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Litigating just cause cases

courtroomIn a recent blog post, Earl Altman addressed the often thorny issue of summary dismissal. He commented that:

“The advice I generally give is that, short of outright dishonesty or criminal conduct, it is extremely difficult to prove cause.”

While I agree with many of the points he makes in his post, I am more optimistic with respect to summary dismissal. I am in the process of finalizing a book on that very subject, and have spent considerable time reviewing judicial consideration of the issue. While Earl is quite right that just cause is hard to prove, my view is that it is not a lost cause. In the right circumstances, courts and arbitrators will agree that dismissal is warranted.

That said, making the decision to summarily dismiss an employee, and litigating a wrongful dismissal claim on the basis of summary dismissal are two different things. One of the more difficult aspects of my job is explaining to clients (whether plaintiff or defendant) why being “right”, morally or legally, does not necessarily mean that you should refuse to settle a dispute.

The economic reality of litigation is such that in many cases, it may simply be more cost-effective to settle, even if that involves paying some money, rather than proceeding to trial and winning. Although this statement is true in almost every lawsuit, I often address it in cases where a client has dismissed an employee for cause and subsequently faces a wrongful dismissal claim. In many cases, my client is adamant that it is not going to pay any money to the plaintiff, in light of what the individual has done (or is perceived to have done) that justified dismissal in the first place.

There are three typical outcomes once you are involved in litigation. You may “win”, lose, or, more likely, settle. I say that settlement is more likely because statistics show that over 98 percent of civil claims filed are settled prior to trial. My understanding is that the percentage is even higher in the context of wrongful dismissal claims.

If an employer believes that it has a strong argument to support its allegation of just cause for dismissal, it may anticipate that the outcome will be a “win”. Part of my job is to explain what such a “win” entails. Simply put, it will involve a net loss of time and money. Putting aside the amount of time and resources that must be allocated to proceeding through litigation and trial, the reality is that such a victory will be a hollow one; the successful employer will be out of pocket, possibly substantially, at the end of the proceedings. Offering a settlement to the plaintiff may well be less expensive.

How does the successful party lose money? If the employer in a wrongful dismissal case succeeds at trial, the court will dismiss the plaintiff’s claim. In most cases, the plaintiff will be ordered to reimburse the successful employer for a portion of its legal fees. However, this will never be 100 percent of the legal costs incurred by the employer. The balance will never be recouped, which is why I advise that even this best case scenario involves a net loss.

To be clear, such a scenario would also not involve a net win for the plaintiff. If the plaintiff in a wrongful dismissal claim is found to have been properly dismissed, they will not be entitled to any damages, will have to pay their own lawyer (unless some type of contingency arrangement is in place), and will have to pay a portion of the other side’s legal fees. As a result, this scenario is potentially much worse for the unsuccessful plaintiff. It is truly a lose-lose scenario.

If that is the best-case scenario for the employer, what is the worst? In the worst-case scenario, a court will find that there was no just cause for dismissal, and that the employee was wrongfully dismissed. The court will then award the employee damages arising out of the wrongful dismissal, as well as any other damages that the court deems  appropriate. In addition, in most scenarios the unsuccessful employer will be ordered to reimburse the plaintiff a portion of their legal fees (again, not 100 percent). Finally, of course, the employer will have to pay its own counsel.

When litigation is threatened, or in its early stages, emotions are often still raw, and the parties are psychologically unprepared to settle. It is not unusual for my clients to state that they would prefer to pay the cost of a trial than to give anything to the no-good employee who is now suing them. In some cases, reason prevails at a certain point. In others, parties are never able to bring themselves to settle. And in some cases, there may be good reason not to settle.

Putting aside the economic costs of litigation, there may be costs of settlement that would cause greater concern. For example, in a scenario where an employee was dismissed as a result of sexually harassing a colleague, an employer may be extremely concerned about the impact upon the morale of the remaining employees (especially the victim of harassment) if the claim is settled and the dismissed employee receives a payout. In other scenarios, if an individual is dismissed as a result of his or her misconduct, employers may be particularly concerned that paying the individual money to settle the claim may encourage others to ignore the rules, and even make it more difficult to manage the employer’s workforce in the long term.

All parties in litigation will have to decide whether it is in their best interest to settle or proceed with litigation. They should consider the relative merits of their case, as well as the inherent costs and risks of litigation. In addition, they will have to consider other factors that may make settling more or less appealing. However, all parties should go into the process with their eyes open, knowing what the initial costs and benefits will be. In the case of employers defending wrongful dismissal claims on the basis of just cause, they need to understand that even their best-case scenario is, financially, a net loss.

Stuart Rudner,
Labour and Employment group at Miller Thomson LLP

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Rudner Law, Employment / HR Law & Mediation

Employment Lawyers and Mediators at Rudner Law
Rudner Law specializes in Canadian employment law and Alternative Dispute Resolution. They provide clients with strategic advice regarding all aspects of the employment relationship, and represent them before courts, mediators and tribunals. Read more
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