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Ruston v Keddco and the Risks of Employee Intimidation

14-Jun-19

By Eric Appelt

The decision to terminate an employee for just cause can place an employer in a delicate balancing act. On one hand, employers often feel pressure to vigorously defend their position that the employee’s conduct reached the (high) threshold required for just cause dismissal. On the other, as illustrated in the recent Ontario Court of Appeal decision in Ruston v Keddco MFG (2011) Ltd., 2019 ONCA 125, conduct which might be viewed as intimidation tactics or threats can open an employer up to a number of legal problems – and a significant amount of ensuing liability.

The case’s underlying facts are relatively straightforward. Keddco MFG (2011) LTD., the employer, sought to terminate its president, Scott Ruston, for just cause. In the termination meeting, Keddco provided Mr. Ruston essentially no details of the reason for his dismissal; in response to his questions, a Keddco representative simply stated, “I think you know”.

Mr. Ruston indicated his plan to retain legal counsel and bring an action for wrongful dismissal, to which Keddco responded that any action would be opposed by counterclaim (and that significant expenses would follow). Keddco followed through on this promise and, after Mr. Ruston commenced a lawsuit, filed a counterclaim seeking $1.7M for unjust enrichment, breach of fiduciary duty, and fraud.

The Ontario Court of Appeal upheld the trial judge’s decision to award Mr. Ruston over $1.1M in total damages finding that not only did Keddco fail to prove its just cause allegations, but that the lofty counterclaim was purely used as a strategy to dissuade Mr. Ruston from pursuing legal action.

In addition to 19 months’ damages in lieu of reasonable notice, the Court awarded $100,000 in punitive damages (a week in to trial, Keddco made the surprising decision to reduce its counterclaim from $1.7M to a single dollar), $25,000 in aggravated damages (Keddco’s counterclaim clearly constituted “bad faith in the manner of termination”), and nearly $550,000 in legal costs (despite the Court acknowledging this amount to be “unusually high”).

The Ontario Court of Appeal’s decision is clearly a significant win for Mr. Ruston and, more generally, employees planning to dispute a (purported) just cause termination in the future. While the case doesn’t necessarily break new ground in terms of legal principles, it serves as a stark reminder of the obligations owed from employer to employee in the context of dismissal. If you are an employer considering a just cause termination, the line between enthusiastically defending your position and intimidating an employee is a thin one. Overly aggressive employers may find that the very dangers waved in an employee’s face – such as legal expenses and a hefty court judgment – have the potential to become flipped onto them.

The McLennan Ross Labour and Employment practice group has a strong reputation and years of experience providing effective legal advice to clients. Should you or your company have questions regarding just cause termination or any other employment-related issue, we would encourage you to contact any member of the practice group.

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