An Ontario court has dismissed a motion by a numbered company to strike punitive damages from a former employee’s amended statement of claim. The worker alleged that a $1 million counterclaim filed against him, for the alleged misappropriation of confidential information, was a tactic to bully him into withdrawing his wrongful dismissal claim.
The ruling from the Ontario Superior Court of Justice emphasized that the employer’s argument lacked merit and that the claims raised by the employee were not plainly and obviously without reasonable cause.
Background of the case
The plaintiff, who began working with the defendant as a welder in August 2007, was terminated on Jan. 17, 2023. Following his termination, he issued a Statement of Claim on April 6, 2023, seeking damages for wrongful dismissal and breach of contract. Initially, the claim did not include a request for aggravated or punitive damages.
On June 15, 2023, the employer filed a Statement of Defence and Counterclaim, alleging misappropriation of confidential information and seeking $1 million in damages. In response, the plaintiff amended his Statement of Claim on Aug. 31, 2023, without consent or leave, to include claims for breach of the duty of good faith and aggravated and/or punitive damages totaling $650,000.
The impugned paragraphs claimed that the employer’s counterclaim was frivolous and an intentional attempt to intimidate the plaintiff into withdrawing his claim. The plaintiff argued that the counterclaim was without merit and constituted outrageous and deplorable conduct warranting punitive damages.
Employer’s argument and court’s analysis
The employer’s motion to strike argued that the paragraphs seeking punitive damages were frivolous, vexatious, and an abuse of process. They contended that pleadings made within the context of a legal defence are protected by absolute privilege and cannot form the basis of a separate cause of action.
Justice Papageorgiou rejected this argument, noting that the amendment in question did not introduce a new cause of action but rather sought additional damages for the existing wrongful dismissal claim. The judge pointed to several cases where punitive damages were awarded in wrongful dismissal cases involving baseless counterclaims by employers intended to intimidate employees.
For instance, in Ruston v. Keddco Mfg. (2011) Ltd., the court upheld a $100,000 punitive damages award against an employer who issued a counterclaim for $1,700,000 based on unfounded fraud allegations, intended to intimidate the employee.
Similarly, in Koshman v. Controlex Corporation, the court awarded $50,000 in punitive damages, citing the employer’s baseless counterclaim for breach of fiduciary duty as part of its “scorched earth” litigation strategy.
Principles governing employment relationships
Justice Papageorgiou emphasized the inherent power imbalance between employers and employees, which informs all facets of employment relationships, including litigation conduct. The unique principles governing employment relationships allow for a broader consideration of employers’ conduct in wrongful dismissal cases.
The ruling underlined that an employer’s counterclaim, if proven to be a tactic to intimidate an employee, could be a legitimate basis for punitive damages. The judge indicated that this issue should be resolved at trial, based on a complete trial record, rather than at the pleadings stage.
For more information, see Martynenko v. 2000007 Ontario Inc, 2024 ONSC 3947 (CanLII).
