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Canadian ruling curbs punitives

High Court sides with employer in wrongful termination case

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OTTAWA--In a significant victory for Canadian employers, the Supreme Court of Canada overturned a damages award against an employer that fired a worker for not cooperating with its efforts to manage his disability-related absences.

A trial judge awarded punitive and aggravated damages to punish the employer, but the alleged misconduct did not occur, according to Supreme Court's ruling in Honda Canada Inc. vs. Kevin Keays late last month.

"This was a spectacular result for employers," said George Avraam, a partner at Baker & McKenzie L.L.P. in Toronto, who intervened in the case on behalf of the Alliance of Canadian Manufacturers & Exporters.

Mr. Keays was diagnosed with chronic fatigue syndrome in 1997 and received disability benefits until 1998 when Honda's insurer discontinued his benefits after determining he could return to work full time. He was placed in Honda's disability program, which allows employees to take absences from work if they provide notes from a doctor confirming that the absences are related to their disability. The company, though, felt the notes provided by Mr. Keays were "cryptic." Honda asked Mr. Keays to meet with its occupational medical specialist to determine how his disability could be accommodated, but he refused, on the advice of his lawyer, and was terminated.

After Mr. Keays sued for wrongful dismissal, a trial judge ruled he was entitled to a notice period of 15 months, but awarded aggravated damages in the form of an additional nine months notice because of acts of discrimination, harassment and misconduct by Honda. The judge also awarded punitive damages of about $500,000 Canadian ($498,200)--which is large by Canadian legal standards. The punitive damages award was reduced to $100,000 Canadian ($99,640) by the Ontario Court of Appeal, which upheld the rest of the judgment.

In its ruling, the Supreme Court said the trial judge made "overriding and palpable errors of fact" in faulting Honda for relying on the advice of its medical experts to request additional information from Mr. Keays and asking him to meet with its physician. The judge also incorrectly determined that Honda's decision to cancel its accommodation and stop accepting doctors' notes was in reprisal for Mr. Keays' decision to retain a lawyer, the Supreme Court said.

Honda's actions were not "callous and insensitive," which the trial judge found in awarding the aggravated damages, commonly known as Wallace damages after a 1997 Supreme Court ruling in Wallace vs. United Grain Growers Ltd. that allowed additional damages to be awarded when an employer acts unfairly or in bad faith.

"The employer's conduct in dismissing (Mr. Keays) was in no way an egregious display of bad faith justifying an award of damages for conduct in dismissal," the Supreme Court said.

The Supreme Court confirmed that employers have the right to implement absence management programs, particularly in light of their legal obligation to accommodate disabled employees.

"Employers can go back and deal with employee absences and disabilities in a common-sense manner," Mr. Avraam said.

Punitive damages also should not have been awarded because they are restricted to acts that are "so malicious and outrageous that they are deserving of punishment on their own," the Supreme Court said.

"That's a very high standard for punitive damage awards," said Connie Reeve, senior partner in the labor and employment practice of Blake, Cassels & Graydon L.L.P. in Toronto.

The trial judge also unfairly penalized Honda by awarding punitive damages in relation to the decision by its independent insurance provider London Life Insurance Co. of London, Ontario, to discontinue benefits, according to the ruling.

The Supreme Court did not overrule the concept that an employer has to act fairly when terminating an employee, but the employee has to prove he or she suffered harm to receive additional damages, employment lawyers say.

"One reason Honda didn't pay punitive damages was because the manner of their termination was professional," said Neena Gupta, a partner at Gowling Lafleur Henderson L.L.P. in Toronto. "The courts will still punish an employer who is abusiveÖor lies about the honesty of the employee that is terminated."

The Honda decision reflects a signal by Canada's Supreme Court that lower courts may have expanded the scope of the Wallace decision and other Supreme Court rulings beyond their original intent and increased the notice period even in the absence of egregious misconduct by employers, employment lawyers say.

"The mere fact that one is terminated doesn't give rise to a cause for damages as long as the employer does what they are supposed to do" such as giving reasonable notice, said Earl Cherniak, a partner with Lerners L.L.P. in Toronto who represented Honda.

The Supreme Court upheld the trial court's ruling that Mr. Keays was entitled to 15 months notice. Under Canadian law, employers must follow statutory requirements on minimum notice or offer equivalent pay, however, reasonable notice may extend beyond the statutory minimums based on factors such as the likelihood of a worker finding comparable work.

The ruling has significant implications for employees in similar situations, said Hugh Scher, an employment and human rights lawyer with Scher & De Angelis L.L.P., who represented Mr. Keays. "I think it's a tremendous blow to workplace fairness and it will embolden employers to act with carte blanche to do whatever they want to do," he said.

Honda Canada Inc. vs. Kevin Keays, SCC 39; June 27, 2008.


Ruling's key points

Canada's Supreme Court ruled for the employer in Honda Canada Inc. vs. Kevin Keays--a case involving the termination of a disabled employee, which said:

  • Employees are not entitled to compensation for "normal" distress and hurt feelings caused by a termination.

  • Aggravated damages are warranted only when the employer acts in bad faith in terminating an employee.

  • Punitive damages in employment-related disputes should only be awarded when an employer's conduct is "so malicious and outrageous" that it deserves punishment.

  • An employer should not be punished via punitive damages for an independent decision by its insurer to terminate benefits.

  • Employers are entitled to ask employees who are absent frequently for medical information to monitor absences.

  • Employers that rely on the advice of their medical experts are not acting in bad faith.