Honda Canada Inc v Keays

Widespread use of the "Wallace bump"

In Wallace v. United Grain Growers Ltd., the Supreme Court held that bad faith on the part of an employer in how it handled the termination of an employee was another factor that is properly compensated for by an addition to the period of reasonable notice. Such an increase came to be known as the "Wallace bump," and claims that included it became so frequent that the courts began to criticize the practice. In Yanez v. Canac Kitchens, Echlin J declared:

The case at hand

Keays was hired in 1986 by Honda of Canada Manufacturing in Alliston, Ontario, first on the assembly line and later in data entry. In 1997, he was diagnosed as having chronic fatigue syndrome, upon which he ceased work and received disability insurance benefits until 1998, when the insurance company determined that he could return to work full‑time. Keays continued to absent himself, and was placed in Honda's disability program, where absence was allowed contingent upon proof that it was related to a disability.

Subsequent absence proved to be of longer duration than his doctor's notes indicated. In 2000, Honda decided to ask Keays to meet with an occupational medicine specialist, in order to determine how his disability could be accommodated. Before a meeting could be arranged with Keays, Keays decided to retain counsel to attempt to mediate his concern that he would ultimately be terminated, and his counsel subsequently sent a letter outlining his concerns and offering to work towards a resolution. Honda did not respond.

In its meeting with Keays, Honda expressed its concerns the deficiencies in the doctors’ notes, and also advised that they had a practice of dealing with associates directly, and not with third party advocates, in such matters. The next day, he told Honda that, on the advice of counsel, he would not meet with the specialist without explanation of the purpose, methodology and parameters of the consultation. Keays did not come to work for a week following this incident. Upon his return, he was given a written warning stating that failure to meet with the specialist would result in his termination. He refused to do so, and Honda accordingly terminated his employment.

Keays subsequently sued Honda for wrongful dismissal.

At first instance

The Ontario Superior Court of Justice ruled in favour of Keays. McIsaac J concluded that Honda bore the burden to show just cause for termination and that it had failed to carry that burden. Specifically, he ruled:

In the Court of Appeal

The Ontario Court of Appeal dismissed the appeal, but reduced the amount of punitive damages to $100,000.

National debate

Keays granted the largest award of punitive damages in a wrongful dismissal case in Canadian judicial history, and it created considerable discussion as to whether it was a harbinger of things to come. It was also argued that the Court of Appeal ruling could be used in support of expanded damage awards at arbitration and before human rights tribunals.

Leave to appeal

In March 2007, leave to appeal was granted with costs in any event of the cause by the Supreme Court of Canada:

At the Supreme Court

The appeal was allowed in part, and the cross-appeal was dismissed. The damages for conduct in dismissal and punitive damages awards were set aside. At other levels, costs should be at a partial indemnity scale and the cost premium set aside.

Before analyzing the case, Bastarache J observed that the trial judge made several "palpable and overriding errors", which made it necessary to review the record in some detail. The case also presented an opportunity "to clarify and redefine some aspects of the law of damages in the context of employment", and more specifically:

1. What factors should be considered when allocating compensatory damages in lieu of notice for wrongful dismissal.
2. The basis for and calculation of damages for conduct in dismissal.
3. The need to avoid overlap of damages for conduct in dismissal and punitive damage awards.

Damages in the context of employment

Bastarache J held that:

Majority in the appeal

In the case at hand:

Dissent in the appeal

While agreeing with the majority with respect to setting aside the punitive damages and cost premium, LeBel J believed that the award of additional ("Wallace") damages should stand, as there was ample evidence to support the trial judge’s conclusion that Honda acted in bad faith.

Impact

Keays has attracted considerable debate and controversy:

Determination of "bad faith" by employers

Subsequent jurisprudence has identified several key areas where an employer's conduct will constitute bad faith that will attract Wallace damages:

1. Making false accusations,
2. Damaging the employee's prospects of finding another job,
3. Misrepresenting the reasons for termination,
4. Firing the employee to ensure deprivation of a benefit, and
5. Firing the employee in front of coworkers.

Award of Wallace damages after Keays

While the effect of Keays was to ensure that Wallace damages be reserved for special cases and not be handed out as a matter of course, post-Keays cases are revealing significant trends:

1. Employees have been suing—successfully in many cases—for an extension of the notice period as Wallace damages even after Keays.
2. Courts seem to be ignoring Keays and basing Wallace damages on the employer’s bad faith conduct alone without looking at evidence of the actual mental distress the conduct actually inflicted on the employee.
3. There is evidence that Wallace damages are increasing in value.
4. Wallace damages are being applied to other kinds of losses the employee actually suffers as a result of the employer’s conduct, but there is resistance in the appellate courts as to whether they are appropriate.