High damages award upheld for employee fired for alleged fraud, intimidated with counter-claim

By Amanda Jerome

This article was originally published by The Lawyer’s Daily, part of LexisNexis Canada Inc.

The Ontario Court of Appeal's decision to award "unusually high" costs to a man terminated for alleged fraud is a "strong message" to employers to take care when making a counter-claim against an employee, counsel said.

In Ruston v. Keddco Mfg. (2011) Ltd. 2019 ONCA 125, the court heard that in 2015 Scott Ruston, the respondent, was terminated from his position as president of Keddco Mfg., the appellant. Ruston was told he was being terminated "for cause and that he had committed fraud."

According to court documents, no specifics were given about the termination and when Ruston said he'd hire a lawyer, Keddco explained that "if he did, it would counter-claim and that it would be very expensive."

Approximately a month later, the respondent filed a statement of claim seeking damages for wrongful dismissal and Keddco reacted with a counter-claim that alleged cause, also claiming damages of $1,700,000 for "unjust enrichment, breach of fiduciary duty and fraud, as well as $50,000 in punitive damages."

Ruston was initially hired to be a sales representative at Keddco in 2004, but according to court documents, he "quickly moved up the ranks." By 2011, the company was acquired by Canerector Inc., at which time the respondent was promoted to president of Keddco and referred to as the division manager of Canerector.

According to court documents, Ruston, who was 54 when he was fired from his position at Keddco, has a grade 12 education and "apart from one brief period of employment" has been unable to find work since being let go.

After an 11-day trial, Justice Victoria Chiappetta of the Superior Court of Justice determined that Keddco had failed to prove cause and any of the allegations it had made against Ruston. She also ruled that the company's counter-claim of $1,700,000 had been a "tactic to intimidate" Ruston and it had breached its obligation of good faith and fair dealing in his dismissal.

According to court documents, she dismissed Keddco's counter-claim and awarded Ruston: "damages in lieu of reasonable notice based on a 19 month notice period, including bonus and benefits; punitive damages in the amount of $100,000; and moral damages in the amount of $25,000."

Keddco appealed, arguing that Justice Chiappetta made errors of law in awarding the damages for a 19-month notice period; a bonus for the year 2015; and aggravated/moral and punitive damages.

However, the Court of Appeal found no merit for any of these grounds and dismissed the appeal.

With regards to the damages for a 19-month notice period, Justice Sarah Pepall, on the appeal, wrote that the trial judge "gave careful and cogent reasons" for why her decision was appropriate.

"While she found that the facts were similar to those in Singer v. Nordstrong Equipment Limited 2018 ONCA 364, (in which the defendant employer was also owned by Canerector), she found that there were a few distinguishing factors that justified a notice period of 19 months rather than 17 months. These included the fact that the appellant here was 54 rather than 51 (as was Mr. [ André] Singer), her finding that he had family ties to a smaller area for the purposes of finding similar employment, that he was terminated for serious allegations of cause and that he was not provided with a letter of reference," Justice Pepall explained.

The Court of Appeal also noted that Justice Chiappetta was "left without any credible evidence on the treatment of Keddco's bonuses post termination," which was part of her reasons for judgment on the award for the 2015 bonus. The court also found that Ruston had received a bonus every year and it was a "significant amount of his overall compensation."

With regards to the appeal on aggravated/moral damages, Justice Pepall wrote that the trial judge had "noted correctly that employers have an obligation of good faith and fair dealing in the manner of dismissal and also that an employers' pre and post termination conduct may be relevant to the moral damage analysis if such conduct is a component of the manner of dismissal."

The Court of Appeal also noted that the evidentiary record provided "ample support" for the finding of an award for aggravated damages. Justice Pepall wrote that Justice Chiappetta found that "the appellant's conduct in threatening Mr. Ruston not to make a claim and in instituting the counter-claim was calculated to, and did, cause Mr. Ruston stress."

On the punitive damages argument, the court found that Justice Chiappetta "carefully reviewed all of the appropriate factors."

Samantha Lucifora, Monkhouse Law
"In reaching her conclusion," Justice Pepall wrote, "the trial judge referred to the threat by the
appellant during the termination meeting that if Mr. Ruston sued, the appellant would counter-claim — a threat which it carried out with its counter-claim alleging fraud. The trial judge also referred to the fact that the appellant had, on the seventh day of trial, reduced its damages claim from $1,700,000 to $1. The trial judge concluded that 'it did not appear as though the [appellant] had any intention of proving damages but rather was using the claim of $1,700,000 strategically to intimidate.' "

The court noted that aggravated damages "aim to compensate a plaintiff for heightened damages caused by the breach of the employer's duty of good faith and fair dealing in the manner of dismissal, while punitive damages seek to punish and denunciate inappropriate or unfair conduct."

"While we recognize that this costs award was unusually high, the appellant has not satisfied us that the costs award was not fair and reasonable in the circumstances of this case," added Justice Pepall.

In a decision released Feb. 19, Justice Pepall, with Justices Gary Trotter and Alison Harvison Young in agreement, dismissed the appeal and awarded the costs of appeal to Ruston in the amount of $35,000.

Samantha Lucifora, a senior associate at Monkhouse Law and counsel for Ruston with Andrew Monkhouse, said the court effectively spelled out the takeaways in this case, which are: to be prepared going into trial; take care when considering counter-claiming against an employee; and if a counter-claim was done for improper reasons, "it will be costly."

"I think the decision itself sends a fairly strong message mainly directed towards employers.
Employers really do have to take great care when they are considering counter-claiming against an employee," she said, adding it's not an action to be taken lightly.

"Not to say it can never be done well, but great care has to be taken prior to making the decision. And then, even along the way, I think you have to have a very reasonable belief that the counter-claim is a valid one," she explained.

"This decision was particularly fact heavy," she added, noting that "it became very important to have a strong relationship with the client."

"This case involved fraud, so you certainly have to have the client's involvement to understand what was happening at the time these allegations of fraud were happening. I think what I learned, particularly, was it was very beneficial to have a strong relationship with this client and there was a lot of trust between the clients and the lawyers going into this trial," she said.

Counsel for Keddco did not respond to request for comment.

< Back to In-House Counsel Resource Page

The Lawyer's Daily

This article was originally published by The Lawyer's Daily -- providing Canadian legal news, analysis and current awareness for lawyers and legal professionals who need a real-time view on the shifting legal landscape.