Northern Exposure

Keays vs. Honda One Year Later: Have Canadian Courts Changed Their Approach to Punitive and Bad Faith Damages?

It has been just over a year since the Supreme Court of Canada (SCC) issued its decision in Keays v. Honda Canada Inc. (Read our analysis of the court’s decision in that case). That decision mandated a change in Canadian courts’ approach to awarding damages in employment cases. Damages for bad faith conduct by the employer (Wallace damages) and punitive damages were to be awarded only in exceptional circumstances.

So just what have Canadian courts been doing since? Has their approach to such damages really changed? A review of the decisions in the past year suggests they have.

Keays in nutshell
Northern Exposure readers can review the facts of this case in an earlier article. In brief, Keays was a long-service Honda employee who was diagnosed with chronic fatigue syndrome. Honda was concerned about his absenteeism. When Keays failed to meet with Honda’s doctor, he was fired for insubordination.

The trial judge said there was no just cause for dismissal. He awarded Keays 15 months’ pay in lieu of notice of termination (the “reasonable notice period” under Canadian law). He also awarded Wallace damages equal to a further nine months’ pay because of Honda’s “bad faith” in the manner of dismissal. Further, Keays was awarded $500,000 in punitive damages. This was granted because Honda was found to have discriminated against and harassed Keays.

The Supreme Court of Canada ultimately disagreed that Honda’s conduct was worthy of any Wallace damages or punitive damages, while upholding the 15-month notice period award. In making that decision, the Supreme Court ruled:

  • there should be an end to the practice of Canadian courts awarding Wallace damages by simply extending the reasonable notice period where the employer has acted in bad faith;
  • instead, damages resulting from the manner of dismissal should be fixed according to the same principles as any case involving  “moral damages;”
  • any such award should be limited to the employee’s actual losses resulting from the employer’s conduct; and
  • punitive damages should be awarded only in exceptional cases – where the employer’s actions are so malicious and outrageous that they deserve punishment on their own.

Trial courts following Keays
With some minor exceptions, trial judges across Canada have adopted these principles.  For example

  • In Saskatchewan, in Fox v. Silver Sage Housing Corp., the employer didn’t provide the employee with the true reasons for termination. Although the employee later suffered stress and depression, the court didn’t award any Wallace damages (or moral damages, as they may now be called) because there was no proof that the stress or depression was caused by the manner of his dismissal.
  • In the Ontario case of Desforge v. E-D Roofing Ltd., the employee couldn’t prove that he suffered mental distress because of the manner of his dismissal. No moral damages were awarded.
  • In New Brunswick, in Saulnier v. Stitch It Canada’s Tailor Inc., the trial judge applied the principles from Keays and said that the anguish and suffering that the plaintiff felt from having to read her termination letter in a food court and having to turn in company property didn’t justify moral or punitive damages. The court noted that any dismissal involves some potential for embarrassment and humiliation, but that’s not enough to warrant such damages.
  • In British Columbia, in Bru v. AGM Enterprises Inc., the trial judge found that the employer acted unfairly and insensitively when it refused to respond to the employee’s statements that she had not resigned. The employee presented medical evidence that she suffered a reactive depression in response. The court concluded that the reactive depression prevented her from finding alternate employment for six months. So in addition to three months’ pay in lieu of notice, the trial judge awarded:
    • $5,000 in lieu of a Wallace extension based on the actual damage the reactive depression caused;
    • $12,000 for mental distress damages; and
    • no punitive damages because while the employer’s behavior was unfair and insensitive, it wasn’t malicious.
  • In another British Columbia case, Marchen v. Dams Ford Lincoln Sales Ltd., the trial judge awarded punitive damages but no moral damages. In that case, the employee was told that he was being dismissed because of corporate downsizing, but the trial judge found that the real reason was the employer’s unproven suspicions of criminal activity. The court awarded:
    • $100,000 in punitive damages because the employer had tried to cover up the real reason for the dismissal throughout the litigation but
    • no moral damages because there was no evidence that the employee suffered debilitating emotional distress following termination.

    Appeal courts fall in line
    With the exception of a few cases that had been in progress when the SCC decision was issued, the appeal courts have generally adopted the Keays principles. For example:

    • The Alberta Court of Appeal, in Magnan v. Brandt Tractor Ltd., refused to award Wallace damages in a case involving age discrimination. The employer had forced the plaintiff to retire at age 65. It didn’t realize that its retirement policy violated age discrimination laws. The employee sued. The court award was limited to compensation in lieu of notice of termination.
    • The same court, in Pawlett v. Dominion Protection Services Ltd., overturned the trial judge’s award of $50,000 for punitive damages. The employee was forced to quit as a result of sexual harassment and assault by her supervisor. As a result, in addition to the normal pay in lieu of notice, the trial judge awarded the plaintiff Wallace damages equal to one month of notice, plus $25,000 in general damages for pain and suffering, and $50,000 for punitive damages. Relying on Keays, the appeal court reduced the $50,000 punitive damages award to $5,000. It did not disturb the rest of the award.
    • In Clark v. BMO Nesbitt Burns Inc. the employee sued for reasonable notice and Wallace damages when he was fired after being charged with sexual assault but well before his trial. His claim relied in part on the fact he was not given the opportunity to sell his book of business. The Ontario Court of Appeal said that because the reasonable notice period took into account the plaintiff’s lost opportunity to sell his book of business, additional damages were not warranted.

    End of the day
    When the Supreme Court of Canada released its decision in Keays, many employers celebrated. It’s even more cause for celebration to see that, for the most part, trial judges and appeal courts are following the decision.
    This change toward a more rigourous approach to compensatory damages may lead to fewer claims for Wallace, or moral damages, and fewer claims for punitive damages.  Only time will tell if the nature of employment litigation in Canada has really changed.

    Contact the author, Karen M. Sargeant