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Payback - Cautionary Tale of What Being Terminated for Just Cause Can Cost an Employee

The Ontario Superior Court of Justice’s Decision in Cordeiro v Pinnacle Caterers Ltd., 2017 ONSC 4221

Background

The plaintiff, Keith Cordeiro (“Plaintiff”) brought an action against his former employer, the defendant, Pinnacle Caterers Ltd. (“Defendant”) for wrongful dismissal. The Plaintiff was terminated from his employment as a system supervisor in April 2014 for alleged cause. The Defendant alleged that the Plaintiff had stolen cash paid by a customer of the Defendant’s on April 12, 2014. After terminating the Plaintiff, the Defendant investigated the matter and determined that the Plaintiff had stolen a substantial amount of funds on eighty-one (81) other occasions as well. As such, the Defendant brought a counterclaim for recovery of misappropriated funds.

On May 4, 2017 prior to trial, the Plaintiff and Defendant entered into a Litigation Agreement which provides that among other things, if the Defendant meets the onus of establishing that the Plaintiff stole money from it, the Plaintiff concedes that just cause has been established.

After a six-day trial, the court found that the Defendant had shown on a balance of probabilities that the Plaintiff had stolen on April 12, 2014 and that the Plaintiff had taken steps to cover his tracks. The court found that the discovery of the Defendant’s investigation were immaterial to the issue at trial. Ultimately, the court found that the Defendant had just cause to terminate the Plaintiff without notice or pay in lieu of said notice.

The Defendant submitted a Bill of Costs in which they sought a total of $152,343.89 on a substantial indemnity basis or $111,670.95 on a partial indemnity basis. The Defendant argued that it was entitled to the higher scale of costs in view of the fact that it made an offer to settle in conformance with Rule 49 of the Rule of Civil Procedure. The Defendant’s Rule 49 offer would have each of the parties walk away from the claim and counterclaim without costs, which would have been a better result for the Plaintiff.

In response to the Defendant’s cost submissions, the Plaintiff argued he could not afford to pay the amount requested by the Defendant stating that the Plaintiff is not a high income earner and that the Defendant is a large corporation with several hundred employees. The Plaintiff did not take issue with respect to the amounts requested by the Defendant. As such, the Plaintiff submitted that the court exercise its discretion to reduce or dispense with costs altogether.

Issue

What cost aword was the Defendant entitled to after its successful defence and counterclaim?

Ontario Superior Court of Justice’s Decision

The court first noted its understanding of the Plaintiff’s concern for his financial predicament. However, the court stated that it was reluctant to reduce costs just because the Defendant is better off financially than the Plaintiff. The court also found it important to state that: “[w]hile it is doubtless true that the Plaintiff has less money than his former employer, he seems to have been doing his best back in 2014 to even out that disparity. His current financial circumstances are not something that can be visited on the Defendant.” (para 5).

The Plaintiff argued that that the amount of costs sought by the Defendant was out of proportion to the amounts at issue in the litigation. The Defendant did not deny this submission, but the Defendant states that that this was self-evident from the outset of the litigation, and is the principal reason the Defendant was willing to settle the matter. The court also took notice of the fact that the costs of trial outweighed the amounts at issue at the outset of the trial. As a result the court took a break before commencing the trial and encouraged the parties to discuss this issue. After the short adjournment, both sides indicated to the court that they were ready to start the trial.

The Defendant in its submissions provided the court with the series of correspondence it had with the Plaintiff setting out its settlement offer to dismiss the matter without costs to either party. The first communication of the offer was made in June 2014, shortly after being served with the Statement of Claim. The Defendant subsequently made the same offer periodically throughout the course of the litigation. The offer was repeated by the Defendant at the mediation on February 11, 2016 and at the two subsequent pre-trials held on August 9, 2016 and on October 31, 2016. The Plaintiff rejected the offer time. 

A month before the trial date, on April 25, 2017, the Defendant again repeated the offer, in an effort to resolve the matter before incurring the significant costs of trial preparation and the trial itself. A third pre-trial was held on May 11, 2017, where the Defendant repeated the offer. The Plaintiff again refused the offer.

The court held that it was clear that the Plaintiff was certainly aware that proceeding with the trial would be more expensive than the amounts at stake in either the claim or the counterclaim. As such, the court found that the Plaintiff had made a conscious decision to pursue the case with full knowledge of the financial considerations and the longstanding offer from the Defendant. The court further held that “the disproportion between the amount of costs and the amount of the judgment is not something that can be visited on the Defendant.” (para 11).

With the Defendant’s offer being a Rule 49 offer, the court held that the Defendant is entitled to costs on a substantial indemnity basis. The court noted that “Rule 49 is a cost shifting or cost enhancing rule, and like all such rules in other common law jurisdictions it is designed to encourage settlement and to discourage litigants from making the kind of calculation that the Plaintiff made here in the face of a generous offer.” (para 12).

Next, the court moved to asses the reasonability of the Defendant’s counsel’s Bill of Costs. The court found that it was reasonable for the following reasons. First, the court noted that lead counsel had 20 years experience, and had modestly calculated his time at a substantial indemnity rate of $450 per hour. Second, the court found that Defendant’s counsel did nothing to unduly prolong the trial or incur more preparation time than was necessary. Particularly, the court highlighted the complex nature of the misappropriation of funds allegations against the Plaintiff as well as the fact that the trial entailed 10 witnesses for the Defendant and a lengthy cross-examination of the Plaintiff. As such, the court found that the preparation time was understandably substantial.

Ultimately, the court decided to exercise its discretion pursuant to the Courts of Justice Act to slightly round down the amount requested by the Defendant to an all-inclusive amount for costs of $150,000.

Our Thoughts

Despite the trend in Ontario courts to find that an employer did not have just cause to terminate an employee, the above discussion is a cautionary reminder of the significant consequences that can result from an action brought by a terminated employee.  Although there is a high threshold for an employer to establish that they were justified in terminating the employee for cause, it is not advisable that an employee considers it to be an impossible burden for the employer to meet. Such a perception can lead to substantial and potentially crippling cost consequences. Overall the above solidifies the notion that no litigation is certain.

The above discussion is also an example of the usefulness of a Rule 49 offer regardless of the party who makes it. An employer or employee should always be cognizant of the potential cost consequences of a matter when making and/or considering an offer to settle.

The above article is for general information purposes only and does not constitute legal advice. 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.