The Supreme Court of Canada recently handed down two decisions that affect the wrongful dismissal landscape by significantly adjusting damages awarded in the Honda Canada Inc. v. Keays matter, and increasing the mitigation duties of wrongfully dismissed employees.

Keays worked for 11 years with Honda when he was diagnosed with chronic fatigue syndrome. He went on disability for one year, until the insurer discontinued his benefits. Keays then returned to work on a disability program that permitted absences so long as they were supported by medical certificates that their absences were due to their disability.

Honda Canada was concerned by the amount of absences taken, and by the medical notes. It asked Keays to meet with an occupational medical specialist in order to determine how his disability could be accommodated. Keays sought legal advice, and refused the request without an explanation of the purpose, methodologies and parameters of the request. The employer sent Keays a letter stating that it supported his full return to work but that his employment would be terminated if he continued to refuse to meet with the specialist. Keays refused and was terminated. Keays sued for wrongful dismissal.

At trial, Keays was awarded 15 months’ pay in lieu of notice. Then the judge increased the award to 24 months because he found that Honda Canada discriminated and harassed Keays. Furthermore, an additional $500 000 in punitive damages was awarded against the employer, making this the most significant wrongful dismissal in the Canadian employment landscape.

On appeal, the punitive damages were reduced to $100 000. However, this was still a very worrying case for many employers.

The appeal was then heard by the Supreme Court of Canada, which allowed the appeal in part, and set aside the aggravated and punitive damages. Justice Bastarache noted that he could not agree with the trial court’s finding that the appointment with the specialist was a "set up". He held that the physician could not, with the information that was provided to him, accept a diagnosis of chronic fatigue syndrom without first meeting Keays. Bastarache also noted that the employer could not be faulted for accepting the specialist’s expert advice on the matter.

The Supreme Court of Canada also noted that the employer was not obliged to communicate with Keays’ lawyer so long as the employment relationship continued. The employer and employee are always entitled to deal with each other directly. However, Honda Canada should not have told Keays that hiring counsel was a mistake and would make things worse. Justice Bastarache described that comment as ill-advised and unnecessarily harsh.

Lesson 1: Employers will not be punished for good faith reliance on expert medical advice.

Lesson 2: So long as the employment relationship continues (in a non-union setting), the employer has the right to deal directly with its employees, regardless of the involvement of legal counsel in a matter. However, the parties should refrain from making comments on the appropriateness of retaining legal counsel.

In this case, the Supreme Court of Canada made a ruling that clarifies the duty of wrongfully dismissed employees to mitigate their damages by accepting temporary work with the employer, unless they have an objectively valid reason for refusing. Wrongfully dismissed and constructively dismissed employees have the same duty to mitigate, even to the point of accepting a reasonable offer of employment from the very employer subject to the claim.

In this case Evans, a business agent for the Whitehorse branch of the Teamsters Union, was terminated when a new union president was elected. During negotiations to finalize his notice period and termination package, the Teamsters asked that he work out a 24 month notice period. Evans attempted to make his return conditional upon his termination letter being rescinded. The Teamsters took the position that Evans failed to mitigate his damages, and Evans commenced a wrongful dismissal action against the union.

At trial, the judge ruled in Evans’ favour, awarding 22 months’ pay in lieu of notice (totalling over $100 000). The judge found that the union had attempted to fire Evans and then re-hire him for an additional two-year term. On appeal, the award was overturned, as the evidence did not support Evans’ contention that it was unreasonable to return to work in a politically charged environment.

When the matter was taken to the Supreme Court of Canada, the majority agreed with the Court of Appeal. Justice Bastarache noted that Evans was prepared to return to work if his conditions had been accepted, therefore, Evans’ suggestion that it was unreasonable to accept the offer of work in mitigation of his damages did not fit with Evans’ own behaviour. He observed:

By corollary, Bastarache also held:

However, there is a caveat with respect to this duty to mitigate. Bastarache did note that employees are not obliged to mitigate their loss by working in an atmosphere of "hostility, embarrassment or humiliation".

This decision raises a concern that some employers may offer ‘strategic’ re-employment with the expectation that the employee may decline the offer, and thereby undermine the employee’s claim for damages. However, we do not see this as a practice that many employers would attempt unless it is in good faith. Most employers would only make a mitigating offer if there was a strong element of trust to allow an employee who has decided to pursue a claim of damages against the employer back into the workplace. Indeed, if an employer made a bad faith offer to mitigate damages, and placed the employee in a toxic environment, the employer would be exposing itself to further claims for damages for harassment, and possibly aggravated or punitive damages for the manner in which it handles the dismissal.

Lesson 3: Employers who are subject to a wrongful dismissal claim should explore whether there is an opportunity to offer alternate employment to the claimant. Employees who find themselves wrongfully dismissed should give consideration to any reasonable offer of alternate employment by the offending employer.