Honda’s punitive damages sliced from $500,000 to $100,000

Justice John McIsaac made headlines in March 2005 when he released his decision in <i>Keays v. Honda Canada Inc.</i> He allowed Keays’ claim for wrongful dismissal and awarded him 15 months’ pay in lieu of notice, an additional nine months in <i>Wallace</i>, or bad-faith, damages and a whopping $500,000 in punitive damages. Later, he ordered Honda to pay legal costs of more than $600,000. The decision to award half a million dollars in punitive damages threatened to drastically change the employment law landscape; the view of the Court of Appeal was anxiously awaited.

Stuart Rudner
At long last, the Court of Appeal has spoken, and they have done what most employment lawyers expected: they affirmed that punitive damages were appropriate, but drastically reduced the amount.

Kevin Keays worked at the Honda Plant in Alliston, Ont., for 14 years. He suffered from chronic fatigue syndrome and missed work frequently. He was off work entirely, on disability benefits, from October 1996 to December 1998.

According to Justice John McIsaac, the insurer wrongfully terminated his disability benefits and determined he was able to return to work. Without another viable option, Keays returned but continued to suffer. He experienced bouts of drowsiness, fell asleep in his office and missed days from work. Despite glowing work reviews, he continually received poor reviews for his attendance.

Keays exceeded the number of allowable absences and Honda began to impose discipline as a result. Keays protested that his absences were the result of a disability, and he was informed by Honda of a human rights exemption from the attendance requirements. Keays completed the necessary paperwork, and Honda accommodated him in the sense that it agreed to hold him only to the attendance standard which his physician predicted he would meet. However, Honda required him to provide a medical note for each and every absence, even though it did not impose this requirement on employees with more “mainstream” illnesses. This had the effect of lengthening his absences while he obtained documentation.

Keays’ doctor estimated he would miss four days of work each month. Unfortunately, Keays was absent more often that anticipated, at least partially due to increased stress. Keays was asked to see one of Honda’s doctors, who apparently threatened to move him back to the production line, a more physically demanding position. After speaking with his superiors, the only reassurance Keays received was that there was no intention to move him “at that time.”

Honda retained an occupational medicine specialist to review Keays’ file, refused to reconsider the requirement of a medical note for each absence and refused to remove the disciplinary note from his record, even though his absence was health-related. Keays grew concerned as it became clear Honda was skeptical of his condition.

“He had spent his entire adult life at Honda and felt his world was coming down on his head,” said Justice McIsaac. “He was absolutely alone and without resources. The deck was stacked against him and he was only a minnow compared to the Leviathan that Honda represented.”

Keays retained a lawyer, who wrote to Honda in what the court said was a conciliatory manner. Honda’s lawyers ignored the fact Keays had retained counsel and chose to continue dealing with him directly. Justice McIsaac noted this apparent breach of professional ethics in his reasons.

Honda unilaterally cancelled the human rights exemption from attendance requirements. Justice McIsaac found this was a reprisal for Keays having retained counsel. Honda representatives met with Keays and directed him to meet with its occupational medicine specialist. It followed that meeting up with a letter (for the full text of the letter see page 3694.)

The court found Honda’s letter was a “callous and insensitive misrepresentation of the medical information available to Honda at the time (the) letter was composed.” It represented a “twisted” view of his condition. In fact, both physicians gave evidence at trial which contradicted the statements attributed to them by Honda in the letter.

At the direction of his lawyer, Keays asked for details of the proposed meeting with Dr. Brennan, including the purpose, methodology and parameters of the assessment to be carried out. Honda’s response, delivered via letter, was:

“Our position remains as we explained it to you on March 21, 2000. Kevin, we do not accept the need for your recent absence nor do we intend to elaborate further on the purpose of your meeting with Dr. Brennan. This was all explained to you carefully on March 21, 2000. Our position remains the same. We expect you to meet with Dr. Brennan and we expect you to come to work.”

Keays refused to attend the assessment and was subsequently dismissed for insubordination. He learned of his dismissal when a co-worker called and told him that it had been announced to the department. He suffered a three or four month period of post-traumatic adjustment disorder. He has been unable to work since his termination, and receives a total disability pension from the Canada Pension Plan.

Honda intentionally targeted Keays

Justice McIsaac said the employer had intentionally targeted Keays in a bid to rid itself of him due to his increasing need for accommodation. The court concluded Keays’ condition was “incompatible with the ‘lean’ and efficient operation demanded by Honda’s corporate policy.”

It held that the requirement of a meeting with the specialist was not made in good faith, but was really a precursor to the anticipated termination. The court agreed with Keays that his refusal to attend did not constitute just cause in the circumstances.

In the judgment, and again in the costs award, Justice McIsaac made his view of Honda’s actions explicitly clear. He described Honda’s behaviour using terms like egregious, reprehensible, outrageous and shocking. He found there was no just cause for dismissal and awarded damages for pay in lieu of notice based upon a notice period of 15 months.

He then added nine months in bad faith or Wallace damages. None of this is particularly shocking. However, he went on to award a further $500,000 in punitive damages. No prior award of punitive damages in a Canadian wrongful dismissal action had exceeded $75,000 and the majority were under $25,000.

The Court of Appeal decision

The Court of Appeal did not interfere with any of Justice McIsaac’s findings regarding the lack of just cause for dismissal, the reasonable notice period and the Wallace extension.

“The trial judge pointed to a number of indicia of bad faith in the termination process. He found that the March 28 letter misrepresented the views of both the company doctor and Dr. Brennan by clearly implying that both doctors thought he was not suffering from a disability but malingering, and by stating that both doctors believed he should be attending work on a regular basis. Neither had come to those conclusions,” the Court of Appeal said. “The trial judge also found that (Keays) was being set up for an adverse outcome by being asked to meet with Dr. Brennan. The trial judge concluded, on the basis of Dr. Brennan’s own evidence, that he generally practised the ‘hardball’ approach to workplace absences associated with illness. In particular, Dr. Brennan was of the view that regular attendance at work was therapeutic for CFS patients. The order that (Keays) meet with Dr. Brennan was (Honda’s) attempt to subject (Keays) to that hardball approach without fully explaining this to him. The trial judge also factored in (Honda’s) March 21 cancellation of the limited accommodation (Keays) had been receiving. He found this was a reprisal for (Keays) having engaged counsel to advance his human rights, and therefore in contravention of provincial human rights legislation.”

The Court of Appeal went on to say that the findings of fact by Justice McIsaac were well supported in the evidence and not open to attack on appeal.

The Court of Appeal was unanimous in confirming that punitive damages can be awarded in a wrongful dismissal claim. It also confirmed that, in order to support such an award, the defendant’s conduct must constitute an independent actionable wrong.

The Court of Appeal agreed with Justice McIsaac that Honda’s course of conduct, culminating in the termination of Keays, constituted discrimination and harassment that contravened Ontario’s Human Rights Code. The Court of Appeal also agreed that this constituted the required independent actionable wrong necessary to award punitive damages.

In its reasoning, the Court of Appeal addressed Honda’s submission that, based on the Supreme Court’s decision in Seneca College of Applied Arts and Technology v. Bhadauria, a civil action can’t be based directly on a breach of the human rights code. The Court of Appeal in Keays distinguished this by finding that “in the context of punitive damages, (Honda’s) conduct is not advanced to support a cause of action for breach of (Keays’) human rights, but as an independent wrong actionable by way of wrongful dismissal.”

The Court of Appeal went on to find that what mattered was Honda’s acts of discrimination and harassment that triggered the termination.

“In fact, (Justice McIsaac) found that (Honda’s) course of discriminatory conduct culminated in the most dramatic form of employment harassment, namely the respondent’s termination,” the Court of Appeal said. “This would give rise to a cause of action for wrongful dismissal apart altogether from any question of (Keays’) disobedience. It is in this context that the trial judge found (Honda’s) discriminatory conduct to constitute an independent actionable wrong.”

The Court of Appeal also relied on McKinley v. B.C. Tel., a 2001 Supreme Court of Canada decision, where the court found that acts of discrimination which breach human rights legislation may serve as independent actionable wrongs which give rise to an award of punitive damages in a wrongful dismissal claim.

Having found that punitive damages can be awarded in wrongful dismissal claims when a separate actionable wrong exists, the Court of Appeal went on to consider whether there was evidence of discrimination or harassment on the part of Honda — a separate actionable wrong.

“In this case, there was ample evidence to sustain the trial judge’s conclusion that (Honda’s) course of conduct culminating in termination included a number of acts of discrimination and harassment,” the Court of Appeal said. “(Honda) required (Keays) to justify his medical absences because of his particular disability when employees with ‘mainstream‘ illnesses were not so required.

“Due to absences caused by his disability, (Honda) subjected him to the first step in the discipline process and then refused to remove the disciplinary ‘coaching’ from his record. It required him to attend an interview with the company doctor where his disability was belittled and, as the trial judge found, he was treated with gross insensitivity.

“What limited accommodation the company gave (Keays) was cancelled in retaliation for his having retained a lawyer to advance the rights guaranteed to him by the Human Rights Code. And the trial judge found that when the respondent refused to be “bullied” into seeing Dr. Brennan without an assurance that he would not be abused again, he was fired.”

Finally, the Court of Appeal considered whether Honda’s conduct was sufficiently egregious to merit $500,000 in punitive damages. It referred to Whiten v. Pilot Insurance Co., a 2002 decision in which the Supreme Court of Canada held that in assessing an award of punitive damages, an appellate court should consider whether the amount was rationally required, in all of the circumstances, in order to punish the misconduct of the defendant.

In Whiten, the Supreme Court set out a number of factors to consider. The Court of Appeal in Keays relied upon a few of them, including:

•the blameworthiness of the defendant’s conduct;

•the degree of vulnerability of the plaintiff;

•the harm to the plaintiff; and

•the need for deterrence.

Justice Stephen Goudge concluded that, while he would not have awarded $500,000, it was not so disproportionate as to exceed the bounds of rationality. He would not have interfered with the award. However, Justice Marc Rosenberg and Justice Kathryn Feldman disagreed. They did not agree there was a broad-based corporate conspiracy and did not agree the outrageous conduct persisted over a period of five years.

The majority of the Court of Appeal held punitive damages could only be based on the following facts:

•Honda’s intent to intimidate and eventually terminate Keays was for the purpose of depriving him of the accommodation he had earned;

•Honda did not reveal the extremely damaging letter from Dr. Brennan until late in the trial;

•Honda was aware of its obligation to accommodate and must have known it was wrong to terminate the accommodation without just cause and terminate him as an act of retaliation;

•Honda knew Keays valued his employment and that he was dependent upon it for disability benefits; and

•Honda knew Keays was a victim of particular vulnerability because of his precarious medical condition.

They accepted the conduct was sufficiently outrageous to warrant punitive damages, but found $500,000 was too much. They contrasted the behaviour of the defendants in Whiten, who were ordered to pay $1 million in punitive damages, and found Honda’s actions were not as egregious.

“Given the compensatory damages awarded, especially the Wallace damages, and that there were no special factors requiring deterrence such as a pattern of abuse or the kind of conduct found in Whiten, as well as the relatively short duration of the misconduct, in my view, an award of no more than $100,000 can be justified.”

On one hand, employers and their counsel should take solace in the fact the Court of Appeal found that $500,000 in punitive damages was excessive in this case. On the other hand, they should recognize the legal landscape does seem to be shifting. In recent years, there have been several cases where punitive damages have been awarded in addition to Wallace damages. Now, the Court of Appeal has increased the high-water mark for punitive damages in such cases to six figures.

Punitive damages need to be taken more seriously and employers should make every effort to avoid treating their employees in a manner that might justify them.

Stuart Rudner is a partner who practices commercial litigation and employment law with Miller Thomson LLP’s Toronto office. He can be reached at (416) 595-8672 or by e-mail at [email protected].



Honda’s letter to Keays

“You were told that we have been reviewing your absenteeism as well as the doctor’s notes that you had been providing to cover those absences. We discussed your situation with Dr. Affoo (the company doctor) who is familiar with your case. In addition, we had Dr. Brennan (the company’s occupational medicine specialist) review your complete medical file. Both doctors advised us that they could find no diagnosis indicating that you are disabled from working.

“The doctor’s notes that you have been providing to cover your absences have provided limited information. The notes were merely repeating what you were telling the doctor. There was no independent diagnosis or prognosis.

“It was our intention to meet with you following the March break, to discuss our expectations. Before we had a chance to do so, we received a letter from your lawyer dated March 17, 2000. In that letter, your lawyer was asking that you no longer be required to bring notes to support your absences.

“When we met on March 21, 2000, we advised you that we would no longer accept that you have a disability requiring you to be absent. Dr. Brennan and Dr. Affoo both believe that you should be attending work on a regular basis. In order for Dr. Brennan to get to know you and understand completely your condition, we advised that we would arrange for Dr. Brennan to meet with you. The plan was that Dr. Brennan would then communicate directly with your doctor to effectively manage your condition.”



Recent punitive damage awards

Although the punitive damages award was reduced by 80 per cent, it is still higher than any other award of punitive damages in a wrongful dismissal action, which have tended to be $25,000 or less. Recent examples include Bouma v. Flex-N-Gate Canada Co., where the Ontario Superior Court of Justice awarded $15,000 in punitive damages and Mastrogiuseppe v. Bank of Nova Scotia where the same court awarded $25,000.

The highest punitive damages awards in wrongful dismissal cases all pre-date the Wallace decision, and were therefore made before “Wallace damages” were an option available to the courts:

Ribeiro v. Canadian Imperial Bank of Commerce (1992): Court of Appeal increased punitive damages from $10,000 to $50,000;

Francis v. C.I.B.C. (1994): Court of Appeal increased punitive damages from $15,000 to $40,000; and

Dixon v. B.C. Transit (1995): $75,000.

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