Case study: Elevated costs award against employer

Exclusive to Canadian HR Reporter from Rudner Law.

Consider this scenario: a company dismisses their employee without cause, and doesn’t provide them with any severance at all - not even their statutory entitlements.

Furthermore, the company refuses to reimburse the employee for legitimate expenses that they incurred on behalf of the company, leaving the employee to foot the bill. And last but not least, they inadvertently fail to file a Record of Employment for a month until the employee reminds them.

What’s the worst that can happen to the company?

HR professionals need to be aware that the court will punish what it deems to be egregious behaviour, and has many tools for dolling out such punishment. Treating an employee like the above scenario can cause significant additional liability for a company, which could have been avoided if the company complied with their legal obligations.

Punitive damages

I previously wrote about the need for employers to pay employees their statutory minimum entitlements, regardless of whether there is an agreement or an ongoing legal dispute with the employee.

There are several examples of the court awarding punitive damages against an employer due to their failure to comply with the Employment Standards Act, 2000 (ESA) in addition to damages for wrongful dismissal.

If a company fails to provide their employee with even their statutory entitlements upon termination, this could result in an award of punitive damages that would significantly increase the company’s liability.

Moral damages

Furthermore, when an employer acts in bad faith towards a dismissed employee, this can attract an award of moral damages or aggravated damages, which is also in addition to any other amounts owing the employee. I previously wrote about moral damages, and specifically the court decision of Teljeur v. Aurora Hotel Group in which the court awarded $15,000 in moral damages to a dismissed employee as a result of the employer’s bad faith conduct, in addition to damages for wrongful dismissal based on a seven-month reasonable notice period.

The employer appealed the decision to the Court of Appeal, which upheld the trial judge’s decision. In considering the trial judge’s decision to award $15,000 in moral damages, the Court of Appeal found, “The conduct of the [employer] was deserving of censure, and we see no reversible error.”

Moral damages is another tool the courts have to award additional damages when it views the employer’s conduct as being reprehensible.

Costs decision in Teljeur

Following the court decisions in Teljeur, the parties were unable to agree on the amount payable for costs, and thus the parties went back to the court for a decision on the costs issue.

My article on costs in legal proceedings can be found here. Typically, the winning party will be entitled to a portion of their costs, to be paid by the unsuccessful party. The normal expectation is that the costs will be on a “partial indemnity” basis, which is usually in the range of 50% of the party’s actual fees.

However, the courts can also award costs on a “substantial indemnity” basis, which is 1.5 times the amount that it would be on a partial indemnity basis. This is the exception rather than the rule, and one basis for such an award is when a party engages in reprehensible conduct. This can include conduct either in the circumstances giving rise to the lawsuit, or in the course of the legal proceedings that follow.

The court recently released its decision on costs in Teljeur, and found that the employee was entitled to costs on a substantial indemnity basis. In making this decision, the court relied on its earlier finding that there was “reprehensible conduct” by the employer in the circumstances giving rise to the lawsuit. Specifically, the court cited the following conduct by the employer:

1. The employer failed to provide notice of termination in writing as required by the ESA, despite several requests.
2. The employer failed to pay the employee his statutory entitlements within the time limits prescribed by the ESA (although the amounts were paid a short time later).
3. The employer misled the employee about the amounts he would receive upon dismissal.
4. The employer failed to reimburse the employee for a very significant amount of expenses, despite there being no basis to deny this payment.

Accordingly, the court ordered the employer to pay costs to the employee on a substantial indemnity scale, and fixed the costs in the amount of $24,000, which was significantly higher than the amount that would have been payable on a partial indemnity basis.

It is also important to note that the court cited some of the same factors to support both an award of moral damages, and an elevated costs award on a substantial indemnity basis. In citing a past decision of the Court of Appeal, the court found that the same conduct can justify both awards.

The employer’s conduct was very costly. Although the employer would always have been liable to the employee for pay in lieu of reasonable notice of termination, their conduct to the employee meant that they were required to pay an additional $15,000 in moral damages, along with an elevated costs award. The employer unnecessarily increased their liability, which could have been avoided if they had treated the employee properly in the course of dismissal.

Conclusion

The court’s costs decision in Teljeur is another example of the court punishing an employer for reprehensible conduct, in addition to the usual damages for wrongful dismissal that will be awarded to an employee.

In particular, a failure to comply with the employee’s statutory entitlements can result not only in an award of moral damages or punitive damages, but can also justify an elevated costs award at the expense of the employer.

If you are unclear on an employee’s entitlements, it is best to speak to a lawyer right away to avoid greater liabilities later on.

Alex Minkin is an associate lawyer at Rudner Law in Toronto. He can be reached at (416) 864-8500 or [email protected].