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Counterclaims and Exemplary Damages

In Ontario, the manner in which an employee is dismissed can open an employer up to further damages for bad-faith conduct. Employers should ensure they are adhering to what is known as the “duty of good faith and fair dealing”, both during and after the employee’s dismissal—this includes in the manner the employer deals with receiving a claim.

In Ruston v Keddco MFG (2011) Ltd, 2019 ONCA 125 (“Ruston”), the Ontario Court of Appeal affirmed the different types of damages available where the employer’s bad-faith conduct includes making a frivolous counterclaim.

Case Background

At trial, the employer had claimed it had just cause for the dismissal. The employee had argued they were wrongfully dismissed.

Upon dismissing the employee, the employer threatened that it would bring a “very expensive” counterclaim if the employee brought a claim, and ultimately sued the employee for  $1,700,000 for unjust enrichment, breach of fiduciary duty, and fraud, as well as $50,000 in punitive damages.

The trial court held the counterclaim was an intimidation tactic used by the employer and awarded the  employee $100,000 in punitive damages and $25,000 in moral damages beyond the payment granted in lieu of notice. The trial decision affirmed the different purposes of aggravated and punitive damages for the same action.

The employer appealed.

Decision on Appeal

In Ruston, the Ontario Court of Appeal held there was no error of law, or palpable overriding error of fact, that would justify interfering with the trial judge’s aggravated damages award. The trial just had accepted the employee’s evidence that the manner of dismissal had caused him stress above what is expected in the case of a termination.

Similarly, the Ontario Court of Appeal held it would not interfere with the trial judge’s punitive damage award, particularly given that on the seventh day of trial, the employer had reduced its damages claim from $1,700,000 to $1, and demonstrated it only meant to intimidate the employee, and had no intention of proving its damages. As such, the employer’s actions were severe enough to warrant both aggravated and punitive damages without same amounting to double recovery or double punishment.

Bad-Faith Conduct and Counterclaims

Employers should be cautious of the manner in which it dismisses an employee—and this includes intimidating employees through the use of counterclaims. While an employer may believe it is an effective strategy to threaten litigation and sue their employee, such a move might not protect the employer from liability and in fact, backfire by opening the employer up to further damages.

Contact Us

If you are an employer  and want to know how to properly dismiss an employee or how to properly defend to a claim, or an employee who has questions about their dismissal, our team of experienced legal professionals at Achkar Law can help. Contact us by phone toll-free at 1-(800)771-7882 or email us at [email protected] and we would be happy to assist.

If you are a small or medium size company looking for full-service support, visit our CLO program page for our strategic solutions.


Disclaimer: This blog is not intended to serve as, or should be construed as legal advice, and is only to provide general information. It is in no way particular to your case and should not be relied on in any way. No portion or use of this blog will establish a lawyer-client relationship with the author or any related party. Should you require legal advice for your particular situation, fill out the contact form, call 1-(800)771-7882, or email [email protected].