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Termination and Reasonable Notice after Honda v. Keays

Honda v. Keays (SCC) – PART 1, DAMAGES

Prior to the case of Honda v. Keays, [2008] 2 S.C.R. 362 [“Honda“], it was a generally accepted rule in wrongful termination cases that the determination of reasonable notice for in wrongful dismissal cases could be extended depending on the manner of dismissal. Employers could be liable for general damages (in relation to benefits), Wallace damages (regarding the manner of the dismissal of the employee and punitive damages (resulting from a separate cause of action, in this case a breach of the employees human rights). In Honda, the Court seems to have re-imagined the landscape of damages available to an employee upon being wrongfully dismissed and the manner of dismissal.

In Honda, Mr. Keays was an employee with the company for 15 years. During his employment, Mr. Keays was diagnosed with Chronic Fatigue Syndrome. Mr. Keays received accommodation from Honda enabling him to continue working, while allowing for Mr. Keays to be absent as needed and supported by doctor’s notes. Mr. Keays provided this documentation in support of his absences, however Honda became suspicious at the number of absences and the lack of letters of support from his doctor did not specifically say that Mr. Keays was absent from work due to the Chronic Fatigue Syndrome. As a result Honda required Mr. Keays to attend a doctor selected by Honda. Mr. Keays refused at the advice of his lawyer. Honda advised Mr. Keays that if he did not attend their doctor, his employment would be terminated. When Mr. Keays again refused he was dismissed by Honda.

At trial level, the judge found that Mr. Keays was wrongfully dismissed and was entitled to 15 months pay in lieu of notice. The trial judge went on and awarded Mr. Keays an additional 9 months pay for bad faith in the manner of dismissal (Wallace damages). In addition, the trial judge ordered $500,000 in ‘punitive damages’, finding that the employer’s breach of the Human Rights Code by the employer constituted a ‘separate actionable wrong’ requiring a punitive damages award. The $500,000 award for punitive damages was later lowered to $100,000 by the Ontario Court of Appeal, leaving the remainder of the award intact.

The majority of the Supreme Court of Canada in Honda drew clear lines in the sand regarding courts awarding Wallace or punitive damages. The Court indicated that “there is no reason to retain the distinction between true aggravated damages” resulting from a separate cause of action and moral damages resulting from conduct in the manner of termination. Instead the Court took pains to distinguish between compensation for mental distress, thus compensation for harm arising out of breach of contract suffered by a plaintiff and aggravated and punitive damages. The Court went on to set out how damages would be awarded to an employee who suffered as a result of the manner of dismissal, indicating that extensions of the notice period is not appropriate, rather if the employee can prove that the manner of dismissal caused mental distress that was in the contemplation of the parties, those damages will be awarded not through an arbitrary extension of the notice period, but through an award that reflects the actual damages.

What one can take from the Court’s comments is that punitive damages awarded due to the manner of dismissal will be very difficult if not impossible, for employees to obtain, especially in the manner of damages seen in the history of this case.

It would also appear that the Wallace head of damages is no longer the appropriate route to travel to in order to address the manner of dismissal engaged in by the employer. Rather, a consideration of the ‘moral’ damages suffered by the employee, and the damage award appropriate to the circumstances should be determined, instead of granting an extension to the period of reasonable notice.

What is very interesting about the consequences of these pronouncements on damages is the difference in tax treatment an individual experiences depending on whether they are granted a damage award instead of an extended notice period. Intended or not, with this pronouncement, the Court has shifted what used to be taxable as a “retiring allowance” (reasonable notice, including mental or psychological damages arising as a result of losing your job, Young v. MNR (86 DTC 1567) under the Income Tax Act, to a non-taxable freestanding damage award. This type of award would come as a result of the mental injuries (i.e. moral damages) an employee suffers, not from the impact of losing their employment, but rather from actions taken by the former employer in dismissing the employee. Thus, in cases where the manner of dismissal would give rise to “moral damages”, such as in Honda, the resulting award would have the added benefit of being non-taxable.

The Court also found that the trial judge had erred in awarding punitive damages based on his finding of discriminatory conduct on behalf of the employer as a separate actionable wrong. The Court very clearly indicated that the Ontario Human Rights Code already provides a comprehensive scheme for the treatment of claims of discrimination. As a result, a breach of the Code cannot constitute an actionable wrong; therefore this legal requirement is not met and no punitive damages can result. Thus the Court denied recognition of a distinct tort of discrimination. Where an employee wishes to make a claim of discrimination on the part of the employer with the goal of seeking damages, then the appropriate venue would be the Human Rights Tribunal.


In addition to arguably doing away with punitive damages in wrongful dismissal cases, another more subtle issue commented on by the Court may have a significant impact on the future determination of what is considered reasonable notice for employees.

In, the seminal decision of Bardal v. The Globe and Mail Ltd., [1960] O.J. No. 149 (“Bardal”) set out the general factors relevant to the determination of how much reasonable notice a wrongfully dismissed employee will be entitled to:

There can be no catalogue laid down as to what is reasonable notice in particular classes of cases. The reasonableness of the notice must be decided with reference to each particular case, having regard to the character of the employment, the length of service of the servant, the age of the servant and the availability of similar employment, having regard to the experience, training and qualifications of the servant.

In Honda, the Supreme Court took a look a fresh look at the factor dealing with the “character of the employment”. The Court states at paragraph 30,

[30] It is true that there has been some suggestion that a person’s position in the hierarchy should be irrelevant to assessing damages for wrongful dismissal (see Bramble v. Medis Health and Pharmaceutical Services Inc. (1999), 214 N.B.R. (2d) 111 (C.A.), and Byers v. Prince George (City) Downtown Parking Commission (1998), 53 B.C.L.R. (3d) 345 (C.A.).

With this statement Justice Bastarache, on behalf of the majority of the Court makes it clear that historical presumptions of titles such as executive vs. management vs. employee, in relation to reasonable notice and the employability of an individual, should not carry the weight it once did. The Court emphasizes this point, stating at paragraph 32 that “what matters is experience, qualifications and other factors mentioned in Bardal”. In Mr. Keays case, the Court in upholding the 15 month reasonable notice period determined by the trial judge, highlighted the following circumstances which supported the award:

  • Mr. Keays spent his entire adult working life for Honda,
  • Did not have any formal education, and
  • Suffered from an illness which greatly incapacitated him.

It would appear that the Supreme Court of Canada has confirmed, through this decision, that all jobs are important to a business or organization and all employees provide value added services, regardless of rank, as it relates to the determination of the appropriate notice period for a terminated employee.

Disclaimer:This article provides general information only and is not intended, nor is it to be relied upon as a substitute to obtaining legal advice.

The traditional assumptions about the relevance of a person’s position in the hierarchy was not directly challenged in this case. It will therefore suffice to say here that Honda’s management structure has no part to play in determining reasonable notice in this case. The “flat management structure” said nothing of Keays’ employment. It does not describe the responsibilities and skills of that worker, nor the character of the lost employment.

The particular circumstances of the individual should be the concern of the courts in determining the appropriate period of reasonable notice. Traditional presumptions about the role that managerial level plays in reasonable notice can always be rebutted by evidence.

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