Supreme Court clarifies the availability of punitive damages for wrongful dismissal

July 2, 2008

On June 27, 2008, the Supreme Court of Canada overturned a punitive damage award of $100,000 against an employer in the landmark wrongful dismissal case of Honda Canada Inc. v. Kevin Keays.

This was a highly controversial case, which began with an award of $500,000 for punitive damages by the Ontario Superior Court, one of the highest awards of its kind ordered by a Canadian court in the context of an action for wrongful dismissal.

The case involved the termination of Kevin Keays, a senior quality engineering associate for Honda, after fourteen years of service. In 1997, Keays began suffering from Chronic Fatigue Syndrome (CFS) and went on disability leave. He remained on leave until December 1998, when Honda's long-term disability (LTD) insurer determined that he was able to return to work and terminated his LTD benefits.

Following his return to work under protest, Keays continued to be routinely absent from work. Keays was placed under Honda's disability program, which allows employees to be absent from work if they provide doctor's notes confirming that the absences are related to their disability. Over time, the doctor's notes offered by Keays became increasingly ambiguous and did not confirm that his absences were due to his disability. As such, Honda asked Keays to attend a meeting with its medical specialist in order to get a better understanding of his medical condition and to determine if his disability could be accommodated.

Keays, on the advice of his lawyer, refused to attend the meeting without clarification from Honda as to the purpose, methodology and parameters of the assessment. Honda refused to provide Keays with such details and proceeded to terminate his employment for insubordination. Keays filed an action for wrongful dismissal before the Ontario Superior Court.

The trial judge concluded that Keays had been terminated without just cause and awarded 15 months of salary in lieu of reasonable notice, and an additional 9 months in moral or aggravated damages due to the bad faith displayed by Honda in Keays' termination. In addition, the trial judge awarded an astonishing $500,000 in punitive damages due to Honda's discriminatory, outrageous and high-handed conduct towards Keays. The Ontario Court of Appeal allowed the appeal in part, significantly reducing the punitive damage award to $100,000.

Most recently, the Supreme Court of Canada completely erased the award for punitive damages, as well as the moral damages awarded for the manner of the dismissal.

The Supreme Court confirmed the general principle that damages are not available to employees for the shock and distress that is often suffered as a consequence of being terminated.

More particularly, with respect to the availability of punitive damages, the Supreme Court declared:

"Punitive damages are restricted to advertent wrongful acts that are so malicious and outrageous that they are deserving of punishment on their own." The Supreme Court went on to say that conduct meriting punitive damage awards must be extreme in nature and by any reasonable standard deserving of full condemnation and punishment. Courts should only resort to punitive damages in exceptional cases, where the award is necessary for the purposes of denunciation and deterrence. This is consistent with Article 1621 of the Civil Code of Quebec, whereby the amount of punitive damages should not exceed what is sufficient to fulfill its preventive purpose.

In the case at hand, the Supreme Court concluded that there was no such conduct that merited the award of punitive damages. The Supreme Court confirmed that Honda's disability program requiring medical notes be provided to justify absences from work was not discriminatory, even though employees with "mainstream illnesses" had no such obligation. In fact, the requirement of doctor's notes was part of the employer's accommodation because it permitted absences without the possibility of same leading to disciplinary action for failing to perform work functions. Moreover, the Supreme Court accepted that the need to monitor the absences of employees regularly absent from work is a bona fide work requirement in light of the very nature of the employment contract and the responsibility of the employer for the management of its workforce.

The Supreme Court also clarified the objective of moral damages, which should be limited to compensating an employee for mental distress suffered as a result of an abusive or bad-faith dismissal.

The Supreme Court's decision is significant in that it confirms an employer's right to manage an employee's absenteeism from work through doctor's notes and medical examinations. This is good news for employers faced with the challenges of accommodating employees suffering from long-term disabilities or frequently absent from work due to a chronic illness.



1. Honda Canada Inc. v. Keays, 2008, S.C.C. 39 (June 27, 2008).
2. Ibid., at paragraph 62.

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