The Importance of Settlement Offers in Employment Law Litigation

January 3, 2021

Settlement offers play a significant role in shifting the burden of legal fees. Used strategically, in the employment law context especially, settlement offers are a powerful tool to recover the expenses of litigation or to avoid them entirely by leading to efficient settlements.

Legal Costs, generally

In Ontario, the successful party to a lawsuit is typically entitled to a partial reimbursement of their costs from the unsuccessful party. This is referred to as “partial indemnity costs”. Practically speaking, what this means is that even the successful party is still responsible for a significant portion of their legal fees. We do not have “full indemnity” for legal costs in Ontario, except in the rarest of cases.

Considerations for Awarding Costs

The amount awarded for costs is in the discretion of the court. The court determines to what extent costs shall be paid by considering a number of factors including:

  • the experience of the lawyer for the party entitled to the costs as well as the rates charged, and the hours spent by that lawyer;
  • the amount of costs that an unsuccessful party could reasonably expect to pay in relation to the step in the proceeding for which costs are being fixed;
  • the amount claimed and the amount recovered in the proceeding;
  • the apportionment of liability;
  • the complexity of the proceeding;
  • the importance of the issues;
  • the conduct of any party that tended to shorten or to lengthen unnecessarily the duration of the proceeding;
  • whether any steps in the proceeding were improper, vexatious or unnecessary; or taken through negligence, mistake or excessive caution
  • a party’s denial of or refusal to admit anything that should have been admitted;
  • whether a party unreasonably objected to proceeding by telephone conference or video conference under rule 1.08

Where a claim is straight forward, dealing with uncomplex areas of law, and for relatively small sums of money (less than $200,000), costs awards are usually modest. In fact, for any claim under $200,000, the maximum costs award permitted is $50,000.

Settlement Offers (Rule 49 of the Rules of Civil Procedure)

Settlement offers play a significant role in shifting the burden of costs. If a party makes a settlement offer that complies with the requirements set out in Rule 49 (a “Rule 49 Settlement Offer”), and beats that offer at trial, then the other party who refused to accept that offer becomes reasonable for a higher portion of costs.

The relevant portion of Rule 49 is as follows:

49.10 (1)     Where an offer to settle … is made by a plaintiff … and the plaintiff obtains a judgment as favourable as or more favourable than the terms of the offer to settle, the plaintiff is entitled to partial indemnity costs to the date the offer to settle was served and substantial indemnity costs from that date, unless the court orders otherwise.

 

(2)     Where an offer to settle … is made by a defendant … and the plaintiff obtains a judgment as favourable as or less favourable than the terms of the offer to settle, the plaintiff is entitled to partial indemnity costs to the date the offer was served and the defendant is entitled to partial indemnity costs from that date, unless the court orders otherwise.

In other words, Rule 49 of the Rules of Civil Procedure punish a party to a lawsuit for being unreasonable, stubborn, or inefficient. If you could have receive a better deal by settling, and thereby saved legal fees, court time and previous judicial resources, but refused, then you will have to pay a larger share of costs than otherwise.

Settlement Offers in Employment Litigation

It is in this way that cases like Lemyre v Residential Energy Savings Products Inc. emphasize the importance of making settlement offers in employment law litigation.

Often, in the employment context, the legal fees of going to trial outweigh the amounts at issue. If an employee is suing for $75,000.00, both the plaintiff lawyer and defence lawyer may have legal fees that exceed $50,000.00. It is uneconomic for the parties to spend $100,000 total on a $75,000 dispute.

By making early and strategic Rule 49 Settlement Offers, a party (whether you are an employee or business) can expose the other to risk and is one of ways to maximize your advantage in settlement negotiations. Doing so will often lead to more efficient and timely settlements, which is a benefit to everyone.

Justin W. Anisman

Anisman Law

Justin W. Anisman is an Employment Lawyer and principal of Anisman Law. Justin advises both companies and individuals in all aspects of employment law including wrongful dismissal, human rights and discrimination.

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Contact Justin W. Anisman, the author of this blog, about any employment law related questions or issues you may be facing.

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