No Costs for You: The Danger of Baseless Allegations and Bad Behaviour

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Canadian courts operate on a “loser-pays” system, wherein the unsuccessful party at trial is generally ordered to pay a portion of the successful party’s legal costs. How much of those costs the unsuccessful party will be saddled with is at the discretion of the judge and depends on a number of factors, including how the parties conducted themselves throughout the litigation and whether any formal offers to settle were made. The recent costs decision in Gracias v. Dr. David Walt Dentistry is an important cautionary tale for all parties considering litigation that bad behaviour can have a significant impact on cost awards – and may result in no costs being ordered at all. 

The Background

In this case, the employee worked as a dental hygienist for the employer for almost six months before her employment was terminated without cause. The employee subsequently brought a simplified procedure claim against the employer seeking:

  • $50,000.00 for wrongful dismissal, 
  • an additional $50,000.00 for discrimination, and 
  • a further $50,000.00 for punitive damages. 

She alleged her employer had dismissed her because her chemotherapy treatments and her childcare responsibilities reduced her availability for work. The employer denied her allegations and argued that it could have fired the employee for cause for “egregious employee misconduct”.

Following examinations for discovery, the employee abandoned her claims for discrimination and punitive damages and the employer abandoned its argument that it could have dismissed her for cause. However, the employer argued that her claim for wrongful dismissal damages should be dismissed as her employment agreement barred her from claiming more than her minimum entitlements under the Employment Standards Act, 2000. It also claimed that the employee had falsified her evidence of mitigation with fabricated records, and had therefore failed to mitigate her damages.

The parties both wished to have their dispute determined by summary judgment motion.

The Summary Judgment Motion

Justice Perell ultimately awarded the employee damages based on a three-month notice period, for a total judgment of only $17,587.11. In regards to costs, the court noted the following:

  1. If the parties cannot agree about the matter of costs, they may make submissions in writing…
  2. If the parties make submissions, I alert them that based on what I presently know about the prosecution of the claim and of the defence, there is some serious explaining for them to do to justify a costs award to either party and it is quite possible that there shall be no order as to costs.

The Costs Award

The parties were unable to agree on costs and made submissions to Justice Perell. The employee sought her costs of $35,000.00, whereas the employer (despite noting that it agreed with Justice Perell’s inclination to award no costs) requested its “costs thrown away” in the amount of $17,387.88. 

The court was, to put it lightly, not impressed. Given their conduct, Justice Perell colourfully described the requests of both parties as “chutzpah piling on top of audacity piling on top of gall“. 

Justice Perell noted that both parties had made very serious allegations against the other which they later abandoned without substantiating them. In addition, Justice Perell highlighted the employee’s poor conduct throughout the litigation, including her lack of cooperation in producing documents and answering undertakings. Furthermore, Justice Perell noted that the employee had brought her claim in the wrong forum, as the award was ultimately within the monetary jurisdiction of the Small Claims Court. For the employer’s part, Justice Perell noted that not only was it the unsuccessful party, it had failed to prove its serious allegation that the employee had fabricated evidence with respect to her mitigation efforts.

Ultimately, the court concluded that no order as to costs should be made.

Key Take-Aways

Justice Perell’s no-nonsense commentary in this decision is an important reminder for both sides of an employment related dispute that bad behaviour during the litigation process can have significant financial consequences. 

It is not unusual for clients to ask us to make allegations that are not supported by the facts in order to strengthen or emphasize the seriousness of their claim or defence to the other side. For example, employee clients may ask that we add allegations of bad faith conduct to claims for wrongful dismissal to enhance their potential damage award, or employers may wish to allege cause for dismissal in order to scare the employee into early resolution. While litigation is an adversarial process, parties should ensure that they are only advancing supportable arguments, seeking justifiable and non-bloated damages, and that they are cooperating with the other side, to the extent possible, to move the matter forward in a timely manner. 

The fact is that “releasing the dogs of litigation war and going for the jugular” can disentitle a successful party from a cost award that otherwise would have been granted. Similarly, it can result in an unsuccessful party being ordered to pay significantly greater costs than they may otherwise have been required to pay had their conduct been reasonable. 

We often help employers and employees to advance or defend against litigation in a reasonable and cost-effective manner. We encourage you to contact us if you need assistance in navigating this process.

Other Blogs

Stuart and others on the team at Rudner Law are frequent contributors to the following sites: 

First Reference Employment Law Resources
Canadian HR Reporter Blog
Rudner Employment Lawyer in the Lawyer's Daily
Legal Matters Employment Law Canada

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