An
Ontario employer recently learned the hard way that failing to retain counsel
to defend against a wrongful dismissal claim by a former employee can be far
more costly than the legal fees required to retain a lawyer. In Shynkarova
v. 2554318 Ontario Ltd. o/a Tax Mechanic [Shynkarova], the court
refused to grant an adjournment to a corporate employer that had failed to
retain a lawyer (or bring a motion to obtain leave to not be represented by a
lawyer), which resulted in the employer losing by default and being ordered to
pay over $62,000 in damages, interests, and costs.
Background
Ms.
Shynkarova was employed for almost a year as the manager of social media and
internet content of 2554318 Ontario Ltd. o/a Tax Mechanic (“Tax Mechanic”), an
online tax consultancy. Tax Mechanic’s Principal, Mr. Simpson, terminated her
employment via a messaging app just prior to her completing one year of
employment.
Ms.
Shynkarova subsequently commenced a wrongful dismissal action against Tax
Mechanic claiming twelve (12) months of pay in lieu of notice in May of 2023. However,
Tax Mechanic failed to file a Statement of Defence within the timelines
required by the Rules of Civil Procedure (the “Rules”), and so Ms.
Shynkarova noted the company in default (the first step in obtaining a “default
judgment”, where a defendant loses by default).
Mr.
Simpson subsequently requested a case conference on Tax Mechanic’s behalf,
which allows a judge to establish a timetable for the proceeding and address
other procedural matters. The case conference was held on May 31, 2024. However,
neither Mr. Simpson nor any other representative appeared at the case
conference on behalf of Tax Mechanic, with Mr. Simpson advising that he was
“busy in a business meeting” at the time.
Notably,
Rule 15.01 requires a corporate defendant to be represented by a lawyer for
civil proceedings before the Ontario Superior Court of Justice, unless the
court grants permission to dispense with this requirement. The case conference
judge directed Mr. Simpson to bring a motion to obtain leave for him to
represent the corporation without a lawyer and to set aside the noting in
default by no later than April 30, 2025, but Mr. Simpson failed to do that, as
well.
Ultimately,
approximately two years after Ms. Shynkarova first filed her claim, the court
held a default judgment trial on November 10, 2025. Mr. Simpson attended and
requested an adjournment (i.e., for the hearing to be rescheduled), with
him arguing that he had been too busy to deliver a Statement of Defence or to
bring motions to set aside the noting in default. The trial judge refused this
request, ruling: (i) there was no effective means for Tax Mechanic to request
an adjournment because it did not have a lawyer and had not obtained leave under
Rule 15.01; and (ii) an adjournment would be profoundly unfair to Ms.
Shynkarova after she waited two years for her day in court. Further, the judge
refused to grant leave for Tax Mechanic to be represented by Mr. Simpson
instead of a lawyer, as he had failed to file a motion to obtain this leave.
As
a result, the trial judge accepted all of Ms. Shynkarova’s allegations as true
and rendered a default judgement against Tax Mechanic for wrongful dismissal.
Based on the relevant Bardal factors, the trial judge initially found that
three months of reasonable notice would be appropriate. However, the judge
increased this to four months of reasonable notice because they found that Tax
Mechanic’s decision to terminate Ms. Shynkarova just nine days before she
achieved one year of service was: (i) “a calculated measure to avoid any
additional statutory amount of severance”; and (ii) “this conduct likely
demoralized the plaintiff to the extent of impeding her search for new
employment by at least a few weeks”. This was despite the fact that the judge
also ruled that Tax Mechanic’s conduct did not warrant moral or
punitive damages. With prejudgement interest, the damages awarded amounted to
more than $30,000, plus post-judgment interest.
Additionally,
the judge ordered Tax Mechanic to pay Ms. Shynkarova’s legal costs on an
elevated “substantial indemnity” basis, because of its “conduct requesting the
reopening of pleadings and failing to follow through [which] substantially
delayed the proceedings and unnecessarily increased the plaintiff’s legal
costs”. As a result, Tax Mechanic was ordered to pay over $32,000 in
substantial indemnity costs, for a total award of more than $62,000.
The
Bottom Line
Although
no employer wants to defend against a wrongful dismissal action or to pay legal
fees, Shynkarova illustrates that ignoring a lawsuit and hoping that it
goes away is not an effective strategy. By failing to retain a lawyer, failing
to defend against Ms. Shynkarova’s claim, and engaging in improper delay
tactics, Tax Mechanic paid a heavy price in losing by default and having to pay
the employee’s legal costs on an elevated basis.
This
decision is also notable in that the trial judge increased Ms. Shynkarova’s
reasonable notice period due to Tax Mechanic dismissing her just prior to her
becoming entitled to an additional week of termination pay under the Employment
Standards Act, 2000 (“ESA”), despite that this is arguably
inconsistent with the Supreme Court of Canada’s (“SCC”) decision in Honda
Canda Inc. v. Keays [Honda]. In Honda, the SCC held that bad
faith in the manner of dismissal (i.e., an employer acting in a dishonest,
misleading, or unduly insensitive manner) is to be compensated separately with
moral/aggravated damages (to compensate for undue mental distress) and not
by arbitrarily increasing the reasonable notice period. Further, the SCC
held in Honda that such damages are only to be awarded where the
employee proves they have suffered mental distress as a result of the bad faith
conduct which exceeds that which normally accompanies a termination of
employment.
Nonetheless,
the trial judge in Shynkarova ostensibly increased Ms. Shynkarova’s
reasonable notice period due to Tax Mechanic’s engaging in bad faith conduct. Ultimately,
Tax Mechanic may not have been liable for this additional month of compensation
(or Ms. Shynkarova’s legal costs) if it had been represented by competent
employment counsel.
If
you require assistance with defending against a wrongful dismissal claim and
effectively navigating the litigation process, please do not hesitate to contact us
for expert advice and representation.
