When companies terminate someone for misconduct, the employee is not entitled to compensation. This is nothing new as just cause for termination is usually a complete defence to any allegation of wrongful dismissal.
But what about employers that advance misconduct allegations with little or nothing to back them up, often in an effort to dissuade people from proceeding with potential cases? In the context of wrongful dismissal lawsuits, that is an all-too-familiar defence tactic specifically designed to frustrate a former employee’s ability to seek recourse through the courts. But sometimes, it can backfire.
When employers assert bogus misconduct allegations, there is a practical effect of turning what could otherwise be a relatively simple and efficient litigation process into a very expensive, drawn-out, and more complicated case that will possibly necessitate a trial. It is an access to justice issue. Many individuals are simply not in a position to pay for the trench-warfare type of litigation associated with just-cause allegations and often, from a cost-benefit perspective, the quantum of damages on the line may not justify financing that type of case. The practical effect is that individuals shy away from seeking their severance entitlements through the courts and often take less than they should receive.
The defence strategy of exaggerating misconduct allegations also flies in the face of the decision in Hryniak v. Mauldin in which the Supreme Court strongly endorsed the summary judgment process as an expeditious and less expensive means to achieve a just result. The complexities and cost of a trial are usually unnecessary in most wrongful dismissal cases. If an employer attempts to frustrate access to the summary judgment process by artificially making it a more complex case, it should come as no surprise that the courts will impose harsh penalties to discourage that tactic. Now, there are at least two recent precedents where judges have come down hard on employers that have failed to prove their defences.
In Tetra Consulting v. Continental Bank, Justice Edward Morgan sanctioned an employer for advancing baseless just-cause allegations by awarding substantial indemnity costs. The plaintiff, Lewis Cassar, sued the Continental Bank of Canada for wrongful dismissal damages after it terminated him when the financing for his project fell through. Although it initially offered him severance, once he sued, the bank alleged there was cause for his dismissal due to a performance concern. The problem was that the bank could not back this defence up with any facts. In fact, just prior to termination, the bank was in the process of drafting up an offer for the plaintiff’s continued employment. It was not until the start of the hearing that the bank abandoned its just-cause allegation.
Morgan found the bank had abandoned its just-cause defence because there was “not a stitch of evidence to support it.” He also found the just-cause allegation was “nothing more than a cynical tactic deployed by the Bank to discourage this legal action.”
In Morgan’s view, the bank raised the cause allegation for no other purpose than to make the plaintiff’s case more difficult than it should have been and increase his cost burden. In the end, the plaintiff’s claim was successful and the court ordered the bank to pay elevated legal costs.
The Tetra decision comes on the heels of the ruling in Gordon v. Altus, in which the court ordered an employer to pay $100,000 in punitive damages on account of unfounded allegations of just cause that it could not prove at the trial.
The court found some of the allegations were a “red herring” and the defendant had put together a process to justify its actions after the fact. The judge admonished the employer’s tactics as “cheap,” “mean,” and “harsh” and ordered it to pay punitive damages.
Both cases represent very costly lessons for employers. At the early stage of the litigation process and even prior to it, management counsel should look closely at any misconduct allegations to determine whether there is any merit in pursuing that angle as a defensive strategy at all, particularly in light of the generally high standard of proving that cause for dismissal actually existed. In the absence of credible evidence substantiating the defence, employers should proceed cautiously when raising tactical allegations in dismissal lawsuits or risk seeing elevated cost awards or other sanctions.
Daniel Lublin and Jonquille Pak are senior employment lawyers at Whitten & Lublin in Toronto who represent both employees and employers in workplace disputes. Lublin was counsel to the plaintiff in Tetra Consulting v. Continental Bank.