IBM ordered to pay $215,000 costs award after taking ill-advised, unreasonable legal position
Exclusive to Canadian HR Reporter from Rudner Law.
We’ve all been in a car with a driver who refuses to listen to the GPS, stubbornly driving in the wrong direction while insisting they know a shortcut.
In employment litigation, doubling down when you are clearly going the wrong way doesn't just waste time, it can cost you a fortune.
IBM recently learned this lesson the hard way when the Ontario Superior Court ordered it to pay a $215,000 costs award for taking an ill-advised, intractable, and unreasonable legal position.
Big Blue’s big bill
In Adelman v. IBM Canada Limited, the employee won his wrongful dismissal trial, securing $682,151 in damages representing 24 months of notice, which included bonuses and compensation for restricted stock units (RSUs) and stock options.
That decision already serves as a warning to employers about the importance of having strong contracts.
But the real warning came with the subsequent decision on legal costs. The court awarded the plaintiff $215,000 in costs on a substantial indemnity basis. Substantial indemnity costs are elevated and punitive, typically awarded when a court wishes to express severe disapproval of a party's litigation conduct.
'Aura of lawlessness’
The judge ordered costs on a substantial indemnity basis because "IBM took entrenched, legally incorrect, positions on key issues and abandoned them only late in the day". IBM’s most egregious misstep was its refusal to acknowledge binding case law regarding the employee's RSUs and stock options.
In Milwid v. IBM, the Ontario Court of Appeal had already ruled against IBM on the exact same language regarding equity entitlements upon termination. The Milwid decision was issued before discoveries occurred in the instant case; IBM also retained the same counsel. Despite knowing that it was bound by Milwid, and that the language it was relying on was the same unenforceable language, IBM maintained an indefensible position that the employee had no entitlement to equity during his notice period.
IBM only formally amended its position on the equity issues weeks before trial, and only after the employee threatened to seek punitive damages. Furthermore, IBM refused to concede that the employee was even owed common law reasonable notice until its opening arguments at trial.
The court slammed this conduct as having an "aura of lawlessness" and noted that its strategy was solely adopted in order to force the employee into accepting a much more inferior settlement.
Pith and substance
Adelman is a critical warning about the dangers of playing hardball with legally untenable positions. While employers and their counsel are entitled to zealous defences, maintaining an argument that is "utterly at odds with the law", as the court highlighted, will backfire spectacularly. Strategy cannot supersede binding jurisprudence.
As this decision demonstrates, trying to squeeze an employee into a cheaper settlement by driving up their legal costs with bad-faith, unreasonable arguments will likely result in the employer ending up with a huge bill.
To avoid a similarly costly detour, employers should proactively work with experienced HR counsel to honestly assess their legal risks, recognize the current state of the law, and develop a strategic approach to litigation.
David Gelles is an associate lawyer at Rudner Law in Toronto. He can be reached at (416) 864-8500 or [email protected].
