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Are legal costs determined on an issue by issue basis?

It is well known that the losing party to a wrongful dismissal lawsuit must pay a portion of the successful party’s legal costs. What however, are the cost consequences of winning damages for insufficient notice of dismissal, but losing any other allegations made in a wrongful dismissal lawsuit? Must the employer pay less costs to the “successful” employee because it, the employer, won more issues in dispute?

Many wrongful dismissal lawsuits make claims for several different kinds of damages beyond the traditional claim for damages for insufficient notice of dismissal, including:

  • general damages for bad faith
  • punitive damages
  • human rights damages

In addition, many wrongful dismissal lawsuits contain secondary issues that are in dispute, such as:

  • whether the employee was induced to join the employer
  • whether the employee was a manager
  • whether the employee was entitled to a bonus
  • whether the employee mitigated her damages

Therefore, as many clients ask me when reviewing a draft statement of claim for the first time, are costs in an employment law case determined on an argument by argument basis?

No, costs are not determined on an argument by argument basis. A recent case from the Nova Scotia Supreme Court demonstrates this (although the law is the same in Ontario).

In Reiner v. Maritime Business College (2009) Ltd., 2016 NSSC 291, the terminated employee made an application for wrongful dismissal against her former employer, arguing that she, as a 17 month employee, was owed a reasonable notice entitlement in the range of 6-9 months. Conversely, the employer argued that reasonable notice was in the range of 1-2 months.  The parties further disagreed over whether the employee made reasonable efforts to mitigate her damages, whether the employee was induced to leave her former employer and whether the employer terminated the employee in bad faith (a claim which was removed one day before the application was heard).

In the result, the court found that the employee was owed 3.5 months’ notice ($22,609.64), and that she had reasonably attempted to mitigate her damages, thus making her the winner of the reasonable notice issue. Nonetheless, the court rejected the employee’s claim that she was induced away from her former employer.

Following the application on the merits, however, the employer made the argument that it, not the employee, was the “successful” party for the purposes of awarding costs, raising these points:

  • The employee withdrew her bad faith claim on the eve of the hearing
  • The employee’s inducement claim was unsuccessful
  • The allegations of bad faith and inducement were baseless
  • Given that the employee initially claimed damages of approximately $60,000 (9 months pay) and the employer’s initial position was about $7,000 (1 month pay), the employer was “more successful with respect to the factual determination of the reasonable notice period and successful overall” (the award was $22,609.64)

In the result, the court rejected the employer’s argument that it was the “successful” party which was owed its costs. Rather, the court held that costs are not determined on an argument by argument basis, and that even if the majority of the application was concerned with the issues for which the employee was not successful, in the context of the overall case, the employee was the successful party who was owed her costs.

It follows that in the normal course of a wrongful dismissal application or trial, there will usually be several issues which will be decided one way or the other.  However, the courts will regard the successful party as the winner in the context of the overall case, which almost always revolves around the issue of what is reasonable notice in the circumstances. In other words, the successful party of a wrongful dismissal matter (and the one owed its costs) is the party who beat the other on the issue of reasonable notice, nothing more.

Read the full decision: Reiner v. Maritime Business College (1990) Ltd., 2016 NSSC 331 (CanLII).