Case Commentary

Bad faith dismissal damages must reflect real harm, not extra notice

The Supreme Court replaced the approach of extending notice for bad faith in dismissal with compensation for proven foreseeable harm, and reversed a punitive award against Honda.

For years, Canadian courts sometimes responded to bad faith in the manner of dismissal by extending the employee's reasonable notice period. That made termination conduct relevant to the number of months of salary awarded, even where the underlying loss arose from the way the dismissal happened rather than the failure to provide proper notice.

The Supreme Court fundamentally changed that approach in Honda Canada Inc. v. Keays, 2008 SCC 39. Kevin Keays had worked for Honda for approximately 14 years and lived with chronic fatigue syndrome. Disputes developed over his absences, medical notes and an occupational medicine assessment the company requested. He was dismissed after refusing to participate in the assessment. The trial court awarded 15 months of ordinary notice, increased it to 24 months based on bad faith and imposed substantial punitive damages.

The Supreme Court upheld the ordinary notice award but removed the extra nine months and the punitive damages. The majority found that the evidence didn't justify those additional awards. More importantly, it explained that damages for a harmful manner of dismissal should compensate actual reasonably foreseeable mental distress or other proven loss, rather than be measured by arbitrarily lengthening notice.

Punitive damages also require more than a badly handled termination. They are exceptional, intended for conduct deserving punishment and must avoid duplicating compensation already awarded for harm. The judges disagreed over whether Honda had treated Keays unfairly on the facts, but the majority's approach to the remedial framework became central to modern Canadian employment law.

The practical distinction matters when employers assess the potential cost of a dismissal. Notice damages address the lost opportunity to continue employment during an appropriate notice period. A claim for bad faith manner of dismissal has a different evidentiary foundation. It isn't generated simply by adding months because the employee felt disrespected, though malicious or misleading treatment can produce compensable harm when the legal conditions are met.

Source: Supreme Court of Canada, Honda Canada Inc. v. Keays, 2008 SCC 39, https://www.minicounsel.ca/scc/2008/39

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