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Employers: Be cautious of legal cost awards under Canada Labour Code

When an employee of a federally regulated workplace makes an unjust dismissal complaint under the Canada Labour Code (CLC), an adjudicator appointed under the unjust dismissal provisions of the CLC will make a decision and order remedies, which may include a legal costs award against the employer.

It is commonly understood that costs will usually be awarded on a “partial indemnity” basis (usually around 50 per cent 60 per cent of costs, but could vary), and an employer must engage in reprehensible, scandalous or outrageous conduct for costs to be awarded on a “substantial indemnity” basis (i.e., higher than partial indemnity rate) or “full indemnity” basis (i.e., 100 per cent of costs).

However, in Amer v Shaw Communications Canada Inc., 2023 FCA 237, the Federal Court of Appeal (FCA) upheld an adjudicator’s full indemnity costs award against an employer, despite no reprehensible, scandalous, or outrageous conduct taking place.

Background

An employee had made an unjust dismissal complaint under the CLC, and the appointed adjudicator awarded the employee with unjust dismissal damages as well as costs on a full indemnity basis.

The employer appealed the adjudicator’s decision and the Federal Court overturned the adjudicator’s decision, including the cost award. The Federal Court held that it was not open to the adjudicator to award costs on a full indemnity basis.

The employee then appealed the Federal Court’s decision to the Federal Court of Appeal.

The FCA decision

The FCA allowed the employee’s appeal, set aside the judgment of the Federal Court, and reinstated the Adjudicator’s award – including the full indemnity costs award.

In overturning the Federal Court’s decision regarding the costs award, the FCA rejected the reasoning that full indemnity costs can only be awarded when the employer’s conduct was reprehensible, scandalous, or outrageous.

Instead, the FCA noted previous case law which states that substantial or full indemnity costs are not limited to situations in which such objectional conduct during litigation occurs. The FCA went on to cite several cases in which adjudicators had awarded substantial indemnity costs without finding that the employer had engaged in objectional conduct.

The FCA stated that these cases recognized that, in some situations, an award of substantial or full indemnity costs is required to make the complaint whole and that the purpose of awarding costs was to ensure an award under the CLC was not negated due to the legal fees incurred by the employee.

In this case, the FCA specifically noted the employee’s poor financial situation and that, given the modest damages and severance pay awarded, it was likely the employee incurred legal fees close to, or exceeding, the damages awarded – especially given that the employer’s counsel had made lengthy and drawn-out submissions and arguments.

As such, the FCA found that an award of substantial or full indemnity costs was reasonable and that awarding less may have resulted in effectively putting the employee in a worse position then before they had filed the unjust dismissal complaint. Such an outcome would undermine the unjust dismissal remedy awarded and the purpose of the unjust dismissal provisions of the CLC.

The FCA went on to note that, while it would have been preferable for the Adjudicator to provide reasons for the cost award, the failure to do so was not a sufficient reason to set it aside, especially in light of the failure of the employer to make submissions regarding costs when the employee had made submissions requesting a “make-whole” costs award.

Lessons for employers

This case is a cautionary note for federally regulated employers as it has implications for the amount of costs they may become liable to pay in an unjust dismissal complaints under the CLC.

While it is commonly understood that substantial or full indemnity costs may be awarded when the employer engages in objectional conduct, this case makes it clear that such level of costs may also be awarded even when the employer has not engaged in such conduct – particularly when the failure to award substantial or full indemnity costs may result in the employee effectively being “punished” for pursuing their legal rights by requiring them to pay legal fees that match or exceed the damages they were awarded.

Employers also need to be aware that, under the CLC, an Adjudicator cannot award costs against an unsuccessful claimant. As such, even if an employer “wins” against an unjust dismissal complaint, they will not be awarded costs by the Adjudicator.

As such, employers need to carefully assess their approach to unjust dismissal complaints, as they risk not just incurring their own legal fees (which will not be reimbursed even if the employer is successful), but paying for the employee’s legal fees as well, potentially in full.

John Hyde is the managing partner at Hyde HR Law in Toronto. He advises management on all aspects of employment and labour law, including representation before administrative tribunals, collective agreement negotiation, arbitrations, wrongful dismissal defence and human rights.