The Court of Appeal for Ontario has dismissed an employer’s $150 million counterclaim against a worker who filed a constructive dismissal lawsuit over an alleged toxic working environment.
It ruled what was “really going on” with the counterclaim was an attempt to silence a former vice-president who was seeking wrongful dismissal damages and to “create a chilling effect for other employees.”
The employee, CB, worked for Callidus Capital Corporation as a vice-president. He sued for wrongful dismissal, alleging constructive dismissal due to a toxic work environment.
Callidus responded with a counterclaim of $150 million, alleging that CB had breached his fiduciary duties during his employment.
CB moved to strike that counterclaim on the basis that it “is a proceeding limiting freedom of expression on matters of public interest.” A motion judge initially dismissed that attempt to strike the $150 million countersuit, which CB then appealed to the Court of Appeal for Ontario.
Reasons for worker’s departure
Callidus is a lender to distressed businesses in Canada and the United States. CB joined the company in 2009, and was responsible for underwriting new loans and assessing potential borrowers.
In 2015, he became concerned with the direction the company was taking. He also began to experience some personal health issues, so he decided to give 18 months’ notice of his intention to retire at the end of 2016.
But, during that period, he testified his concerns about the company grew. He said he faced, and witnessed, verbal abuse and criticism, including threats. It all came to a head in April 2016 when a senior executive physically assaulted his supervisor in his presence. By July, all of his files had been transferred from him — and he left the company in August, four months earlier than planned.
He filed his lawsuit in February 2017 and, 15 days later, Callidus issued its $150 million counterclaim alleging breaches of fiduciary duties related to three borrower clients. It claimed CB failed to provide honest and transparent reporting to Callidus on those clients.
The appeal court’s ruling
Part of the motion judge’s reasoning in refusing to dismiss the counterclaim was that it was not “causally connected” to CB’s statement of claim for wrongful dismissal.
But the appeal court said the motion judge erred with a narrow and literal interpretation of section 137 of the Courts of Justice Act. The lower court did not consider the context in which the counterclaim was issued, it said.
“When the allegations of a toxic work environment were made public by the appellant, Callidus immediately responded with a claim for $150 million,” the appeal court said. “No underpinning is given for the quantum of damages. The claim is based on bald allegations with no itemization or explanation of loss suffered. It is based on events that Callidus had known about for years and never mentioned before. Only when the allegations of a toxic work environment were made public by the appellant was there a claim made.”
The burden then shifted to Callidus to satisfy the court that the counterclaim has substantial merits, it said. The Court of Appeal ruled it failed to do so.
“Callidus never pleaded any sort of undertaking, express or implied, on (CB’s) part to act in Callidus’ best interests. This is fatal to the counterclaim,” it said.
The court also noted that the company has “neither pleaded nor shown” that the content in the statement of claim by CB has or will cause it any harm. It laid out the factors that tilted the balance in favour of dismissing the counterclaim:
- financial imbalance between the parties
- punitive or retributory purpose in bringing the claim
- minimal link between CB’s conduct and any damages suffered by Callidus
- acknowledgement by the company that the $150 million claim was baseless
- the chilling effect the action would have on other employees bringing claims or raising issues relating to toxic work environments.
- the fact the counterclaim was started more than five year’s ago and the company had not taken steps to advance it on its merits. A proposed amendment to reduce the damages claimed to $3 million was delivered on March 31, 2022 and no itemization to substantiate the quantum has been produced.
The Court of Appeal dismissed the counterclaim. (There were additional parts of the appeal as well, and the appeal court granted leave to CB to amend the statement of claim, and the motion was returned to the motion judge to complete the summary judgment motion.)
For more information, see Boyer v. Callidus Capital Corporation, 2023 ONCA 233 (CanLII).