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Employer’s Just Cause Assertion Backfires, Results in $1,000,000 in Liability

Ontario’s Court of Appeal recently upheld a trial decision in which an employer’s tactical pursuit of a just cause defence and counterclaim backfired catastrophically and resulted in a cumulative award of over $1 Million.

In Ruston v Keddco MFG (2011) Ltd, the plaintiff was terminated from his position as President of the corporation.  The employer asserted just cause on the basis of an alleged fraud.  The employer threatened the plaintiff that if he brought a wrongful dismissal claim, the employer would counterclaim and make the proceedings very expensive.

When the plaintiff sued alleging wrongful dismissal, the employer relied on the alleged fraud in defence and counterclaimed for $1.75 Million in damages.

On the seventh day of the 11-day trial, the employer dropped its claim for damages on the counterclaim to $1 and stated that it would not collect it if awarded.

Ultimately, the trial judge dismissed the allegations of fraud.  As a result, the employer’s just cause defence and counterclaim were also dismissed.  In fact, the trial judge found that the counter-claim had been a tactic to intimidate the plaintiff and that the employer’s actions breached its obligation of good faith and fair dealing towards the plaintiff and significantly complicated matters and increased preparation and trial time.

The judge awarded a 19-month notice period to the plaintiff, including bonuses and benefits, along with aggravated and punitive damages.  In total, the plaintiff was awarded over $600,000 in damages, plus interest.

However, the employer’s hardball tactics resulted in more than simply an award of wrongful dismissal damages and the defeat of its counterclaim. In a separate decision, the Court awarded a staggering $546,684.73 in costs to the plaintiff.  That amount was in addition to the amounts already paid to the employee for reasonable notice and other damages.  The Court pointed to several aspects of the employer’s conduct that supported a significantly higher than usual award of costs, many of which dealt with decisions made within the litigation and offers to settle.

Notably, however, the nature of the allegations made by the employer was chief among these considerations.  The Court accepted the plaintiff’s contention that because he was accused of fraud, the plaintiff had a greater interest in defending the assertion than if the alleged just cause were less inflammatory.  Further, the assertions of fraud required the plaintiff to retain an expert and significantly increased the complexity of the proceedings from what would otherwise have been a straightforward wrongful dismissal case.

All of this in respect of a just cause case that was not strong, and a related counterclaim that was almost completely abandoned in the midst of trial.

The employer appealed.  However, in a recently released decision, the Court of Appeal upheld both decisions by the trial judge.  It found that, although higher than usual, the damages and costs awards were well-founded.

The courts have little tolerance for employers that threaten and bring tactical claims or make trumped up allegations.  It is unlikely that an employer that asserts just cause in good faith but fails to prove their case or meet the high legal threshold for cause, would be the subject of punitive costs awards such as the one in this case.  However, if the results of this case may be taken as a warning, there is a difference between pursuing a weak case vigorously and playing hardball.

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