Can an employee divide their claims to avoid monetary limits?
Imagine that your company is served with multiple claims from one former employee or contractor in the Small Claims Court. All of the claims total much more than the $35,000 limit, but the claims are divided into smaller actions, each with their own court file number, and each below the $35,000 limit.
Can they do that, and did they just find a loophole to bring their claims in the Small Claims Court?
The short answer is no, a plaintiff can’t divide their claims in this way to avoid the monetary limits of the Small Claims Court. But this will depend on whether or not all of the claims together form one “cause of action”.
Advantages of Small Claims Court
The Small Claims Court provides litigants with a less complex, and often less expensive, procedure than the Superior Court of Justice for having their claims heard. While it is always recommended to have a lawyer represent you in a court proceeding, the Small Claims Court is designed to allow litigants to represent themselves or their company if they choose to do so, particularly in less complex cases. Conversely, in the Superior Court of Justice, while individuals can represent themselves (however unadvisable that may be), a company must be represented by a lawyer, unless there is a court order stating otherwise.
Most litigation in the Small Claims Court involves only three stages: pleadings, settlement conference, and trial, without the need for affidavits of documents or examinations for discovery. This is significantly less complex than most litigation in the Superior Court of Justice, which can be advantageous for both sides.
However, the Small Claims Court has a strict monetary limit of $35,000, plus interest and costs. For this reason, we sometimes see plaintiffs attempt to divide their claims into multiple proceedings. For example, a contractor that has multiple unpaid invoices to the same company might try to bring a separate claim for each invoice, so that the total amount claimed against the company exceeds $35,000.
Cause of action can’t be divided
The Rules of the Small Claims Court provide the answer to this question. Rule 6.02 states:
“No Division for Jurisdictional Purposes
6.02 A cause of action shall not be divided into two or more actions for the purpose of bringing it within the court’s jurisdiction.”
While the rules don’t provide a definition of “cause of action”, the Court of Appeal has found that it means “the fact or facts which give a person a right to judicial redress or relief against another.” More generally, it is a set of facts giving rise to a right to sue.
Therefore, if the claims are based on the same set of facts and the same contract, the claims cannot be divided into multiple proceedings for the purposes of staying under the monetary limit of the Small Claims Court. However, if the claims are based on different facts, are against different parties, or are pursuant to different contracts, the claims may form different causes of action and can therefore form the basis for multiple proceedings.
In the Small Claims Court decision of Staff Mountain Inc. v. Indis Inc., 2015 CarswellOnt 20925, the court considered a plaintiff’s 12 separate court actions regarding 12 separate unpaid invoices, for a total of $224,441.
In that case, there was a written contract between the parties that provided for weekly invoices to be issued and paid within 60 days. The court found that all 12 invoices were rendered pursuant to the one written contract, and accordingly all of the claims for unpaid invoices formed one cause of action.
Therefore, the court found that the plaintiff improperly divided the cause of action into 12 proceedings in order to bring the claims in the Small Claims Court, and the court ordered all 12 of the proceedings to be dismissed. Moreover, the court set aside default judgments that had already been issued in the proceedings, and ordered all funds that were paid into court to be returned to the defendant.
On the other hand, in the case of Walker v. Leon’s Autobody Inc. the Ontario Superior Court of Justice came to the opposite conclusion based on a different set of facts. In that case, the plaintiff had commenced five different proceedings against the same defendant, for unpaid invoices and breach of contract related to work performed on vehicles.
The court found that the claims were with respect to different vehicles, and related to separate transactions and separate contractual arrangements. There was no overall contract between the parties that governed all of the transactions at issue. Therefore, the court found that the claims formed separate causes of action, and allowed them to continue as separate proceedings in the Small Claims Court.
Takeaways for HR
Generally speaking, a plaintiff cannot divide their claims into multiple proceedings in order to avoid the monetary limit of the Small Claims Court. However, if their claims are based on separate causes of action, then they will not be found to have “divided” their claims, and the separate proceedings will be allowed to continue.
Whether or not the different claims form separate causes of action is a legal question. If you or your company are served with multiple claims from the same individual in the Small Claims Court, it is best to speak to a lawyer to see if these claims violate the court’s rules. If so, you may be able to ask the court to dismiss the proceedings at an early stage.