Costs Issues in Employment Litigation

The issue of legal costs in employment cases is often very important. In some cases, this question may well determine the direction of the case (i.e. whether to settle or take the case to hearing). This issue of costs can be quite complicated. It is important for employees considering filing a lawsuit against their employer or other workplace party to understand all the nuances.

The Default Setting

In civil cases, that is, lawsuits in court (as opposed to at human rights or other tribunal), the general rule is that the successful party must pay the losing party’s “partial indemnity costs”. Such costs are generally accepted to be roughly 60% to 66% of the actual costs incurred. For this reason, even full success in a claim will not allow for a full recovery of costs.

Custom Setting

This default rule can be revised by either party making an “Offer to Settle”. If the employee, for example, offers to settle a case for $50,000, it is open to the company to accept this offer at any time prior to trial and pay “partial indemnity costs”. If it does not do so and the case results in a trial award of a sum over $50,000, then the company must pay the full legal costs from the date of the offer forward.

The theory of the rule is to encourage a reasonable and fair attempt to settle the case.

The defence might also make an offer as well. If the employer offers to settle the same case, for example, for $40,000, similar, but not identical results, will follow.

Firstly, in such an event, if the employee were to accept this offer, the company would have to pay partial costs to the date of the offer.

Should the case proceed to trial and the employee wins, the result critically must exceed $40,000. In essence, the definition of “winning” has now changed to be “win over $40,000”. If the judge awards, for example, $35,000, it would be a disaster to the plaintiff employee. In such a case, the employee would  not only denied costs (from the date of the offer forward) but would also have to pay the employer’s partial costs from the date of the offer to the end of trial.

An Uneven Playing Field

Generally, most employees cannot accept the same degree of risk as a company based on a simple question of resources. On one hand, the employee may be risking not only his or her claim but also their personal hard-earned assets. On the other hand, a company may put similar dollars at stake, but these sums would be paid from a corporate account. These are two distinctly different realities.

For that reason, the company’s offer must be scrutinized meticulously. Ironically, often a determined plaintiff employee would prefer that no settlement offers are made prior to trial. In that event, he or she would just need to recover a judgment, no matter the size, in order to be awarded costs.

Playing Poker

Often plaintiff’s counsel will do a “risk analysis”. This involves an assessment of the difference between the offer made and the expected result. Suppose the offer of $40,000 is made. The first question posed would be – what is the expected recovery in court? Assume that sum is in the range of $75,000.

The next question would be what costs are at risk. The difference between “winning” and “losing” could be as much as $50,000 in costs.

This analysis then asks whether it worth the risk of an adverse costs decision to obtain another $35,000? Often the answer is no.

Removing Costs as a Factor

When starting a lawsuit, plaintiff’s counsel may often consider other forms of relief in which costs are not an issue. Human rights cases do not award costs in favour of the winner or against the loser.

In Unjust Dismissal cases under the Canada Labour Code, a successful employee can recover costs but cannot be ordered to pay costs should he or she lose.

Take Advice and Understand the Risks

It is important to understand all the risks you face if filing a lawsuit against your employer, including the question of costs. You may indeed have a very good case but that is only the first step in what can be a long process. When settlement offers are considered, by you, or by your opponent, all repercussions must be understood.

When starting a case, particularly if there are human rights issues involved, you must understand the full ramifications of how to proceed.

If you are seeking legal advice on employment issues, contact the offices of Guelph employment lawyer Peter McSherry. We can guide you through the issues and defend your position. Contact us online or by phone at 519-821-5465 to schedule a consultation.