Clarity and confusion in employment law remedies: a comment on Honda Canada Inc. v. Keays.

Author:Veel, Paul-Erik
Position:Senior Board Notes Comments and Reviews/Notes, Commentaires et Revues du Comite Executif
 
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Abstract

This comment provides an overview of and critical commentary on the Supreme Court of Canada's 2008 decision in Honda Canada Inc. v. Keays. The Court's decision in Keays changes the law of employment law remedies in two important respects. First, the Court held that, where a wrongfully dismissed employee suffers mental distress as a result of a harsh or bad faith dismissal, they should be compensated directly for such mental distress rather than through the notice period "bump-up" approach adopted a decade earlier in Wallace v. United Grain Growers. Second, the Court held, contrary to earlier lower court decisions, that discrimination by an employer against an employee could not serve as an independent actionable wrong for which punitive damages could be awarded in a wrongful dismissal action. This comment will address each of these developments.

On the issue of damages for mental distress, this comment argues that the Court's new approach represents a welcome improvement in employment law remedies, because the theoretical basis for Wallace damages had become extremely unclear and, moreover, because significant practical problems had arisen with these awards. This comment then contends, however, that the Supreme Court was incorrect to justify compensatory damage awards on the basis that they should be awarded for all reasonably foreseeable losses arising from a breach of contract (that is, by subsuming these awards into a Hadley v. Baxendale framework). Rather, this comment argues that damages for mental distress in the manner of dismissal should be justified by reference to the employer's obligation of good faith in the manner of dismissal. This position is defended on doctrinal as well as normative grounds.

With respect to punitive damages, this comment argues that the Court was correct in rejecting discrimination as a basis for an award of punitive damages in wrongful dismissal cases. However, this comment then considers an alternative basis on which the Court could have awarded damages on the facts of this case. Specifically, this comment considers whether the Court should have awarded punitive damages on the basis that the defendant, Honda, committed an independent actionable wrong in attempting to dissuade the plaintiff, Keays, from consulting and seeking advice from legal counsel in relation to his dismissal.

Resume

Ce commentaire fourni une vue d'ensemble et une critique de la decision de la Cour Supreme du Canada, en 2008, dans l'arret Honda Canada Inc. v. Keays. La decision de la Cour dans Keays change la loi des recours du droit du travail de deux manieres importantes. Premierement, le Cour a determine que, dans la situation ou un salarie renvoye a tort souffre de detresse mentale severe suite au resultat du renvoi ou de la mauvaise foi de l'employeur, il devrait etre remunere directement pour la detresse mentale plutot qu'a travers la methode d'ajout a la periode de preavis etablie une decennie plus tot dans l'arret Wallace v. United Grain Growers. Deuxiemement, le Cour a tenu, contrairement aux decisions precedentes des Cours inferieures, que la discrimination par un patron contre un salarie ne pouvait pas servir comme un Tort recevable independant pour lequel des dommages dissuasifs pourraient etre attribues dans une action de renvoi a tort. Ce commentaire adressera chacun de ces developpements.

Ence qui concerne la question de dommages pour la detresse mentale, ce commentaire soumet que la nouvelle approche du Cour represente une amelioration apprecie dans les recours du droit de travail, parce que la base theorique pour les recours Wallace etait devenue extremement incertaine et, de plus, parce que des problemes significatifs se sont presentes avec ces dommages. Ce commentaire argumente toutefois, que la Cour Supreme a tort de justifier les dommages compensatoire sur la base qu'ils devraient etre accordes pour toutes pertes raisonnablement previsibles resultant d'une rupture de contrat (en incorporant ces dommages dans un cadre Hadley v. Baxendale). Plutot, ce commentaire plaide que les dommages pour la detresse mentale resultant de la maniere de renvoi devraient etre justifes en reference a l'obligation de l'employeur d' agir de bonne foi dans la maniere du renvoi. Cette position est defendue sur une fondation doctrinale ainsi que normative.

Par rapport aux dommages dissuasifs, ce commentaire plaide que la Cour a eu raison de refuser la discrimination en tant que base pour donner des dommages dissuasifs dans les proces de renvoi a tort. Cependant, ce commentaire considere ensuite une autre base sur laquelle la Cour pourrait avoir attribue ces memes dommages, soit les faits specifiques de ce proces. En particulier, ce commentaire considere que la Cour aurait du attribuer les dommages dissuasifs parce que le defendeur, Honda, avait commis un tort recevable independant en essayant de dissuader le plaignant, Keays, de consulter et demander l'avis d'un avocat par rapport a son renvoi.

I INTRODUCTION II FACTS & LOWER COURT DECISIONS The Supreme Court of Canada's Decision III ASSESSING THE COURT'S DECISION Abandoning Wallace Damages Wallace v. United Grain Growers Ltd.: A New Head of Damages for Wrongful Dismissals Overruling Wallace: A Positive Change in the Law Justifying Damages for Mental Distress in Wrongful Dismissal Cases The Mismatch Between the Principle of Reasonable Foreseeability and the Rule in Keays The Duty of Good Faith. A Stronger Legal Foundation A Normative Justification for the Duty of Good Faith and the Rule in Keays Punitive Damages IV CONCLUSION I INTRODUCTION

It is trite to say that the employment relationship is an important social institution. From an economic perspective, it governs the framework of much of the productive activity that occurs within a society. From an individual's perspective, it is also vitally important. It not only provides a mechanism for subsistence and economic advancement, but it also provides a basis for feelings of self-worth and meaningful social participation. Given the significance of the employment relationship, it is essential that legal remedies are made available to individuals who are wrongfully dismissed. For example, it is settled law that employees are entitled to reasonable notice before they are dismissed--a "notice period"--or compensation in lieu of such notice, and courts are commonly asked to determine how much notice is appropriate in a given case. Until recently, however, the question of whether employers are liable for wrongs that they commit in conjunction with a dismissal was unsettled in Canada. It is with these issues that the Supreme Court of Canada has grappled in Honda Canada Inc. v. Keays (2008). (1) The decision changes the law in this area in two important respects. First, it clarifies and substantially modifies the law of damages arising from mental distress suffered by employees who are wrongfully dismissed. Second, it changes the law of punitive damages arising from wrongful dismissals that involve discrimination. With respect to both types of damages, Keays represents a more conservative approach than the Court has taken in the past, and will likely make these damages more difficult to recover. This case comment will critically examine these issues.

With respect to damages arising from mental distress, this comment will argue that the Court takes a welcome approach in recognizing these kinds of damages, but does so on a misguided theoretical basis. Prior to Keays, courts did not explicitly award these kinds of damages in cases of wrongful dismissal. Instead, in Wallace v. United Grain Growers the Supreme Court held that judges could "bump-up" the notice period (adding what were subsequently referred to as "Wallace damages") in cases where mental distress was caused to the employee by the manner of his or her dismissal, as a means of indirectly compensating the employee. (2) In Keays, the Supreme Court rejected this approach and held that compensatory damages for mental distress should be made explicitly in these cases on the basis that such distress is reasonably foreseeable. This comment will make two assertions about this change in the law. First, this comment will argue that this change represents an improvement in employment law remedies, because the theoretical basis for Wallace damages had become extremely unclear and, moreover, because significant practical problems had arisen with these awards. Second, this comment will contend that the Supreme Court was nonetheless incorrect to justify compensatory damage awards on the basis that they should be awarded for all reasonably foreseeable losses arising from a breach of contract--that is, by subsuming these awards into a Hadley v. Baxendale (3) framework. Rather, I will argue that the rule adopted in Keays is more appropriately justified by reference to the employer's obligation of good faith in the manner of dismissal. I will make this argument on doctrinal as well as normative grounds. In particular, I will posit that the good-faith justification for the rule is normatively defensible on the basis of economic efficiency.

With respect to punitive damages, Keays restricts the availability of these awards in contractual cases involving discrimination, in the employment context as well as more generally. In order for punitive damages to be awarded for breach of contract in Canada, it must be the case that (1) the defendant's conduct was so egregious as to depart markedly from ordinary standards of decency, and (2) the conduct gives rise to an independently actionable wrong in addition to the breach of contract. (4) In Keays, the Court declined to award punitive damages to the plaintiff, even though it found that he had been discriminated against in the manner of his dismissal, on the basis that discrimination cannot be considered an independent actionable wrong for the purpose of awarding punitive damages for breach of contract, because...

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