Termination of Employment: For Cause or not For Cause?

An employer with a misbehaving employee has a difficult question: Terminate on a "for cause" basis, without notice? Or terminate the employee without cause and pay notice?

It's a tough question. Just cause is a high threshold, and only significant misconduct meets it. Further, alleging cause wrongfully can expose an employer to additional damages. There are few clear-cut "cause" cases, and terminating for cause frequently invites litigation. Even if an employer wins such a suit, legal expenses are significant.

Particularly when dealing with long-term employees who might have lengthy common law notice entitlements, it's tempting for an employer to terminate, pay out the statutory minimums, and hope that the employee goes away, or maybe offer a small additional amount in exchange for a full and final release...then, if you get sued and have to pay out the legal expenses anyways, to allege cause and say that you shouldn't have to pay anything at all.

Trouble is that it doesn't work that way. When you're terminating, you pretty much have to make a decision as to whether or not it's "for cause". Even if you don't say so expressly, you're going to have to engage in conduct which tends toward one or the other - namely, in most cases, payment or non-payment of statutory minimum notice entitlements, and/or filling out the reason for issuing the Record of Employment. You can't just fence-sit until you know if you're getting sued.

Why not? Why should a bad actor get away with the misconduct and walk away with a golden parachute just because you tried to pay him a bit to go away in the first place?

Justice Thompson answered this effectively in 1964, in Tracey v. Swansea Construction Co. Ltd., [1965] 1 O.R. 203, in a passage which has been quoted a few times in the decades since:

The simple position appears to me to be this. The defendant desired to dismiss the plaintiff. If there was misconduct or default sufficient to justify discharge it had one of two courses open to it. It could have summarily dismissed for cause or it could have decided to overlook, waive or condone the misconduct and terminate upon notice, or payment in lieu of notice, in accordance with the provision of the contract for termination implied by law. It could not do both, for one would operate as a repudiation of the contract for a breach thereof, and the other, conversely, would operate as an affirmation of the contract and the adoption of its provisions for termination. The fact that the defendant was in error as to the length of, or sufficiency of, the notice given could in no way alter the effect of its intention as expressed by its conduct.

By paying notice in the first place, an employer acknowledges that the contracts continues to exist despite the employee's misconduct. You can't retroactively repudiate a contract.

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This Blog is not intended to and does not provide legal advice to any person in respect of any particular legal issue, and does not create a solicitor-client relationship with any readers, but rather provides general legal information. If you have a legal issue or possible legal issue, contact a lawyer.

Double Costs at the Small Claims Court

Landmark decision by the Divisional Court. But first, some background.

Small Claims Court has always had a limited ability to award costs. s.29 of the Courts of Justice Act limits the costs to be recovered to 15% of the amount claimed, unless the Court thinks it necessary to punish a litigant for unreasonable behaviour in the course of the litigation. This has not been changed.

Note that it's the amount claimed, not the amount recovered. If a plaintiff claims $25,000, and only recovers $5000, then the s.29 cap is still 15% of the $25,000. (No guarantee on getting that full amount, but still useful. If you've got a strong case, it can be a good idea to inflate the amount of the claim to increase the Court's costs jurisdiction.) Also, if there's a counterclaim, that amount is considered cumulatively. If I sue you for $25,000, and you counterclaim for $25,000, then the maximum costs awardable is 15% of $50,000.

The Old Rules

Until July 2006, however, the Rules of the Small Claims Court set a dollar-figure cap for costs. If you retained a lawyer to represent you from start to finish, and you were completely successful in your claim after a full-day trial, then - aside from your disbursements (some of which will be awarded fully and some orders which you would find woefully inadequate) - you might have recovered $50 for preparing and filing the pleadings, and you might have recovered up to $300 as a representation fee. For paralegals or articling students the representation fee cap for your recovery was reduced to $150.

Let's do some hypothetical math here: Suppose your lawyer bills $200 per hour, and the trial took 4 hours. You're already $450 in the hole on your legal fees if you get that maximum, without even considering the many hours your lawyer spent prior to the trial preparing the case, preparing the pleadings, meeting with you, reviewing and preparing documents, etc. Thousands of dollars easily. At a time when the jurisdiction of the Small Claims Court was $10,000, a lawyer would often cost more than what you would get at the end of the day if successful.

But then there's Rule 14, which deals with Offers to Settle. If you make an offer to settle (which meets certain criteria) which the other party doesn't accept, then you do better at trial, you can get "double costs". So the above-noted $300 representation fee becomes $600. Nice, but still doesn't make much of a dent in the actual legal fees.

And everything was considered to be subject to the 15% provision from the CJA. After all, that's what s.29 meant, that despite the dollar amounts listed in the Rules, it couldn't exceed 15%.

The New Rules

The $300 costs maximum was replaced by "a reasonable representation fee". The $150 costs maximum for paralegals/students was replaced by "half of the maximum costs that may be awarded under section 29 of the Courts of Justice Act."

The double costs provisions from Rule 14 remained unchanged, however, as did s.29 itself (the 15%).

So the question becomes this: If, in the ordinary course, I can obtain a costs award for 15% of the claim amount, and I make a Rule 14 offer which is not accepted, then I do better at trial...what is the consequence of Rule 14? Can I get double the 15%? Or does the 15% cap 'trump' the double cost provision?

I was at a conference last year where this was discussed. Some Deputy Judges have found that the 15% cap is doubled by Rule 14. Some Deputy Judges have found that Rule 14 is subject to s.29, so 15% can not be exceeded.

At least one judge, in a clever bit of sophistry, held that the refusal to accept an offer that's better for you that what you eventually get at trial is inherently unreasonable conduct worthy of punishment, thus getting into the s.29 exemption for the 15% cap.

Thus, it wasn't established law.

More Recent Developments

As of January 1, 2010, the Small Claims Court has jurisdictions over claims of up to $25,000. Before, it was $10,000. When cost caps are determined by percentage of the claim amount, suddenly costs are looking a lot more significant.

The Landmark Case

Barrie Trim v. Heath et al., 2010 ONSC 2598 (CanLII)

BTM was sued in Small Claims Court for $10,000. In November 2007 they formally offered to settle the matter on the basis of a dismissal of the action without costs. The offer was not accepted, and the matter went to trial. The plaintiffs were successful at trial, but BTM appealed to the Divisional Court and the judgment was set aside. This decision by the Divisional Court regarded costs, both on the appeal and at the Small Claims Court.

BTM sought $3000 for its representation fee at the Small Claims Court - 30% of the amount claimed - and therefore the question became the effect of the November '07 offer. Ultimately, obtaining a dismissal of the action was clearly a more favourable result than was obtained in the offer, so the Divisional Court finally had to wrestle with the question of whether or not the current Rule 14 could relieve against the limit in s.29.

The Divisional Court looked at a persuasive Small Claims Court decision: "if the 15% “cap” could not be doubled under Rule 14.07 without offending s.29, then the effectiveness of the cost consequences aspect of Rule 14 is undermined and in many cases would be drained of any real meaning." The Court found this reasoning persuasive, and held that Rule 14 can relieve against the s.29 limit.

Food for Thought

I sue you for $25,000. You counterclaim for $25,000. I serve an offer to settle that involves you paying me $20,000, and you refuse to take it. At trial, I win the full amount of my claim and your counterclaim is dismissed.

I can be awarded a representation fee of up to ([$25,000 + $25000] * 15%) * 2, or $15,000.

That's not bad, actually. Considering that the Small Claims Court process is relatively brief and expedient, and considering that even at the Superior Court you're usually only looking at getting a contribution towards legal fees, we're starting to get into numbers in Small Claims Court that could actually reflect reasonable legal expenses - certainly a stark contrast to the $300 cap of four years ago.

With the expansion of the Small Claims Court jurisdiction, more and more claims for significant amounts of money will be made in the Small Claims Court venue. If a client comes to me with a $25,000 claim, I can now tell her that, with a good offer to settle, and if successful at trial, she might recover up to $7500 in legal fees, which could be a significant portion of the total fees. In the past, retaining a lawyer for Small Claims Court was a problem because, even if you win, you still lose after paying legal fees. Nowadays that is not necessarily the case.

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This Blog is not intended to and does not provide legal advice to any person in respect of any particular legal issue, and does not create a solicitor-client relationship with any readers, but rather provides general legal information. If you have a legal issue or possible legal issue, contact a lawyer.

Family Feuds

Most litigation settles. The vast majority. While it would be oversimplifying things to say that it's all about the bottom line in most cases, it is mostly about the bottom line in most cases.

Truthfully, most litigation involves some level of personal emotion. We're all people, and even with corporations there are still people involved. People feel wronged. A plaintiff feels wronged and wants to go to Court to have that wrong righted. A defendant feels wronged and wants to avoid paying out anything to the plaintiff simply on principle.

Occasionally, there's merit to fighting on principle. When you deal with large numbers of people in similar capacities, you fight individual cases to send the message to everyone else. An employer who dismisses a bad actor wants to fight the wrongful dismissal claim because it doesn't want other employees thinking that acting up and getting themselves fired is an easy way to a big payout. An insurer fights wherever it can so that people don't start getting the impression that it's easy meat. Or sometimes there is simply enough money at stake to make it worth fighting regardless of legal fees.

But for most folks, it's simply a matter of moral outrage. And in most cases, that moral outrage can be quelled pretty quickly by a couple of interim accounts from lawyers. I like to give interim accounts before getting settlement instructions for exactly that reason: I want my client to have a full understanding of exactly how much the litigation has cost to date, so that they may also get a sense of how much more is riding on the line in terms of legal fees. Makes them ponder just how much their moral outrage is worth to them. Matters settle because litigants finally realize that it's too expensive to move forward for the value of the litigation.

Of the cases that actually need to go before a Court, however, it is astonishing just how many of them are family cases. Separation or divorce situations, support and equalization, custody and access. Or alternatively estate litigation as between family members. You get into estate matters with several law firms involved, and suddenly you have 4 lawyers charging $250 an hour each, spending half a day fighting over a chattel worth three hundred bucks. In what universe is that rational?

Perhaps the worse part is that it all comes out of the same pot at the end of the day. In family law, you deplete your resources and your spouse's resources: Bye bye kids' college fund. In estate litigation, it's quite common for the costs of litigation to be paid out of the estate. So you have an estate worth $250,000, and you have four people trying to split it more favourably for them...legal fees may well eat up the whole estate.

A dose of rational "bottom line thinking" would do these folks a world of wonder. But sometimes there's just too much animosity between the family members, that they'd rather divide up the whole pot between the lawyers rather than amongst themselves. It's really quite tragic.

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This Blog is not intended to and does not provide legal advice to any person in respect of any particular legal issue, and does not create a solicitor-client relationship with any readers, but rather provides general legal information. If you have a legal issue or possible legal issue, contact a lawyer.

Simcoe Landlord Tenant Board Orders Return of Rent Deposit

In a recent case heard locally at the Landlord Tenant Board, the Board found that the landlord was retaining a rent deposit unlawfully.

The facts are put concisely: The tenants completed a rental application and paid a deposit on January 20. The landlord replied that their references would have to be checked before the landlord would agree to rent to them. A few days later, the landlord said that their references were okay and they could rent the place. The tenants replied that they were no longer interested and wanted their deposit yet. The landlord refused, so the tenants brought this application, and got back the deposit and the application fee.

The facts that *aren't* here include what exactly was on the rental application, or what other conversations might have been had between the parties. However, the Board finds that it was understood that the landlord would require them to sign a written tenancy agreement before giving them the keys to the unit.

So the real question is this: Had a contract formed between the parties? In this case, the Board said no. Had the Board said yes, then it is quite possible that the landlord would have been able to pursue the tenants for additional damages for breaching the contract. I don't know what all the evidence was here, but you sometimes get tricky cases along these lines.

Notwithstanding that the tenant here was successful, the fact that they had to litigate over the deposit carries a lesson: When discussing a prospective rental agreement, be careful. Don't make any firm commitments if you aren't prepared to honour them. I would never recommend providing any sort of deposit until you're actually entering into the binding contract itself. Some landlords may insist on receiving the deposit with the application; the rental housing market around here isn't so difficult that a tenant will necessarily have to accede to such a demand.

I've heard about cases where the tenant thought he was providing the deposit "to hold the place", and ultimately was found to have entered into a contract and had to pay additional damages for having breached the contract.

Also, carefully read the text of anything you're asked to sign. When I first moved to Simcoe, I looked around at a few places. One landlord asked me to fill out an Application. I wasn't sure I wanted to stay there, and still had other places to check out, but I reviewed the Application carefully and determined that the Application only contained basic personal information and consent to check references, and contemplated a written lease which would have to be signed to take possession of the place. I was able to satisfy myself that by filling out the Application I was not going to bind myself into something I wasn't prepared to accept.

Legally, you can't accidentally enter into a contract, but sometimes the evidentiary questions are tricky, and it is far easier to enter into a legally binding contract than many people realize. Oral contracts are legally binding. Contrary to popular belief, a signature is not required, nor even a handshake. The real trouble is that, where there's nothing in writing, the fight becomes over who said what. And, especially if money has changed hands, that will often weigh in favour of finding that a contract has formed.

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This Blog is not intended to and does not provide legal advice to any person in respect of any particular legal issue, and does not create a solicitor-client relationship with any readers, but rather provides general legal information. If you have a legal issue or possible legal issue, contact a lawyer.