Monday, July 15, 2013

Small Claims Court Decision Shows Challenges of Low-Value Wrongful Dismissal Claims

CanLII has recently started maintaining a database of Ontario Small Claims Court decisions.  There aren't too many judgments going in - most of the decisions being reported are by Deputy Judge Richard Campbell so far - but I think it's a positive step in making Small Claims Court more accessible, to give people a better sense of what to expect.

At the same time, while a great many wrongful dismissal cases will realistically fall within the Small Claims Court's $25,000 monetary jurisdiction, I've long been of the view that the Small Claims Court is not well-equipped to deal with these claims.

In Small Claims Court, the 'judge' is usually a senior lawyer, who sits in the Small Claims Court a couple days per month or so.  So they don't hear cases of all shapes and sizes, like many Superior Court judges do, and they often have their own specific area of practice.

Employment law is a pretty niche area of law.  Those of us who regularly practice in it, know it well.  Yet other senior litigators may not even know the first thing about wrongful dismissal claims.  I have known senior litigators and deputy judges who were unfamiliar with the term "Bardal factors" - literally, employment law 101.  This doesn't reflect on the skill, experience, or knowledge of deputy judges; rather, it reflects the specialized reality of senior litigators.

Worse, in Small Claims Court, you very often get self-represented litigants on one or both sides.  So you get a niche employment dispute with specialized legal considerations, argued by two non-lawyers, and presided over by a lawyer who may not know anything about the area of law.  Not exactly ideal.

But even when lawyers enter the picture, that doesn't necessarily solve the problem.

Consider the recent case of Nelson v. 977372 Ontario Inc., involving a general labourer with five years of service, making $17/hour, 40 hours per week.  His wife had been employed with the same company, but after she quit, there was a dispute, and the employer claims that the employee quit, but the employee alleges that the employer kicked him out, effectively firing him.  (There was also an allegation of just cause:  The wife was paid on a piecework basis, and the husband, being paid hourly, often helped her with her work.  This was alleged to be 'double-dipping'.)

Allow me to say firstly that I've met both the lawyers on this file, and they're both experienced and skilled.

On the findings of fact, the deputy judge is perfectly well-equipped to make such findings.  He found that the employee had been fired.  For all intents and purposes, that's pretty well written in stone now - it's very hard to appeal a finding of fact.

Just Cause

The findings on the law are a little more varied, however.  Let's start with one that the Deputy Judge definitely got right:  Just cause.  He concluded that, while there may have been double-dipping going on, the employer was always aware of it, and condoned it.  Accordingly, the employer can't rely on it as just cause.  That's correct, and straightforwardly so.

Reasonable Notice

Next, there's the question of reasonable notice, which is kind of iffy.  The defence was arguing for 10 weeks; the plaintiff was arguing for 5 months.  Without knowing the employee's age, I can't say where I think it should be, but for the length of service and character of employment, I'd say that both pitches seem a bit ambitious.  You very seldom see notice periods less than 3 months, even with short-service employees (and five years isn't really a short-service employee anymore).  However, the Deputy Judge accepted the defence submissions on the point, and awarded damages based on a notional notice period of 10 weeks.  So, a pretty skinny award, on its face, but what concerns me more is the way they got there:
"Mr. Embree argued that Mr. Nelson should be awarded one month notice for every year of employment – five months notice....
 Mr. Tousenard suggested that an appropriate notice calculation would be 2 weeks per year, for a total of 10 weeks.
...I agree with Mr. Tousenard that two weeks per year is an appropriate award of pay in lieu of notice, and I assess Mr. Nelson’s damages, notionally, at ten weeks...."
Calculating notice periods by looking at x per year of service isn't an uncommon way of regarding them informally, but it is not correct at law.  This is very similar to the 'rule of thumb' approach which the Court of Appeal expressly rejected in Minott v. O'Shanter in 1999.  It puts too much importance on one factor, to the detriment of the others.  (NB:  Employment contracts still often base a formula wholly on length of service, and certain administrative tribunals have adopted 'rule of thumb' type practices nonetheless for income replacement in certain contexts, but when looking at common law reasonable notice, it's settled law that it is wrong.)

This is why short-service cases are so difficult:  Length of service is important for mid-to-long service employees, and the 'rule of thumb' approach actually presents some guidance at those levels, in a nuanced way, but it is less significant for short-service employees.  (If you put it in those terms, there have been cases where employees have gotten over twelve months per year of service...which just seems absurd when cast in that light.)


Then the judge concluded that there should be a discount for failure to mitigate:  "The evidence of efforts to find work is skimpy at best, and Mr. Nelson was vague about what exactly he did."

Here's the problem:  The onus is not on the employee to prove mitigation.  Proving failure to mitigate is an obligation of the defendant.  In the absence of clear evidence one way or another, unless the employee was so unresponsive on cross-examination as to warrant an adverse inference, the default presumption is against the defendant.  This is why employers so seldom succeed when arguing failure to mitigate - and this should be even more true at Small Claims Court, with limited disclosure obligations.

I read the Deputy Judge as possibly having improperly reversed the onus, putting it on the employee to prove satisfactory mitigation efforts.

And here's the other quirk:  He cut the damages in half, to five weeks - for an employee with just under five years of service, four weeks would have been the statutory minimum, which isn't subject to mitigation anyways, which means that the reduction is almost as severe as it possibly could have been.

So the employee received $3400 in pay in lieu of notice, plus $1504 in outstanding wages and vacation pay, plus...

Punitive Damages

The appellate-level Courts have been extremely reluctant to award punitive damages.  There's been something of a move away from this in the lower Courts, as judges have looked to another mechanism to express displeasure with employer conduct now that Wallace damages are generally unavailable...but it's still hard to make out a claim for such.  In this case, based on the employer's failure to pay out the outstanding wages (and issue an ROE), the Deputy Judge awarded $3000 in punitive damages.


The judge tentatively fixed costs at $1500, all in, subject to an opportunity for counsel to make submissions.  That sounds about right, because, by default, legal fees are capped at 15% of the claim.  So where the plaintiff obtained a judgment for $7904, he's limited to $1185.60, plus certain disbursements.

However, there's a prospect of the defence asking for costs:  The defence was aiming for 10 weeks.  They couldn't have known that they would win on mitigation, and so if they anticipated a serious risk of losing on the factual disputes, they may well have made an offer equal to or greater than their '10 week' scenario.  Include the outstanding wages that they didn't seriously dispute were owing, and the offer may well have exceeded their ultimate liabilities, even including punitive damages.


The plaintiff's ultimate award, assuming costs don't change, is $9089.60.  I'd be surprised if he didn't incur more costs than that to bring it to trial...meaning that the win is actually a loss.

Yes, that's right, with his employer refusing to pay outstanding wages and vacation pay, and anything in respect of pay in lieu of notice, he would likely have been better off to do nothing than to sue in Small Claims Court.  This is the real tragedy of low-value claims.  He could have made an employment standards claim for outstanding wages and statutory minimum notice, instead, but in doing so he would have forfeit any entitlement to common law damages.  (In hindsight, that may have been best...but, well, hindsight is 20/20.)

Though that brings me back to the punitive damages:  It seems like a slap on the wrist to me.  If conduct meets the high threshold for punitive damages, then it should be a sufficiently significant sum to make employers think twice before doing it.  The message that this award sends, overall, is that it's not worth suing the employer in this kind of scenario.  And the corresponding message to employers is that they should continue to employ these kinds of tactics, because, even with the prospect of a modest punitive damage award, rational employees won't pursue such claims - or may pursue only ESA claims, protecting the employer from common law liabilities.


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. 

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