obligation in the employment contract to give reasonable notice of an intention to terminate the relationship in the absence of just cause. Generally, damages are not available for the actual loss of a job or for pain and distress suffered as a consequence of being terminated. However, in cases where parties have contemplated at the time of the contract that a breach in certain circumstances would cause the plaintiff mental distress, the plaintiff is entitled to recover. This is consistent with the view expressed in Fidler that all compensatory damages for breach of contract are assessed under one rule, i.e., what was in the reasonable contemplation of the parties (Hadley v. Baxendale). In the employment law context, damages resulting from the manner of dismissal will be available if they result from the circumstances described in Wallace, namely where the employer engages in conduct during the course of dismissal that is “unfair or is in bad faith by being, for example, untruthful, misleading or unduly insensitive”. These damages should be awarded through an award that reflects actual damages rather than by extending the notice period. [50] [55] [57] [59]
Aggravated damages should not have been awarded in this case. The employer’s conduct in dismissing K was in no way an egregious display of bad faith justifying an award of damages for conduct in dismissal. On this issue, the trial judge made overriding and palpable errors of fact. The employer’s March 28 letter to K did not misrepresent the positions of its doctors and it should not have been faulted for relying on the advice of its medical experts. There is no evidence that B took a “hardball” attitude towards workplace absences or that K was being set up when asked to meet B. The employer’s request for a meeting between K and B was normal in the circumstances. The employer’s decision to stop accepting doctor’s notes was not reprisal for K’s decision to retain legal counsel. Rather, the employer was simply seeking to confirm K’s disability. Lastly, there is no evidence that K’s disability subsequent to termination was caused by the manner of termination. [34‑35] [38] [40] [43] [46‑48]
Similarly, punitive damages should not have been awarded. Punitive damages are restricted to advertent wrongful acts that are so malicious and outrageous that they are deserving of punishment on their own. The facts of this case demonstrate no such conduct. Courts should only resort to punitive damages in exceptional cases and the employer’s conduct here was not sufficiently egregious or outrageous to warrant such damages. Even if the facts had justified an award of punitive damages, both the trial judge and the Court of Appeal should have been alert to the fact that the compensatory damages already awarded carried, under the old test, an element of deterrence and they should have questioned whether punitive damages were necessary. This failure resulted in considerable and unnecessary duplication in the award of damages. [61‑62] [68-70]
Both the trial judge and the Court of Appeal also erred in concluding that the employer’s “discriminatory conduct” amounted to an independent actionable wrong for the purposes of allocating punitive damages. The Ontario Human Rights Code provides a comprehensive scheme for the treatment of claims of discrimination. A breach of the Code cannot constitute an actionable wrong; therefore the legal requirement for the common law remedy of punitive damages is not met. Since there is no evidence of discrimination to support a claim of discrimination under the Code and no breach of human rights legislation serves as an actionable wrong, there is no need to deal with K’s request for recognition of a distinct tort of discrimination. [62] [64] [67]
Per LeBel and Fish JJ. (dissenting in part on the appeal): The award of additional damages for the manner of the dismissal should stand. No overriding errors were committed by the trial judge in this respect and there is a sufficient foundation for findings of bad faith and discrimination. The punitive damages award, however, had no foundation and overlapped with the damages for manner of dismissal, and should be set aside. The costs premium also should be set aside. While a restatement of the law in respect of damages for wrongful dismissal is necessary, any reform must reflect that a contract of employment is a good faith contract informed by the values protected by the human rights codes and the Canadian Charter of Rights and Freedoms, particularly in respect of discrimination. As such, it must be executed and terminated with good faith and fairness. [81‑82] [114] [124]
The evidence supports the trial judge’s findings that the employer was unfairly skeptical and sought to justify K’s termination or to preclude him from being absent from work without discipline in reliance on his condition. It was fair to characterize the employer’s conduct as interference with K’s relationship with his treating physician. B was brought in to second‑guess the opinion of K’s physician and to legitimize efforts to eliminate the need for accommodation. The employer did benefit from K’s termination to the extent that he impeded efficiency goals and affected workplace morale. The employer’s letter of March 28 was misleading and did misrepresent the opinions of its doctors. B did practise a hardball approach in general toward absences and accommodating disabilities and it was not unreasonable to conclude that K was being set‑up for failure by the request that he meet with B. Nor was it a palpable and overriding error to conclude that the employer cancelled K’s accommodation as reprisal for asserting his right to proper accommodation through legal counsel. [87‑91] [94‑95] [99] [112]
Additional or Wallace type damages should be available where the manner of dismissal causes mental distress that was in the contemplation of the parties. There is an obligation of good faith and fair dealing on the part of employers in dismissing employees. There is ample evidence here that the employer acted in bad faith and this is a case where the employer’s failure to properly discharge its obligation made it foreseeable that K’s dismissal would cause mental distress. Most notably, the letter of March 28 mischaracterized the opinions of the employer’s doctors by implying that they did not believe that K’s absences were medically necessary yet neither doctor recommended that K be removed from the disability program or claimed that any absences related to chronic fatigue syndrome are unjustified. A further concern is the employer’s lack of candour and its own uncertainty with respect to the purpose of K’s meeting with B. Its refusal to provide written clarification of the purpose is suspicious. Finally, it is reasonable to conclude that the employer’s conduct and not the mere fact of K’s termination alone, led to K’s worsened state after he was terminated. However, given the lack of evidence on the precise loss K suffered as a result of the employer’s misconduct, the compensation the trial judge granted over and above the 15‑month notice period appears reasonable and should be maintained. [114‑117]
The development of tort law is informed by the prohibitions of human rights codes and the Charter. Discrimination was a troubling aspect of the decision to terminate K and this impacts on the good faith of the termination. While monitoring employee absences is a valid objective, there was no assessment in this case of whether the employer’s method of accommodation and of monitoring K’s absences addressed K’s particular disability. If variable, self‑reporting conditions characterize the very nature of K’s disability, then it is arguable that the employer acted in a discriminatory manner in subjecting K to the kind of scrutiny that occurred, denying him accommodation for his disability. [119‑123]
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BASTARACHE J. —
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3.2 Damages for Conduct in Dismissal
[33] In applying Wallace, the trial judge concluded that Honda’s manner of dismissing Keays was an egregious display of bad faith that warranted an extension of the notice period to 24 months. He made the following findings of fact in support of his award:
- In the letter dated March 28, Honda deliberately misrepresented the views of its doctors.
- Keays was being “set up” when asked to see Dr. Brennan.
- Keays’ condition worsened after the dismissal: he became depressed, developed an adjustment disorder for 3‑4 months, and has been unable to work since then.
- Honda’s decision to cancel the “accommodation” was a form of reprisal for Keays’ retaining legal counsel.
[34] The Court of Appeal concluded that given the factual nature of determining whether Honda acted in bad faith, Honda had to demonstrate that the trial judge committed a palpable and overriding error. It concluded that Honda had failed to demonstrate this and that the trial judge’s decision was sufficiently supported in the evidence. I cannot agree with this conclusion. A proper reading of the record shows that Honda’s conduct in dismissing Keays was in no way an egregious display of bad faith justifying an award of damages for conduct in dismissal.
[35] As earlier mentioned, it is my view that the trial judge made a number of significant overriding and palpable factual errors that relate directly to the factual matrix that justified, according to him, an award of damages for manner of dismissal (Wallace damages). For that reason alone, the decision cannot stand. I will elaborate on this. I note, however, that this case sheds light on the legal problems associated with the allocation of these damages. It is therefore appropriate for this Court to reconsider the Wallace approach and make some adjustments.
3.2.1 The Factual Analysis
[36] None of the four foundations accepted by the trial judge for his “Wallace award” of damages is valid. I will examine them individually.
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3.2.2 The Legal Analysis
[49] The trial judge’s decision in this case highlights the problems we face in dealing with damages for conduct in the context of termination of employment. In particular, it raises questions about the propriety of damages for manner of dismissal, whereby damages are awarded by extending the notice period (Wallace damages). This re-evaluation is mandated particularly by this Court’s recent decision in Fidler v. Sun Life Assurance Co. of Canada, [2006] 2 S.C.R. 3, 2006 SCC 30 (CanLII).
3.2.2.1 Current State of the Law
[50] An action for wrongful dismissal is based on an implied obligation in the employment contract to give reasonable notice of an intention to terminate the relationship in the absence of just cause. Thus, if an employer fails to provide reasonable notice of termination, the employee can bring an action for breach of the implied term (Wallace, at para. 115). The general rule, which stems from the British case of Addis v. Gramophone Co., [1909] A.C. 488 (H.L.), is that damages allocated in such actions are confined to the loss suffered as a result of the employer’s failure to give proper notice and that no damages are available to the employee for the actual loss of his or her job and/or pain and distress that may have been suffered as a consequence of being terminated. This Court affirmed this rule in Peso Silver Mines Ltd. (N.P.L.) v. Cropper, 1966 CanLII 75 (SCC), [1966] S.C.R. 673, at p. 684:
. . . the damages cannot be increased by reason of the circumstances of dismissal whether in respect of the [employee’s] wounded feelings or the prejudicial effect upon his reputation and chances of finding other employment.
[51] Later in Vorvis v. Insurance Corp. of British Columbia, 1989 CanLII 93 (SCC), [1989] 1 S.C.R. 1085, McIntyre J. stated at p. 1103:
. . . I would conclude that while aggravated damages may be awarded in actions for breach of contract in appropriate cases, this is not a case where they should be given. The rule long established in the Addis and Peso Silver Mines cases has generally been applied to deny such damages, and the employer/employee relationship (in the absence of collective agreements which involve consideration of the modern labour law régime) has always been one where either party could terminate the contract of employment by due notice, and therefore the only damage which could arise would result from a failure to give such notice.
[52] The Court in Vorvis nevertheless left open the possibility of allocating aggravated damages in wrongful dismissal cases where the acts complained of were also independently actionable. McIntyre J. stated at p. 1103:
I would not wish to be taken as saying that aggravated damages could never be awarded in a case of wrongful dismissal, particularly where the acts complained of were also independently actionable, a factor not present here. [Emphasis added.]
[53] In Wallace, Iacobucci J. endorsed a strict interpretation of the Vorvis “independently actionable wrong” approach, rejecting both an implied contractual duty of good faith and a tort of bad faith discharge. At para. 73, he said:
Relying upon the principles enunciated in Vorvis, supra, the Court of Appeal held that any award of damages beyond compensation for breach of contract for failure to give reasonable notice of termination “must be founded on a separately actionable course of conduct” (p. 184). Although there has been criticism of Vorvis . . . this is an accurate statement of the law. . . . An employment contract is not one in which peace of mind is the very matter contracted for (see e.g. Jarvis v. Swans Tours Ltd., [1973] 1 Q.B. 233 (C.A.)) and so, absent an independently actionable wrong, the foreseeability of mental distress or the fact that the parties contemplated its occurrence is of no consequence. . . . [Emphasis added.]
[54] This brings us to Fidler, where the Court, per McLachlin C.J. and Abella J., concluded that it was no longer necessary that there be an independent actionable wrong before damages for mental distress can be awarded for breach of contract, whether or not it is a “peace of mind” contract. It stated at para. 49:
We conclude that the “peace of mind” class of cases should not be viewed as an exception to the general rule of the non‑availability of damages for mental distress in contract law, but rather as an application of the reasonable contemplation or foreseeability principle that applies generally to determine the availability of damages for breach of contract.
This conclusion was based on the principle, articulated in Hadley v. Baxendale (1854), 9 Ex. 341, 156 E.R. 145, that damages are recoverable for a contractual breach if the damages are “such as may fairly and reasonably be considered either arising naturally . . . from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties” (p. 151). The court in Hadley explained the principle of reasonable expectation as follows:
Now, if the special circumstances under which the contract was actually made were communicated by the plaintiffs to the defendants, and thus known to both parties, the damages resulting from the breach of such a contract, which they would reasonably contemplate, would be the amount of injury which would ordinarily follow from a breach of contract under these special circumstances so known and communicated. But, on the other hand, if these special circumstances were wholly unknown to the party breaking the contract, he, at the most, could only be supposed to have had in his contemplation the amount of injury which would arise generally, and in the great multitude of cases not affected by any special circumstances, from such a breach of contract. [p. 151]
[55] Thus, in cases where parties have contemplated at the time of the contract that a breach in certain circumstances would cause the plaintiff mental distress, the plaintiff is entitled to recover (Fidler, at para. 42; Vorvis, at p. 1102). This principle was reaffirmed in para. 54 of Fidler, where the Court recognized that the Hadley rule explains the extended notice period in Wallace:
It follows that there is only one rule by which compensatory damages for breach of contract should be assessed: the rule in Hadley v. Baxendale. The Hadley test unites all forms of contractual damages under a single principle. It explains why damages may be awarded where an object of the contract is to secure a psychological benefit, just as they may be awarded where an object of the contract is to secure a material one. It also explains why an extended period of notice may have been awarded upon wrongful dismissal in employment law: see Wallace v. United Grain Growers Ltd., 1997 CanLII 332 (SCC), [1997] 3 S.C.R. 701. In all cases, these results are based on what was in the reasonable contemplation of the parties at the time of contract formation. [Emphasis deleted.]
[56] We must therefore begin by asking what was contemplated by the parties at the time of the formation of the contract, or, as stated in para. 44 of Fidler: “[W]hat did the contract promise?” The contract of employment is, by its very terms, subject to cancellation on notice or subject to payment of damages in lieu of notice without regard to the ordinary psychological impact of that decision. At the time the contract was formed, there would not ordinarily be contemplation of psychological damage resulting from the dismissal since the dismissal is a clear legal possibility. The normal distress and hurt feelings resulting from dismissal are not compensable.
[57] Damages resulting from the manner of dismissal must then be available only if they result from the circumstances described in Wallace, namely where the employer engages in conduct during the course of dismissal that is “unfair or is in bad faith by being, for example, untruthful, misleading or unduly insensitive” (para. 98).
[58] The application of Fidler makes it unnecessary to pursue an extended analysis of the scope of any implied duty of good faith in an employment contract. Fidler provides that “as long as the promise in relation to state of mind is a part of the bargain in the reasonable contemplation of the contracting parties, mental distress damages arising from its breach are recoverable” (para. 48). In Wallace, the Court held employers “to an obligation of good faith and fair dealing in the manner of dismissal” (para. 95) and created the expectation that, in the course of dismissal, employers would be “candid, reasonable, honest and forthright with their employees” (para. 98). At least since that time, then, there has been expectation by both parties to the contract that employers will act in good faith in the manner of dismissal. Failure to do so can lead to foreseeable, compensable damages. As aforementioned, this Court recognized as much in Fidler itself, where we noted that the principle in Hadley “explains why an extended period of notice may have been awarded upon wrongful dismissal in employment law” (para. 54).
[59] To be perfectly clear, I will conclude this analysis of our jurisprudence by saying that there is no reason to retain the distinction between “true aggravated damages” resulting from a separate cause of action and moral damages resulting from conduct in the manner of termination. Damages attributable to conduct in the manner of dismissal are always to be awarded under the Hadley principle. Moreover, in cases where damages are awarded, no extension of the notice period is to be used to determine the proper amount to be paid. The amount is to be fixed according to the same principles and in the same way as in all other cases dealing with moral damages. Thus, if the employee can prove that the manner of dismissal caused mental distress that was in the contemplation of the parties, those damages will be awarded not through an arbitrary extension of the notice period, but through an award that reflects the actual damages. Examples of conduct in dismissal resulting in compensable damages are attacking the employee’s reputation by declarations made at the time of dismissal, misrepresentation regarding the reason for the decision, or dismissal meant to deprive the employee of a pension benefit or other right, permanent status for instance (see also the examples in Wallace, at paras. 99‑100).
[60] In light of the above discussion, the confusion between damages for conduct in dismissal and punitive damages is unsurprising, given that both have to do with conduct at the time of dismissal. It is important to emphasize here that the fundamental nature of damages for conduct in dismissal must be retained. This means that the award of damages for psychological injury in this context is still intended to be compensatory. The Court must avoid the pitfall of double‑compensation or double‑punishment that has been exemplified by this case.
3.2.2.2 Application of the Revised Test to This Case
[61] I have reviewed the major overriding and palpable errors which undermine the trial judge’s finding that Honda acted in “bad faith” when terminating Keays. There was, in my opinion, no such breach and no justification for an award of damages for conduct in dismissal.
3.3 Punitive Damages
[62] In Vorvis, McIntyre J., for the majority, held that punitive damages are recoverable provided the defendant’s conduct said to give rise to the claim is itself “an actionable wrong”. This position stood until 2002 when my colleague Binnie J., writing for the majority, dealt comprehensively with the issue of punitive damages in the context of the Whiten case. He specified that an “actionable wrong” within the Vorvis rule does not require an independent tort and that a breach of the contractual duty of good faith can qualify as an independent wrong. Binnie J. concluded, at para. 82, that “[a]n independent actionable wrong is required, but it can be found in breach of a distinct and separate contractual provision or other duty such as a fiduciary obligation.” In the case at hand, the trial judge and the Court of Appeal concluded that Honda’s “discriminatory conduct” amounted to an independent actionable wrong for the purposes of allocating punitive damages. This being said, there is no need to discuss the concept of “actionable wrong” here; this was done in Whiten. What matters here is that there was no basis for the judge’s decision on the facts. I will therefore examine the facts and determine why punitive damages were not well justified according to the criteria in Whiten. I will also discuss the need to avoid duplication in damage awards. 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. This distinction must guide judges in their analysis.
[63] In this case, the trial judge awarded punitive damages on the basis of discriminatory conduct by Honda. Honda argues that discrimination is precluded as an independent cause of action under Seneca College of Applied Arts and Technology v. Bhadauria, 1981 CanLII 29 (SCC), [1981] 2 S.C.R. 181. In that case, this Court clearly articulated that a plaintiff is precluded from pursuing a common law remedy when human rights legislation contains a comprehensive enforcement scheme for violations of its substantive terms. The reasoning behind this conclusion is that the purpose of the Ontario Human Rights Code is to remedy the effects of discrimination; if breaches to the Code were actionable in common law courts, it would encourage litigants to use the Code for a purpose the legislature did not intend — namely, to punish employers who discriminate against their employees. Thus, a person who alleges a breach of the provisions of the Code must seek a remedy within the statutory scheme set out in the Code itself. Moreover, the recent amendments to the Code (which would allow a plaintiff to advance a breach of the Code as a cause of action in connection with another wrong) restrict monetary compensation to loss arising out of the infringement, including any injuries to dignity, feelings and self‑respect. In this respect, they confirm the Code’s remedial thrust.
[64] The Court of Appeal, relying on McKinley, concluded that Bhadauria only precludes a civil action based directly on a breach of the Code — but does not preclude finding an independent actionable wrong for the purpose of allocating punitive damages. It is my view that the Code provides a comprehensive scheme for the treatment of claims of discrimination and Bhadauria established that a breach of the Code cannot constitute an actionable wrong; the legal requirement is not met.
[65] Keays argued in cross‑appeal before this Court that the decision in Bhadauria should be set aside and that a separate tort of discrimination should be recognized. In Bhadauria, Laskin C.J., writing for the Court, held that the plaintiff was precluded from pursuing a common law remedy because the applicable human rights legislation (the Code) contained a comprehensive enforcement scheme for violations of its substantive terms. The subtext of the Bhadauria decision is a concern that the broad, unfettered tort of discrimination created by the Court of Appeal would lead to indeterminate liability. Laskin C.J. wrote, at p. 189:
It is one thing to apply a common law duty of care to standards of behaviour under a statute; that is simply to apply the law of negligence in the recognition of so‑called statutory torts. It is quite a different thing to create by judicial fiat an obligation — one in no sense analogous to a duty of care in the law of negligence — to confer an economic benefit upon certain persons, with whom the alleged obligor has no connection . . . .
The concern that a tort of discrimination does not contain an effective limiting device was raised by interveners in this appeal. Moreover, as noted by the intervener Manitoba Human Rights Commission, jurisdictions outside Ontario have human rights legislation that vests jurisdiction exclusively with the provincial/territorial human rights tribunal. Accordingly, the concern in Bhadauria that recognition of a tort of discrimination would be inconsistent with legislative intent is still real.
[66] The Council of Canadians with Disabilities, another intervener, raised the concern that recognition of a tort of discrimination may undermine the statutory regime which, for many victims of discrimination, is a more accessible and effective means by which to seek redress.
[67] This said, there is no need to reconsider the position in Bhadauria in this case and deal with Keays’ request for recognition of a distinct tort of discrimination. There was no evidence of discrimination to support a claim under s. 5 of the Ontario Human Rights Code, therefore no breach of human rights legislation serving as an actionable wrong, as required by Goudge J.A. Furthermore, there was no evidence of conduct meeting the strict requirements in Whiten. The trial judge concluded that the accommodation provided by admission to the disability program was itself discriminatory because Keays “had to ‘earn’ each dispensation from being ‘coached’ for any absences by presenting a ‘note’ from his doctor like some child who is suspected of ‘playing hooky’ from school” (para. 53). The trial judge then added that it made little sense to have a disability program and then deter its use by asking for doctors’ notes. The association of coaching and the requirement of notes made by the trial judge here is puzzling. The requirement of notes was in effect part of the accommodation because it permitted absences without the possibility of the same leading to disciplinary action for failing to meet work requirements. There was no detriment in being part of the disability program and being treated differently from persons with “mainstream illnesses”. The differential treatment was meant to accommodate the particular circumstances of persons with a particular type of disability and to provide a benefit to them. It is indeed apparent from the record that the program was designed to establish a continuous relation between management and treating physicians and monitor absences in order to establish in particular an expected rate of absences which would not give rise to disciplinary action. The suggestion that the program itself was discriminatory is not supported by the facts.
[68] Even if I were to give deference to the trial judge on this issue, this Court has stated that punitive damages should “receive the most careful consideration and the discretion to award them should be most cautiously exercised” (Vorvis, at pp. 1104-5). Courts should only resort to punitive damages in exceptional cases (Whiten, at para. 69). The independent actionable wrong requirement is but one of many factors that merit careful consideration by the courts in allocating punitive damages. Another important thing to be considered is that conduct meriting punitive damages awards must be “harsh, vindictive, reprehensible and malicious”, as well as “extreme in its nature and such that by any reasonable standard it is deserving of full condemnation and punishment” (Vorvis, at p. 1108). The facts of this case demonstrate no such conduct. Creating a disability program such as the one under review in this case cannot be equated with a malicious intent to discriminate against persons with a particular affliction.
[69] The majority of the Court of Appeal upheld the award of punitive damages, but reduced the quantum to $100,000. The findings supporting this decision are demonstrably wrong and, in some cases, contradict the Court of Appeal’s own findings. Before delving into the factual analysis, however, it is worth mentioning that even if the facts had justified an award of punitive damages, the lower courts should have been alert to the fact that compensatory damages were already awarded, and that under the old test, they carried an element of deterrence. This stems from the important principle that courts, when allocating punitive damages, must focus on the defendant’s misconduct, not on the plaintiff’s loss (Whiten, at para. 73). In this case, the same conduct underlays the awards of damages for conduct in dismissal and punitive damages. The lower courts erred by not questioning whether the allocation of punitive damages was necessary for the purposes of denunciation, deterrence and retribution, once the damages for conduct in dismissal were awarded. Be that as it may, we now have a clearer foundation to distinguish between damages for conduct in dismissal and punitive damages.
[70] As earlier mentioned, there was considerable duplication in the award of damages for conduct in dismissal and punitive damages in this case. The discussion of punitive damages must nevertheless begin with a consideration of the conduct attributed to Honda that justified the award.
[71] As earlier mentioned, the main allegation was that Honda discriminated by requiring Keays to bring in a doctor’s note to justify each absence when employees with “mainstream illnesses” did not have to do so. The trial judge also found that this requirement had the effect of lengthening absences, ignoring the evidence of Ms. Selby who testified that Honda did not require the employee to produce a doctor’s note as a precondition to returning to work. As discussed earlier, employees outside the disability program did not require notes for absences of less than five days but were subject to discipline for excessive absences (A.R., at pp. 282-83), whereas employees in the program were allowed regular absences without discipline beyond the usual attendance requirement under a system of supervision based on regular contacts with doctors. The object of the disability program is to maintain regular contact with the family doctor in order to support treatment. It allows for disability-related absences, a form of accommodation determined in consultation with doctors. The program requires that medical notes be provided to establish that absences are in fact related to the disability. There is no stereotyping or arbitrariness here (McGill University Health Centre (Montreal General Hospital) v. Syndicat des employés de l’Hôpital général de Montréal, [2007] 1 S.C.R. 161, 2007 SCC 4 (CanLII), at para. 49). In addition, I accept that the need to monitor the absences of employees who are regularly absent from work is a bona fide work requirement in light of the very nature of the employment contract and responsibility of the employer for the management of its workforce.
[72] The trial judge also found the refusal to remove the “coaching” record from Keays’ file to be discriminatory, even if there was no evidence of any adverse consequences to the existence of a coaching file. The evidence was that coaching is not a disciplinary procedure and would simply permit entry into the disability program allowing absences without disciplinary consequences (A.R., at pp. 306-14).
[73] The trial judge also based his decision on harassment; he seemed to relate this entirely to a suggestion made by Dr. Affoo that Keays consider taking a position with a light physical component (para. 55). It is certainly difficult to see a course of conduct in a single incident. Moreover, this was a single suggestion made by an independent expert, never acted upon. I have already dealt with this argument at para. 39 when discussing the damages for conduct in dismissal.
[74] A final basis for the finding that punitive damages were justified is that Honda had “retaliated” against Keays. I have dealt with this at para. 47.
[75] The Court of Appeal pointed to the finding that Honda knew that Keays valued his employment and was dependent upon it for disability benefits. It is no doubt true that Keays valued his job and that he was dependent upon that employment for his disability benefits. However, knowledge of this cannot justify an award of punitive damages. All employees value their jobs. What matters is Honda’s conduct with regards to Keays’ need for medical attention and special accommodation. In this respect, it was wrong to blame Honda for Keays’ loss of disability benefits. London Life’s decision to cut off Keays’ long-term disability benefits had nothing to do with Honda. It was therefore erroneous to attribute the insurer’s decision to Honda and allow for punitive damages on such grounds.
[76] The Court of Appeal found that Honda knew Keays was particularly vulnerable because of his medical condition. However, according to the Court of Appeal’s own findings, Honda did not know about the seriousness or true nature of Keays’ medical condition because Keays would not facilitate an exchange of information about it. Honda was sceptical about Keays’ disability and was taking steps to confirm it. His medical file did not disclose a definitive diagnosis of CFS and Keays refused to meet with Dr. Brennan despite repeated assurances that the meeting was only a “get to know you” session, to be followed by contacts with Keays’ personal physician.
[77] Finally, the Court of Appeal pointed to Honda’s refusal to deal with Keays’ counsel. There is no legal obligation on the part of any party to deal with an employee’s counsel while he or she continues with his or her employer. Parties are always entitled to deal with each other directly. What was egregious was the fact that Honda told Keays that hiring outside counsel was a mistake and that it would make things worse. This was surely a way of undermining the advice of the lawyer. This conduct was ill-advised and unnecessarily harsh, but it does not provide justification for an award of punitive damages.
[78] The evidence and the Court of Appeal’s own findings lead me to conclude that Honda’s conduct was not sufficiently egregious or outrageous to warrant an award of punitive damages under the Whiten criteria. The Court of Appeal’s award must thus be overturned.
- The Cost Premium
[79] The final issue that must be addressed relates to the cost premium. In Walker v. Ritchie, [2006] 2 S.C.R. 428, 2006 SCC 45 (CanLII), this Court found that the risk of non‑payment of lawyer’s fees is not a relevant factor under the Ontario Rules of Civil Procedure (Rule 57.01). This decision, which was released after the cost premium was awarded in this case, and Honda’s success on this appeal are determinative. Thus, the cost premium should be set aside.
- Conclusion
[80] The appeal is allowed in part and the cross-appeal is dismissed. The damages for conduct in dismissal and punitive damages awards are set aside. Costs on this appeal and cross-appeal are awarded to Honda. At other levels, costs should be at a partial indemnity scale and the cost premium set aside.
The reasons of LeBel and Fish JJ. were delivered by
[81] LEBEL J. (dissenting in part on the appeal) — I have read the reasons of my colleague Justice Bastarache. I agree with him that there was no basis for the claim for punitive damages and that it overlaps with the award of what were formerly known as “Wallace damages”. I also agree with him that there is a need to review the categories of damages for dismissal. But any revision must reflect the view accepted by this Court that the contract of employment is a good faith contract that is informed by the values protected by and recognized in the human rights codes and the Canadian Charter of Rights and Freedoms, particularly in respect of discrimination. As the Court found in Wallace v. United Grain Growers Ltd., 1997 CanLII 332 (SCC), [1997] 3 S.C.R. 701, the contract of employment often reflects substantial power imbalances. As a result, it must be performed and terminated in good faith, and fairly.
Excerpted from Source: Canadian Legal Information Institute: www.canlii.org