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If the punishment fits: The Court of Appeal upholds Ruston v. Keddco Mfg. (2001) Ltd.

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Our legal system is designed to implement a stringent appeals process. When an unsuccessful party truly believes that the Court ‘got it wrong,’ either because they wrongly assessed the facts or wrongly applied the law (or in some cases both), they have the power to appeal to a higher court who can review the ruling and issue their own determination.

Yet in doing so, they run the risk of even further rebuke during the appeals process. If the Superior Court of Justice rules against an employer’s conduct, for example, and the Court of Appeal then agrees with that assessment, the Court of Appeal can award a terminated employee even greater damages, as well as a significant costs award to cover their costs of the appeal. When an employer is found to have acted in bad faith, not only can they be penalized by a lower court, but a further penalty on appeal can act as a double hit. That is what happened to Keddco Mfg. recently.

To recap

Rudner Law recently published a post on this blog about the original Ruston v. Keddco Mfg. (2001) Ltd. decision, but here is a quick review of the facts. Scott Ruston was President of Keddco Mfg. (2001) Ltd. (“Keddco”) when he was terminated without warning, and then hit with allegations from his former employer that he had committed fraud. When Mr. Ruston told the company he would pursue legal action, the Company warned that they would countersue, and make it a “very expensive process for him.” Sure enough when he did sue for wrongful dismissal, Keddco responded by counterclaiming against Mr. Ruston for over $1.7 million for unjust enrichment, breach of fiduciary duties, fraud, and punitive damages.

Ultimately Mr. Ruston was successful after an 11-day trial. Not only did the Court agree that Mr. Ruston was wrongfully terminated, but also ruled that the counterclaim was groundless and entirely without merit. Mr. Ruston was awarded more than $600,000 in damages, based on a notice period of 19 months, punitive and moral damages, and a costs award of over $500,000. Naturally Keddco appealed the decision.

The appeal

Keddco argued in their appeal that the original judge had erred in awarding a notice period of 19 months, a bonus for Mr. Ruston’s 2015 year of employment, as well as the moral and punitive damages. The Court of Appeal ruled against Keddco on all four grounds.

With respect to the notice period, the Court found that the 19 months awarded was, in fact, reasonable based on the circumstances. While the facts may have been similar to another recent Court of Appeal decision that we wrote about last year, Singer v. Nordstrong Equipment Limited, the Court ruled that there were factors that entitled Mr. Ruston to a higher notice period. He was older than Mr. Singer at the time of his termination, his employer had alleged just cause for his termination, he was not provided with a reference, and he had significant family ties to his area that would have prevented him from easily moving to look for new work.

Keddco was also unsuccessful in its argument that Mr. Ruston should not have been paid a bonus for 2015, because he would not have received one had he been employed there at that time. The evidence in fact showed that he had been paid a substantial bonus for every year of his employment, and so 2015 should not be treated differently.

Yet the Court reserved the bulk of their comments for Keddco’s appeal of Mr. Ruston’s aggravated and punitive damages. They ruled that Keddco’s actions in their threat of litigation and subsequent counterclaim were “calculated to, and did, cause Mr. Ruston” stress, and breached the employer’s duty of good faith in the manner of termination. Similarly, the Court of Appeal ruled that the original award of punitive damages was appropriate, as Keddco’s conduct was clearly intended to manipulate and intimidate Mr. Ruston, and the previous decision was well-considered and should not be interfered with. Similarly, the costs award of over $500,000 was noted by the Court to be high, but was not unreasonable given the circumstances. Mr. Ruston was awarded an additional $35,000 of costs in the appeal. 

Takeaway

The Court of Appeal’s analysis is a clear rebuke of Keddco’s conduct throughout their termination of Mr. Ruston, and the subsequent legal proceedings. Terminations happen on a daily basis, and in Ontario most employees can be terminated at any time for practically any reason, so long as the termination is done properly and the individual is paid what they are owed under the terms of their employment contract or at common law, whichever is applicable in the circumstances.

Yet while the employer has the power to terminate, they must do so in good faith in order to avoid severe legal penalties for their conduct. A properly carried out termination will result in the former employee signing a release indemnifying their former employer from any legal consequences as a result of their dismissal. A badly done termination however, such as threatening an employee with, and then pursuing, bogus litigation designed to intimidate them can warrant stiff financial penalties as a result. Allegations of just cause that are purely fictitious are not only cruel to employees, but a court is likely to find them so odious that they can backfire on the employer far worse than any damages awarded for a straightforward wrongful termination. 

By Shaun Bernstein

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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 mediation. Rudner Law provides clients with strategic advice regarding all aspects of the employment relationship, and represents them before courts, mediators and tribunals. Stuart Rudner is a leading HR Lawyer and founder of Rudner Law. Stuart and his team speak and write frequently on HR Law issues. Read more
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