In many wrongful dismissal cases, the legal costs associated with taking a case to trial exceeds the value of the legal claim. That is why the vast majority of these cases settle before trial.

Rolling the dice and taking a case to trial can have serious financial consequences.

Doyle v. Zochem Incorporated

Consider a recent case involving the termination of a 44-year-old female supervisor with 9 years’ service. She earned a salary of about $ 85 000, worked in a male dominated workplace, and her termination came shortly after filing a sexual harassment complaint.

As I wrote in an earlier blog, the trial judge awarded her 10 months pay in lieu of reasonable notice, $ 60 000 in moral damages because of the way she was terminated, $ 25 000 for the way the employer handled her human rights complaint, and interest for a total of about $ 150 000.

Earlier this year, the Ontario Court of Appeal upheld the trial judge’s decision.

Cost Award is 283% Higher than Wrongful Dismissal Damages

This blog discusses the $ 425 000 cost order the court made against the employer in connection with the trial.

The trial of this wrongful dismissal action took 28 days. The employer made a claim of after acquired cause. This means the employer initially took the position that the employee was terminated without cause but then claimed it discovered evidence after the termination which would have justified a with cause termination so that the employee was not entitled to any termination pay. The evidence relating to after acquired cause took up much of the trial. The trial judge concluded the after acquired evidence was a flimsy defence supported by flimsy evidence.

Factors to Consider When Assessing Costs

As a general proposition, the judge stated costs should follow the event (i.e. the losing party should pay some of the winning party’s costs), be proportional to the issues in the action and the outcome, and be reasonable to the losing party to pay. Other factors to be considered is the conduct of the parties and whether one party plays “hardball.”

Difference Between Actual Costs, Substantial Indemnity Costs & Partial Indemnity Costs

In this case, the employee’s lawyer said her actual fees were $ 496 661 (or $ 422 162 on a substantial indemnity basis or $ 322 830 on a partial indemnity basis). The employer’s lawyer said their fees were $ 682 413.

Neither party made an offer to settle that complied with Rule 49 of the Rules of Civil Procedure; that is, before the trial the employee did not agree to settle for less than $ 150 000 and the employer did not offer to settle for more than $ 150 000.

Costs Order in this Case

The judge ordered the employer to pay the employee $ 322 830 of her legal costs (i.e her costs on a partial indemnity basis) plus H.S.T. plus disbursements plus $ 12 000 for settling costs for a total of $ 424 584.33

Lessons to be Learned

1. Alleging after acquired cause is a risky strategy particularly if there is flimsy evidence supporting the allegation.
2. If the parties assess the case significantly differently then seriously consider retaining a mediator. This is required for wrongful dismissal actions commenced in Toronto. In my experience, a good mediator is able to get parties on the same page and persuade the parties it is in their interests to enter into a without prejudice settlement instead of incurring the time, costs and legal uncertainly associated with a trial.
3. If a plaintiff refuses to accept a reasonable settlement offer then the plaintiff may be ordered to pay the defendant’s costs after the date of the offer, despite the plaintiff winning their trial. On the other hand, if a defendant refuses a reasonable settlement offer then the defendant may be ordered to pay more of the plaintiff’s costs after the date of the offer.

For over 25 years, Doug MacLeod of the MacLeod Law Firm has been advising employers on all aspects of the employment relationship. If you have any questions, you can contact him at 416 317-9894 or at [email protected]