By Tiffany Zanatta.
The British Columbia Supreme Court recently provided a strong reminder to employers about the importance of honoring their settlement obligations, and the consequences if they don’t.
After concluding that a post-dismissal settlement had been reached and breached, the court in Shewchuk v. IBM Canada decided that an extraordinary remedy was appropriate in these very special circumstances.
After his employment was terminated, Mr. Shewchuk sued IBM for wrongful dismissal. The parties agreed to a settlement approximately a year after his dismissal. The terms of the settlement were clear, concise and unambiguous.
Counsel moved on to arranging payment of the settlement funds and finishing up the documents to conclude the matter. In corresponding with IBM’s lawyers, Mr. Shewchuk’s counsel accidentally included a typo in one of his letters, which he immediately rectified in a follow up letter. Mr. Shewchuk’s counsel received no response to this correction.
IBM made a settlement payment, however, it was not for the full amount agreed to. A later conversation between counsel made it clear that IBM was refusing to pay the remaining amount. IBM’s lawyers advised that if Mr. Shewchuk wished to receive the outstanding amount, he would need to file a court application or make a claim for it on his tax return.
Mr. Shewchuk’s counsel filed an application with the court seeking a declaration that IBM had breached the settlement agreement, and punitive damages (which are intended to punish and deter conduct that is “vindictive, harsh, malicious and reprehensible”). In response, IBM alleged that they were confused about their obligations (in part because of the typo in counsel’s letter) and had since made the remaining payment.
The Court’s Decision
The court found that there was a settlement and that IBM had breached the agreement, but determined that punitive damages weren’t appropriate in this particular case, despite IBM’s troublesome behavior.
However, the court did find that special damages/costs (which a court can award to express its disapproval of certain conduct and/or where there has been misconduct by one of the parties) were appropriate in the case because:
- There were no special circumstances that could explain the reprehensible conduct of IBM; and
- IBM’s conduct showed a high handedness and indifference to the plaintiff and the settlement agreement.
Accordingly, the court awarded Mr. Shewchuk special costs (with the exact amount to be later assessed by the Registrar.)
The decision in Shewchuk shows that where a party’s conduct is reprehensible, a court can and will award special damages/costs, specifically where that party is sophisticated and has access to sophisticated legal advice.
Furthermore, it provides clear guidance to employers that they have a duty to make full payment when a settlement is reached and by the time agreed to by the parties. When and if there is confusion, the party has a duty to immediately clarify these issues or face punishment by the courts.