Wrongful dismissal - bad faith damages in Canadian employment law: Honda Canada Inc. v. Keays.

Author:Lublin, Daniel A.
Position:UNBLJ Forum: Recent Developments in Canadian Labour and Employment Law

The point at which the employment relationship ruptures is the time when the employee is most vulnerable and hence, most in need of protection. In recognition of this need, the law ought to encourage conduct that minimizes the damage and dislocation (both economic and personal) that result from dismissal. (1)

It is one of the most important concepts in workplace law--or at least it was. Since Justice Iacobucci's decision in Wallace, employers have had to play nicely at the time of dismissal or risk paying additional damages to dismissed employees. This behaviour expectation was a welcome shift in the law, brought on by the recognition of the inherent power imbalance in the employment relationship and the need to protect employees at a time when they are most in need of protection.

Before Wallace, employers could play legal hardball with relative impunity. Trumped-up allegations of misconduct, bogus reasons for dismissal, malicious references, or dragged out litigation based on frivolous defences may have been improper conduct, but there was seldom an incentive to stop it.

Then came the case of Jack Wallace, a fifty-nine-year-old printing press salesman who, after fourteen years of stellar service, was dismissed without explanation based on false allegations of misconduct that were deliberately created in order to mount a defence to his legal claim. The Supreme Court found that the employer's conduct in handling Wallace's dismissal was so cruel that normal employment law damages, which indemnify lost salary only, could not adequately compensate him for his loss. Iacobucci J, who wrote the decision, reasoned that employees were particularly vulnerable at the time of dismissal and in need of additional protection. With the stroke of a pen, the duty of good faith then became the law of the land. Employers who breached this duty would pay additional "bad faith damages", above and beyond the employee's normal severance.

The Supreme Court's recent decision in Honda v. Keays has reversed these standards again. (2) Gone is the principle of extending the notice period for bad faith behaviour. Instead, the courts are to award damages based on an employee's actual loss.

This paper will:

  1. Summarize the Keays decision as it relates to damages for mental distress and bad faith;

  2. Discuss how the courts should award damages for mental distress and bad faith in light of Keays;

  3. Discuss some of the problems with the majority's approach in Keays; and

  4. Conclude by suggesting that the minority's decision should be preferred.


    Kevin Keays participated in the production of the first vehicle to roll off the assembly line at Honda's plant in Alliston, Ontario, in 1986. Keays was a dedicated and proud employee and intended to devote his working life to Honda. Unfortunately, his plans were thwarted by his health problems.

    After a brief stint on the production line, Keays was moved to the quality engineering department. Despite receiving excellent performance ratings for most of his work, Keays received negative attendance assessments. Keays' coworkers bemoaned the extra responsibilities brought on by having to cover for his mounting absences.

    Keays' health deteriorated and he was diagnosed with Chronic Fatigue Syndrome ("CFS"). He was eventually forced off work and onto Honda's long-term disability insurance plan for a two-year period. In 1998, Honda's disability insurer, London Life, terminated Keays' benefits, arguing that there was not enough objective medical evidence of Keays' illness to support his continued absence from work.

    Under protest, Keays returned to Honda in December, 1998. Within a month of his return to full-time work, Keays needed more time away. In August, 1999, Keays was disciplined for his absences. Disagreeing with that decision, Keays complained that he was unable to live up to Honda's attendance expectations. Honda responded that there was a special attendance-related program available for him that would exempt him from further discipline.

    Keays had his doctor complete the necessary forms to take advantage of Honda's attendance program, which required that he validate further absences with a doctor's note. This requirement may have aggravated Keays' symptoms and led to more time away from work.

    Originally, Keays' doctor predicted that Keays would be absent approximately four days each month. However, Keays was absent six times the next month due to the increased stress that arose partly from having to justify his absences. Since this amount exceeded his doctor's initial prediction, Honda required Keays to see one of the company's own medical doctors.

    Keays claimed that during this meeting Honda threatened to move him back to the physically demanding production line which he feared would worsen his condition. Keays immediately complained but was assured that this was not Honda's intention "at that time". According to McIsaac J, who presided over the initial trial, the possibility of being sent back to production line labour loomed as a real possibility given "Honda's reluctance to acknowledge the validity of his disability and his need for reasonable accommodation". (3)

    In January and February of 2000, Keays missed fourteen days of work. In response, Honda retained an occupational specialist, Dr. Brennan, who was asked to review Keays' medical file to determine whether his absences were justified. Dr. Brennan found significant gaps in the medical file and requested a personal meeting with Keays to begin a "heuristic" assessment of his accommodation needs.

    In the meantime, due to the frustration and stress of the situation, Keays retained legal counsel to attempt to mediate his concerns. Kaeys did so despite Honda's unwritten policy of discouraging third party advocates, such as lawyers, from participating in workplace disputes. According to McIsaac J, Keays had little choice: (4)

    He had been "coached" and was heading up the ladder of progressive discipline towards termination. He had spent his entire adult life at Honda and felt that his world was coming down on his head. 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' lawyer wrote to Honda outlining his concerns, offering to work towards a resolution and requesting that further contact be made through counsel. Honda ignored the letter and again met with Keays, without his lawyer present, insisting that he meet with Dr. Brennan because Honda believed that Keays was able to attend work on a regular basis and no longer accepted the legitimacy of his absences. Honda may also have attempted to persuade Keays to reject his lawyer's advice. On 28 March 2000, Honda restated its position to Keays in a letter, concluding with the ultimatum that Keays must either meet with the company's doctor or be fired.

    Since Honda refused to deal directly with Keays' lawyer, Keays refused to meet with Honda's doctor. On this basis, Honda then terminated Keays for cause, arguing that refusing to meet with the company's doctor amounted to insubordination. Keays learned of his dismissal from a co-worker who phoned him at home to tell him that his termination had been announced to the department.

    Following his dismissal, Keays suffered from post-traumatic stress disorder and qualified for a disability pension. He continued in his disabled state, up until the time of his trial, almost five years later.


    From the outset of the trial judgment, McIsaac J noticeably...

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