While it is obvious that employers should retain expert employment counsel to provide advice and representation in relation to wrongful dismissal claims, one reason for this that is often overlooked is getting the right advice about when to settle a claim or litigate it to trial. This is well illustrated by the Ontario Superior Court of Justice's recent decision in Grealy v. XL Tool Inc. [Grealy], where the parties went to trial for a claim which should have been settled, and no one came out ahead. As further discussed below, Grealy also demonstrates that it is much harder for a wrongfully dismissed employee to prove they were induced to leave secure employment than many think.
Background
A 35-year-old Machinist named Mr. Grealy was employed by XL Tool Inc. ("XL Tool") for approximately seven months when his employment was terminated without cause due to a business downturn. Despite his short service, Mr. Grealy filed a wrongful dismissal claim against XL Tool, claiming fifteen (15) months of pay in lieu of reasonable notice - notice period that was more than twice his length of service. He claimed such a large reasonable notice period because he alleged that XL Tool had induced him to leave secure employment which he held for 14 years, and that this should increase his reasonable notice entitlement. He also claimed $10,000 in punitive damages, alleging that XL Tool knew that its business was decreasing and yet it still induced him to leave secure employment to work for the company.
Mr. Grealy was represented by a lawyer from a firm that advertises itself as the "top disability benefits & personal injury lawyers in Ontario". While not the firm's primary area of practice area, its lawyers seemingly also dabble in employment law, despite that this is a specialized area of practice. While it is impossible to know what legal advice Mr. Grealy received behind closed doors, it appears that he firmly believed he would be entitled to a substantial amount of wrongful dismissal damages based on alleged inducement, given that he claimed fifteen (15) months of pay in lieu of notice and went to trial.
Unfortunately for Mr. Grealy, he did not have a valid basis for claiming he was induced from secure employment, and he had very limited success at trial.
The Court's Decision
Approximately a year and a half after Mr. Grealy was dismissed, the court ruled that he had been wrongfully dismissed, but awarded him approximately $4,600 in damages. This is because the court found that: (i) Mr. Grealy had not been induced to leave securement employment, such that he was entitled to little reasonable notice; (ii) Mr. Grealy mitigated most of his wrongful dismissal damages by quickly obtaining new employment; and (iii) there was no merit to his claim for punitive damages.
Among other factors, the court held that it should consider the following in determining whether Mr. Grealy had been induced to leave secure employment: (i) the reasonable expectations of the parties; (ii) whether the employee sought out work with the prospective employer (iii) whether the employee did due diligence before accepting the position; and (iv) whether the discussions between the parties amounted to more than "normal courtship" between an employer and prospective employee.
In this case, the court found there was no inducement because: (i) Mr. Grealy originally approached XL Tool in search of part-time work due to reduced overtime opportunities with his existing employer (although a mutual acquaintance had encouraged him to do so); (ii) he commenced full-time employment with XL Tool only after he had been placed on a lengthy temporary layoff by his previous employer; (iii) his previous employment was not secure because he was on temporary layoff and had been placed on temporary layoff several times previously; (iv) he admitted he was concerned about that company being sold; and (v) Mr. Grealy learned a program called Mastercam after being told that part-time work with XL Tool would be available for him if he learned it. Thus, the court found that there was no inducement. This was despite that XL Tool's ownership had indicated that they generally do not layoff employees and that they agreed to increase Mr. Grealy's wage during negotiation (as the court found that this was "normal courtship" and not an assurance of long-term employment or inducement).
Consequently, the court found that Mr. Grealy's 14 years of prior service should not increase his reasonable notice entitlement and ruled that he was entitled to just 12 weeks of reasonable notice - far cry from the 15 months he claimed. After deducting Mr. Grealy's mitigation income, this amounted to just $4,600. Furthermore, the court dismissed Mr. Grealy's claim for punitive damages because XL Tool proved that it had unexpectedly lost a lot of work after Mr. Grealy was hired.
The Bottom Line
Although Mr. Grealy's wrongful dismissal claim was technically successful, he almost certainly would have been better off if he had a realistic understanding of the merits of his claim and accepted a reasonable settlement. Indeed, even if Mr. Grealy's lawyer was representing him under a contingency agreement instead of billing him at an hourly rate, most contingency agreements provide the lawyer with a higher fee percentage when a claim goes to trial. Furthermore, even where a party is substantially successful at trial, they typically receive partial indemnity costs from the other party, which is generally roughly 50-65% of their total legal fees - meaning that the successful party is not reimbursed for approximately half of their legal costs.
Similarly, XL Tool would have been much better off if it had simply settled Mr. Grealy's claim for a small amount, such as $5,000 (which was more than he was awarded at trial), as it could have avoided incurring thousands of dollars in additional legal costs by going to trial. Granted, both parties must agree to a settlement, and it is possible that XL Tool did seek to settle but that Mr. Grealy was intransigent. However, even if that were the case, having expert employment counsel clearly explain to Mr. Grealy why he was not induced from secure employment under the applicable law could have resulted in a pre-trial settlement and substantial savings for the employer. Thus, Grealy demonstrates that getting the right advice is key, and that when some claims go to trial, everyone loses.
If you require assistance with settling and/or defending against a wrongful dismissal claim, please do not hesitate to contact us for expert advice and representation.
