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Labour & Employment Law Blog

Beware Employers: Don’t Use Meritless Litigation To Dissuade Employees From Pursuing Their Rights

Employers need to be cautious about what allegations they make against former employees who are pursuing a wrongful dismissal claim against the employer. The court will not look favourably at an employer who uses litigation as a way to bully a former employee so that they will no longer pursue their wrongful dismissal claim. This strategy risks having serious consequences such as in the case below where the trial judge sanctions the employer using this litigation strategy via costs.

The plaintiff in Giacomodonato v. PearTree Securities Inc., 2023 ONSC 3197 was an investment banker and in 2016 he joined the defendant company (“PearTree”) which worked with mining companies to arrange flow-through donation financing placements. The plaintiff served as the defendant’s president and co-head of banking.

The plaintiff was terminated without cause in 2018 and the plaintiff then sued PearTree for wrongful dismissal and also claimed that he was underpaid by PearTree. This amount varied from $3.2 million to $3.9 million depending on how the amounts were calculated. PearTree responded by counterclaiming that the plaintiff breached restrictive covenants in his employment agreement with PearTree.

The reason why this case is noteworthy is how the courts looked at PearTree’s counterclaim for general and punitive damages. PearTree had brought its counterclaim alleging that the plaintiff had breached certain restrictive covenants (breach of a non-competition clause, breach of fiduciary duty and unjust enrichment). This was based on the fact that the plaintiff had been hired by a new employer where he assumed the position of managing director nine months after his termination with PearTree.

PearTree set out in their counterclaim that their allegations of breaches by the plaintiff of restrictive covenants were based on an expert report. The expert report set out that PearTree suffered damages to the tune of $1.6 million due to the breach. PearTree also sought punitive damages of $1 million.

During the trial, PearTree abandoned the claims for general and punitive damages. Instead, PearTree sought disgorgement of all the employment income that the plaintiff was entitled from September 2018 to January 2020.

The plaintiff was successful in his claim of wrongful dismissal and the judge found that he had been undercompensated as alleged. He was awarded $10,000 in punitive damages for PearTree’s decision to suspend his salary continuation payments. The judge ultimately granted a judgment for $718,103.05 to the plaintiff.

The judge then dismissed the counterclaim completely as the non-competition clauses were unenforceable, contrary to public policy and overly broad. The judge also set out that there was no evidence that the plaintiff had misused confidential evidence or that he breached his duties.

Finally, the judge ordered that PearTree pay the plaintiff his costs of the proceeding in the amount of $830,761 on a partial indemnity basis. The judge emphasized that it was appropriate to discourage frivolous and strategic claims that are obviously meritless. The judge went on to state that “employers who owe money to employees should be discouraged from engaging in tactical litigation designed to discourage employees from pursuing their rights and entitlements.” Further, the plaintiff had “conducted this litigation in an unforgiving, scorched earth, and bareknuckle manner.” It had “missed no opportunity to malign” the plaintiff and that PearTree’s “decision to pursue a counterclaim and punitive damages of so little merit leave me to infer that those claims were advanced only for tactical reasons” and an attempt to dissuade the plaintiff from pursuing the money that PearTree owed to him. As such, in light of those choices, the judge decided that PearTree should reasonably expect to face a costs order of the magnitude that was ordered.

Our Thoughts

Obviously, it is not fun to be sued by a former employee for wrongful dismissal and there can be an urge on the part of an employer to retort to any claims of wrongful dismissal from a former employee with certain claims of their own that are only utilized to try to get the former employee to back away from their own legitimate claims and entitlements. This type of litigation tactic could prove costly for the employer. The judge was very clear in this decision that the type of litigation tactic used by PearTree will not be tolerated by Ontario courts. We would suggest that employers use this case as a warning to think twice before pursuing meritless or frivolous litigation claims as a tactic to try to limit their exposure to litigation.

The above article is for general information purposes only, does not constitute legal advice or create a solicitor-client relationship. Because each case is unique and factually driven, if you have concerns with regard to the foregoing issues, please make an appointment with one of our lawyers or a qualified legal practitioner elsewhere. We represent clients in the Greater Toronto Area including Toronto, North York, Markham, Vaughan, Thornhill, Newmarket, Aurora, Brampton, Mississauga, Barrie, Ajax, Whitby, Pickering and Oshawa.