Tuesday, February 26, 2008

Honda vs. Keays - Why It Matters

Rare is the employment law case that can capture the continuing attention of both the legal profession and the public.

Honda and Keays, however, is one such case.

For nearly three years, it has had Canada's employment law bar buzzing, the nation's mainstream media watching and much of the public taking notice.

The case, which was argued before the Supreme Court of Canada on February 20, 2008, will settle critical questions regarding employers' duties of accommodation and the availability and quantum of punitive damages to be awarded against employers who have flagrantly breached their duties to employees under the nation's human rights statutes.

Beyond that, as is clear from the Supreme Court's online Case Information Summary, the wide-ranging subject matter of this appeal goes to the root of key, unresolved issues in Canadian employment law:

  • The availability of punitive damages for wrongful dismissal if employer’s conduct was discrimination or harassment that breached human rights legislation
  • The relevance of principles applicable to contracts for peace of mind to punitive damages in an employment law context
  • Whether punitive damages award should be reduced on appeal without increasing compensatory damages;
  • Whether discrimination and harassment should be a separate cause of action;
  • Whether human rights legislation should be incorporated into individual employment contracts;
  • Effect of proportionality on compensatory and punitive damage awards;
  • Whether overriding and palpable error standard of review should be integrated with rationality standard of review.

BACKGROUND

Kevin Keays was employed at Honda Canada for 14 years. While he suffered from Chronic Fatigue Syndrome (CFS), a disability that caused ongoing, intermittent absences, he was an able and loyal employee throughout his career.

According to a landmark, April, 2005 trial Judgment by Mr. Justice J. R. MacIsaac of the Ontario Superior Court, during the final seven months of this employment, however, Mr. Keays was subjected to harassment and discrimination. Honda refused to accommodate, and ultimately, even acknowledge Mr. Keays' disability due to CFS. When Mr. Keays engaged counsel to assist him in mediating his dealings with Honda, the company retaliated. Honda rolled back previous medical accommodations offered to Mr. Keays and embarked on a course of transparent, progressive discipline against him for absences due to his illness. Ultimately, Mr. Keays' employment was terminated for insubordination when he refused to attend at a medical examination demanded by Honda.

At trial, Mr. Justice MacIsaac held that Honda had wrongfully dismissed and discriminated against Mr. Keays. The Court awarded Mr. Keays 15 months' pay in lieu of notice, together with further "Wallace" damages of nine months' additional severance, due to Honda's bad faith in conducting the termination.

Finally, Mr. Justice MacIsaac awarded Mr. Keays an unprecedented $500,000.00 in punitive damages, based on "Honda's outrageous mistreatment of their long term employee:

It now becomes clear why Honda wanted to have the plaintiff see Dr. Brennan. Mr. Keays' physicians were the problem because they would "certify" his absences like Sidney Crosby signs autographs after a hockey game. They were the villains because they perpetuated the myth that the plaintiff was required, by his illness, to be absent from work. He just hadn't been "hardened" enough and Honda was the GEC to do it with the able assistance of their advocate of employers' anti-absenteeism rights, Dr. Brennan. The subterfuge practiced by everyone associated with Honda in attempting to intimidate him to seeing their occupational medicine specialist should make the blood boil of an right-thinking individual. This scheme was nothing less than a conspiracy to insinuate Dr. Brennan into the plaintiffs long-established medical relationship with his own doctors and, hopefully, to exclude them from any participation in advocating for his patient's rights.

...I am not satisfied that the maximum penalty under the OHRC, $10,000, comes even close to an appropriate deterrence and denunciation of the outrageous and high-handed conduct of this defendant...

Taking into account all of the circumstances, including the compensatory awards already made,and having been persuaded that the conduct herein is deserving of significant denunciation, I award the plaintiff punitive damages in the amount of $500,000.

The judgment was hailed as a ground-breaking ruling, even as a Globe and Mail headline cryptically warned, Record award could open the floodgates.

In a 2-1 decision of the Ontario Court of Appeal, released in September, 2006, the punitive damages award against Honda was reduced to $100,000. In rollng back the original punitive damages award, the Court of Appeal attempted to balance the legitimate objective of "punishing" the employer against a requirement of proportionality based on the specific facts of the case.

The Ontario Court of Appeal found that $500,000.00 was not a "rational" punishment for Honda Canada's misconduct, after weighing the length and severity of the harassment and discrimination endured by Mr. Keays, considering the other damages awarded to him, and reviewing the range of punitive damages awards in comparative matters.

The Court of Appeal concluded that punitive damages in the amount of $100,000 were appropriate. In a dissenting opinion, Mr. Justice Goudge upheld the original $500,000.00 award.

Nonetheless, the Court specifically affirmed the use of a punitive damage awards as a sanction and significantly raised the bar as to the amount of punitive damages that may appropriately be awarded in such cases:

The punitive damage award in this case is on the same scale as awards in Whiten [$1 million] and Hill v. Church of Scientology of Toronto, [1995] 2 S.C.R. 1130 [$800,000]. Punitive damage awards in other wrongful dismissal cases have been far more modest even in the face of serious misconduct such as slander of the employee. The awards in such cases have been in the range of 15,000 to $50,000 and, rarely, up to $75,000.

In my view, a punitive damage award on the scale imposed in this case can be justified only by extraordinary circumstances of a similar nature to those in Whiten and Hill. Since Whiten, like this case, is a contract case, I found it to be the most reasonable comparator. Thus, I think it helpful in considering the application of the factors identified in Whiten, to bear in mind the facts of Whiten as they compare to this case.
Another factor mentioned in Whiten as part of the proportionality analysis is the need to consider the totality of all other penalties including compensatory damages imposed on the defendant. In this case, the trial judge had to bear in mind that he had already increased the damages for wrongful dismissal in accordance with Wallace v. United Grain Growers Ltd.,
[1997] 3 S.C.R. 701 for essentially the same conduct that attracted the punitive damage award. The trial judge stated that he was taking into account "all the circumstances, including the compensatory awards already made", but it is unclear on what basis he did so.

The final factor to be considered is the need for the punitive damage award to be proportional to the advantage wrongfully gained. As the court held in Whiten at para. 124: "A traditional function of punitive damages is to ensure that the defendant does not treat compensatory damages merely as a licence to get its way irrespective of the legal or other rights of the plaintiff." Even accepting the trial judge's finding that the appellant wanted to terminate the respondent because his prolonged absences were interfering with the smooth running of the operation, there is nothing on the record to show that the appellant saw the possibility of wrongful dismissal damages as nothing more than a licence fee.

I conclude by returning to the comparison of this case to Whiten. Two factors stand out when comparing the two cases. First, in Whiten there was a two-year period of escalating misconduct up to the trial. Here the misconduct was for no more than seven months and is largely focused on the events of March. I have already referred to the trial judge's mischaracterization of a five-year period of outrageous conduct. Although the trial judge identified one instance of late disclosure of a letter in the conduct of the trial, this does not extend the period of misconduct by Honda to the five years referred to by the trial judge. Second, in Whiten, the defendant persisted in its course of conduct, based on a theory that the plaintiff deliberately set the fire, in the face of repeated findings from its own experts and advisors that the fire was accidental. Binnie J. described the defendant's attitude to the plaintiffs at para. 4 as "harsh and unreasoning opposition" and an attempt to "exploit a family in crisis". That is not the case here. The appellant had advice, albeit wrong and based on incomplete information, that caused it to question the respondent's disability and it had, for almost a year, accommodated his absences.

I come then to the difficult problem of assessing the quantum of punitive damages bearing in mind the overarching principle that the award must be "that amount, and no less, [that is] rationally required to punish the defendant's misconduct" (Whiten at para. 96, emphasis in original).

Bearing in mind the trial judge's findings that can be supported by the evidence, and in particular the findings that the conduct by the appellant was planned and deliberate and designed to intimidate and ultimately terminate the employment of a particularly vulnerable employee and that the appellant was aware of its continuing duty to accommodate, an award in excess of those awarded in other wrongful dismissal cases is appropriate. But, 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

While perhaps less groundbreaking than the original trial judgment, the Court of Appeal's ruling in favour of Mr. Keays sent a strong message that Ontario courts may now award significant punitive damages against employers for the "independent actionable wrongs" of harassment, discrimination and failure to accommodate the medical requirements of disabled employees.

The trial and appeal decisions may well have marked the beginning of an era in which Courts will increasingly award significant compensatory and punitive damages in cases which involve supervisors' harassment, discrimination and derogatory conduct in the workplace. At very least, the decisions signalled significantly increased exposure for employers found to engage in such misconduct.

THE SUPREME COURT

The Supreme Court of Canada's decision, however, may well determine whether the forecasted floodgates shall remain open or be reduced to a mere drip.

The Globe and Mail set the stage, in anticipation of the February 20, 2008 hearing:

When the case reaches the Supreme Court of Canada today, corporate managers, insurers and human-rights advocates will be watching intensely how the court interprets the evolving duty of an employer to accommodate an employee suffering from a debilitating condition.

In particular, the court must decide whether to uphold a punitive damage award of $500,000 - by far the largest ever in a Canadian employment context. Although the award was later reduced to $100,000 by the Ontario Court of Appeal, the punishment remained strikingly large - as was an award of 24 months of salary in lieu of proper notice, coupled with a legal cost award to the plaintiff of $610,000.

As if those stakes were not high enough, the landmark case will also induce the court to reconsider a 30-year-old Supreme Court decision that limited the ability of judges to award damages for violations of human-rights code guarantees.

More succinctly, the National Post calls it "One of the most anticipated wrongful dismissal cases of the decade."

Hugh Sher, lawyer for Mr. Keays commented prior to the Supreme Court of Canada hearing:

The Supreme Court of Canada is being asked to affirm the trial judge's award of punitive damages as well as to grant additional damages for discrimination and harassment against Honda...

... This case offers the Supreme Court a unique opportunity to consider the relationship between bad faith conduct, discrimination and harassment in the employment relationship and to determine the best way to compensate victims of such conduct and to punish the perpetrators. The Courts below have affirmed the paramount importance of human rights protections to ensure meaningful access to social and economic life for people with disabilities. However, a 30-year-old precedent from the Supreme Court prevents Courts from providing compensation for discrimination and harassment. The Court will be asked to reconsider this decision and to increase the number of tools available to Courts to address discrimination and harassment. This case raises legal issues of fundamental importance to people with disabilities across Canada and is being watched very closely by people with disabilities and employers across the country because of its significant impact.The trial award of punitive damages is by far the largest ever in an employment law case and represents one of the largest awards ever in Canadian history. Should it be maintained by the Supreme Court of Canada it would send a significant message to employers and insurers that people with chronic fatigue syndrome and related conditions must be taken seriously and that their claims to equal treatment, respect and consideration and to their just entitlement to benefits must be respected or employers and insurers will face significant penalties

Mr. Sher is also counsel to the National ME/FM Action Network, "a Canadian, registered, non-profit organization dedicated to advancing the recognition and understanding of Myalgic Encephalomyelitis / Chronic Fatigue Syndrome (ME/CFS) and Fibromyalgia Syndrome (FMS) through education, advocacy, support, and research."

The reach of the Court's ultimate decision in Honda and Keays will extend far beyond the law of disability and accommodation, according to the Womens Legal Action and Education Fund (LEAF), which had intervener status at the Supreme Court hearing:

Honda v. Keays also involves the issue of the ability of courts to grant awards of punitive damages based on discrimination as a separate actionable wrong. LEAF is interested in the issue of whether courts should award punitive damages for breach of human rights law. This directly impacts women as a group because women experience distinct forms of discrimination and harassment in their workplaces that make them vulnerable to serious violence, and that can be life threatening, LEAF is interested in the role that punitive damages could play in addressing and compensating for violations of human rights law, for example through the establishment of liability for employers for punitive damages associated with sexual harassment. Liability of employers for punitive damages would result in increased accountability on the part of employers, and could motivate them to provide safe working environments for women. Liability for punitive damages could provide for an increased incentive for employers to provide safe, discrimination-free, working environments for women.

Of particular interest to the Employment Law bar, however, is the extent to which the Honda and Keays case has affected life on the ground - in our offices and in the cases we see daily.

Daryn M. Jeffries, a partner with Toronto law firm Filion,Wakely, Thorup, Angeletti, represents management in employment law and labour relations matters. He observes,

There has been a definite increase in punitive damages claims and disability-related allegations since Keays was released. It is a rare Claim we receive now that does not include a claim for both extended notice and punitive damages. Wherever even a colourable claim for disability or stress can be made, we see it in the Claim. This was rare prior to Wallace and increased after Keays. The reduction in punitive damages at the Court of Appeal in Keays did not reduce the number of these types of Claims.

The original decision in Keays reinforced the advice that we had been giving clients since the release of the Supreme Court of Canada's decision in Wallace -- namely, that they must be careful in the manner they conduct their terminations of employment with particular attention to any actions that might increase the time it would take for the former employee to obtain alternative employment. The Court of Appeal's decision did not really change that advice since it continued to uphold punitive damages on top of Wallace damages. When clients contact us before they terminate the employment of someone, they respond well to the cautions we provide them regarding this issue. Employers, generally speaking, have a great interest in former employees obtaining alternative employment as soon as possible and in most circumstances it is not difficult to stay away from conduct that might attract a legitimate Wallace or punitive damages claim.

At their very narrowest, the decisions to date represent a major victory for those with CFS and the other, so-called "invisible illnesses" that are not easily verifiable by objective medical examination.

The broader implications of this case will be determined by the willingness of the Supreme Court of Canada to embrace significant damage awards as a deterrent to workplace harassment, discrimination and failure to accommodate.

Mr. Jeffries' prediction as to the outcome is cautious:

If I had to guess, I'd say that the decision of the Court of Appeal will be upheld, with the possibility that the punitive damages will be further reduced or eliminated entirely. I would hope that two principles are addressed by the Supreme Court ruling: proportionality and duplication. If punitive damages are ever appropriate, they should be proportional to the general damages. The bigger problem, however, is that the same set of facts and arguments are being used to make claims for extended notice, aggravated damages, punitive damages and mental distress claims. This can lead to awards such as the one you see in County of Lexington and Addington, in which in an admittedly unusual set of facts the Plaintiff was awarded damages for pay in lieu of notice, extended Wallace notice, damages for intentionally inflicting mental distress, punitive damages and damages for defamation.

My own view is that the Court is likely to rationalize the existing, competing statutory and theoretical approaches to addressing untenable workplace management practices, with a view to clarifying the rules for the benefit of employers and employees.

There is something deeply unsatisfying about Justice MacIsaac's back-door approach to compensation through punitive damages.

This is particularly so, given that the "independent actionable wrong" relied on at trial to support the landmark punitive damages award, discrimination, might not stand as an independent cause of action in the Province's civil courts.

Let us hope the Court provides clarity and coherence, if nothing else, as to the basis upon which damages may be awarded for human rights violations by employers in civil actions in the Province.

(And, for the record, I do not expect that the punitive damages awarded by the Court of Appeal will be further reduced. My view is the award will be maintained or increased in Ottawa).

The Supreme Court has reserved its decision.

- Garry J. Wise, Toronto

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(This article is cross-posted at Bar-eX. See: Honda v. Keays: why it matters)

Additional reading:

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UPDATE: June 27, 2008 - Supreme Court of Canada rules in favour of Honda

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