'Heavy-handed' approach fails employer

“The defendant probably spent over $100,000 trying to attack their past employee, only to have the judge side with that employee on every single issue… and they could have settled the case… for $15,000.”

So says Andrew Monkhouse, managing partner at Monkhouse Law in Toronto, whose firm represented the employee in Gracias v. Dr. David Walt Dentistry.

The case — which involved the issues of termination clauses, CERB deductions and failure to mitigate — serves as a reminder that playing hardball can be a costly venture for employers.

“Courts don't like to second-guess the business decisions of companies, but they also don't like to second guess the behaviour of people,” says Monkhouse.

“Hopefully, other employers will take notice of that and perhaps not choose to spend all of those legal costs fighting a case that could be resolved significantly earlier, for much less money than the cost of fighting it out.”

Employers need to remember to take the personal feelings out of it and make good business decisions when it comes to addressing these matters, says Sheryl Johnson, a partner at Sullivan Mahoney in St. Catharines, Ont.

“To me, there's a whole lot of extra emotions that really had no place in the matter,” she says.

“Often judges will do almost anything in order to make an employee whole when an employer is heavy-handed — they don't appreciate it.... It's never going to go well for you as an employer if you're overly aggressive and malicious and vindictive... even if you think you're justified, make a good business decision and approach it as a business decision.”

Dismissed after 5 months

The plaintiff was dismissed from employment as a dental hygienist
at Dr. David Walt Dentistry Professional Corporation in Vaughan, Ont. With the company for five months and 21 days, she was paid her entitlements under the Employment Standards Act of one-week’s pay in lieu of notice.

After her dismissal, the woman sued Walt Dentistry for: $50,000 in damages for discrimination, $50,000 for common law damages for a wrongful dismissal; and $50,000 in punitive damages. But after examinations for discovery, she abandoned her human rights damages claim and claims for punitive damages, employment benefits, and a bonus, and brought a motion for a summary judgment.

She claimed $43,750 as compensation for a wrongful dismissal claim based on a notice period of seven months. She submitted that she was entitled to common law damages in lieu of notice because the restrictions in her employment contract were unenforceable because the employment contract unlawfully contracted out of the Employment Standards Act.

Walt Dentistry submitted that, at its highest, the notice period for the wrongful dismissal claim was one month; however, it submitted that there are no compensatory damages because she received CERB (Canada Emergency Response Benefit) of $16,000 during the COVID-19 pandemic. In any event, Walt Dentistry submitted that if the claim was not barred by her employment contract or reduced to nothing, then her claim should be dismissed because she failed to mitigate.

In the end, Justice Paul Perrel awarded the hygienist a three-month notice period less employment standards entitlements, meaning $17,242 ($18,750 - $1,507), with prejudgment interest of $344, for a judgment of $17,587.

He also ruled that CERB was not a mitigation credit.

Getting the contract right

Perell cited “the rule of Waksdale v. Swegon North America,” a 2020 case in Ontario that stated if there is contract language that would preclude an employee from their entitlement to reasonable notice of the dismissal without cause, then that provision is unenforceable if the employment contract “viewed in its entirety” contravenes the Employment Standards Act.

As a result, “the termination for cause provisions in Ms. Gracias’ employment contract are not compliant with the Employment Standards Act, 2000 and she is entitled to her common law entitlements for a dismissal without cause,” he said.

Effectively, if the employment agreement breaches, at any point, the Employment Standards Act, then the whole agreement can't be used against an employee afterwards, says Monkhouse.

“People are trying to adapt their contracts to deal with Wakdsale... That being said, it’s a struggle for employers to find the exact, precise wording. The courts, including in the Gracias decision, make it very clear that there's a very high standard on employers to limit that notice of employees; it makes it quite difficult with these cases coming down.”

There's probably no greater investment an employer can make in terms of limiting their liability than a well-crafted employment contract, says Mike MacLellan, partner at CCPartners in Toronto.

“That needs to include clear, enforceable and fair clauses on what happens on a without cause termination of the employer.”

That’s important because the statutory minimums are so much less than the potential common law maximums, he says.

“It can be a huge, huge cost for an employer if they terminate an employee without cause, either because they're asserting just cause, they don't have just cause or they’re found to have engaged in a constructive dismissal, or they just don't have room for the employee who needs to receive proper compensation.”

A decision like this one, where a five-month employee is given three months’ notice, is “out of sync with what we expect,” he says.

“There are certainly some aggravating factors in this case — the pandemic has tended to be a factor that lengthens the notice period, and certain very short-term employees are afforded a longer notice period — but it certainly illustrates the risks of not having a properly drafted contract.”

Interestingly, in this case, there wasn't a direct termination clause per se that was the for-cause clause, it was actually built into the confidential information and another of the restrictive convenants, says Johnson.

“To me, that has an impact in relation to how employers write their employment contracts and their policy, because before, it was always the case of ‘If you breach this policy, these are their consequences.’ And often, the old policies had said it was the case that it could result in the termination of your employment for cause without notice or payment in lieu of notice. So to me that signals you have to look at how you write everything and not just the termination clauses.”

Mixed messaging on CERB deductions

As for the CERB deductions, Perell provided little in the way of explanation in stating that he held that the government benefit “is not a mitigation credit” and cited the decisions of  of Iriotakis v. Peninsula Employment Services Limited in Ontario, Slater v. Halifax Herald Limited in Nova Scotia and Snider v. Reotech Construction Ltd. in British Columbia where CERB payments were not deducted from a wrongful dismissal reward.

However, he also mentioned the B.C. case Shalagin v. Mercer Celgar Limited Partnership, where CERB payments, like employment insurance (EI) benefits, were deducted from the compensation payable in lieu of notice.

If you look at each one of the cases, the trial judge is basically making a decision based on the entire set of facts, says Johnson.

“It's very individualized, there's nothing in relation to a principle of law that's being applied,” she says.

“All the cases talk about equity and what's fair under the circumstances. And it seems to come down to the idea of a collateral benefit, and is it the case that the employee is going to be in a windfall or better position, getting the third benefit, and not having them deduct it, because the idea is to compensate them in case they're not getting compensation.”

Some courts look at CERB as employment earnings, some say that it's not equivalent to EI because nobody pays into it, and some consider if the person would get commission, she says.

Others say, “Well, if they hadn't been terminated, they wouldn't have got served, and because they're basically getting double recovery and it's collateral benefit, we're not paying it to them. And... because they don't have to repay it, we're going to deduct that from the wrongful dismissal damages.”

But Perell also appears unhappy with the employer and with counsel on both sides in being “aggressively litigious in the matter,” says Johnson.

“So I see that case, in relation to CERB benefits being out and in relation to the reasonable notice, being almost a penalty for the employer.”

Read more: Laid-off B.C. worker gets 22 months' pay — minus CERB

There has been mixed messaging on CERB, says Monkhouse.

“It depends on a case-by-case basis. It makes it more difficult… when offering severance packages because you have to make a decision, when you terminate the person and give them a termination letter, if you're going to ask for CERB back.”

At this point, it’s not clear what the best approach is for employers when it comes to the government benefit, says MacLellan.

“It may go on a case-by-case basis with what the employer is comfortable with. If the employee hasn't received much CERB, it may not be worth the risk to leave it off of a notice payment or... without cause termination notice payments.”

However, that’s not consistent with the basic legal principles of contract law, he says, where “the main principle is that a remedy for a breach of contract should put the employee in the place they would have been had the contract not been breached.

“When the employee is able to receive CERB and that CERB is not deducted from a notice award, arguably, they're receiving a windfall, they're being put in a better position than had the contract been performed properly. So it's a little bit frustrating for management-side lawyers to see this.”

Why mitigation matters

Though Walt Dentristy hired a forensics examiner to delve into the employee’s job search, who questioned much of hygenist’s job search, Perell found “there was no failure to mitigate.”

The judge’s response highlights the level to which, strategically, it often doesn't make sense to try to defend on alleged failure to mitigate, says Monkhouse.

“I have probably been involved in more than 10 summary judgment motions or trials where the defendant has argued that our clients failed to mitigate, and not a single one of those has ever succeeded.”

The failure to mitigate argument is very difficult to make out, he says.

“You've got to have a discussion with your client about ‘This is a really uphill battle, you’re likely you're going to lose on it. And don't pay hundreds of thousands of dollars hoping for a Hail Mary that a judge is going to side with you on any mitigation argument, because the standard is relatively low.’”

Read more: Failure to mitigate: Long-time manager sees notice reduced

The onus is on the employer to prove that the ex-employee failed to mitigate, says Johnson.

“If you're going to say that they engaged in fraudulent activities, [those] are very serious allegations, just like… if you make a cause allegation against an employee.”

Playing hardball has its risks

In making his decision, Perell used colourful language in describing the behaviour of those involved, such as “chutzpah piling on top of audacity piling on top of gall” and “persisting bitter recriminations” along with “releasing the dogs of litigation war and going for the jugular.”

Sometimesc cases can be difficult when there are strong emotions involved, says Monkhouse.

“The system really encourages people to try and negotiate their own settlements that can often be better than going to court,” he says.

“As a lawyer, it's something that I'm cognizant of — my professional responsibility is making sure that I'm taking the client's interests to heart and not my own interest in terms of litigating something, because there are some cases where the only winners are the lawyers. And that's obviously something that employers need to be concerned about.”

A good lawyer will always help an employer assess whether “the juice is worth the squeeze,” says MacLellan.

“There's plenty of times that we have to have that sit-down discussion and analyze with our clients the cost benefit of taking certain litigation strategies: Can we achieve the best possible outcome through litigation? What is the cost of that going to be as opposed to the cost of making a reasonable and early settlement?”

There are many costs associated with litigation, not just in terms of legal fees, but expert examinations and reports, along with the time cost, he says.

“We have a few clients who run dental clinics and I know how valuable their time is and when they are dealing with litigation instead of seeing patients, they're leaving a lot of money on the table for their business.

“Pretty close to 100 per cent of the time, a client will tell me ‘I'd rather pay you than pay the employee.’ And I'd say, ‘Well, that's great, but wait until you see what it's going to cost you to pay me as opposed to what you could settle this case for.’”

It's amazing how personal employment law litigation can be, says Johnson, but employers should remember it’s a business decision.

“Don't take things personally and be vindictive… employers have to understand that there are consequences of being too heavy-handed in relation to the way that they litigate employment law matters.”