A Wrongful Dismissal Action – What are the Costs?

The MacLeod Law Firm recently settled a wrongful dismissal case for a client. The costs of litigation can be considerable. There are lessons for employers to learn from this case.

The Basic Facts A former managerial employee sued our client for wrongful dismissal. He was terminated after about three years of continuous service. He had previous employment with our client. Ontario courts will sometimes recognize an employee’s total length of service when determining reasonable notice so there was a risk that a court would conclude he was entitled to a lengthy reasonable notice period.

The Employee’s Lawyer The employee’s lawyer took an unreasonable settlement position and almost immediately started litigation.

The Employee’s New Job About four months after he was terminated, the former employee found a new job.

Formal Offer to Settle We served a formal offer to settle on the employee’s lawyer and he accepted.

Details of the Settlement Here is how the settlement monies were allocated: 33% to the former employee which was about one month’s pay; 40% to the former employee’s lawyer; 20% to the government for Employment Insurance overpayment; and,  7% to the government for withholding tax on the payment made to the former employee

Lessons to be Learned

1. Require all new employees to sign an employment contract with a properly drafted termination clause. (This was a new client who did not have an employment contract when we were retained!) In this case, the employer could have limited its liability to three weeks termination pay with an employment contract and avoided litigation altogether.
2. A formal Offer to Settle at the right time in the litigation process is a powerful tool.
3. Wrongful dismissal litigation is expensive for all parties including the successful party. One way for an employer, who does not have an employment contract with a termination clause, to avoid litigation is to prepare a fair severance package and to treat the employee with dignity and respect when the employee is terminated. In this scenario, unless just cause for termination exists, we often recommend that the employee be specifically told that the termination is not performance-related and suggest that the Company offer to provide the employee with a positive reference. In our experience, the person is much less likely to litigate in these circumstances.

If you have any questions about employment contracts, the contents of severance packages, or wrongful dismissal litigation, please call Macleod Law Firm at 1–888-640-1728 or email us at [email protected]