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"Seeds of injustice": Supreme Court of Canada allows employee who lost ESA claim to sue in court

The legal doctrine of issue estoppel, despite the esoteric sound of its name, has important practical implications in the employment law context, chiefly because of the multiplicity of forums in which employees can pursue claims against employers. Briefly stated, issue estoppel is applied by courts to prevent a party from relitigating an issue that has already been decided. Courts have held that three requirements must be met to give rise to issue estoppel: 1) the question being decided must be the same in both proceedings; 2) the prior decision must have been final and judicial in nature; and 3) the parties in the two proceedings must be the same, or at least identical in interest.

FOCUS readers may recall that issue estoppel figured in the case of Minott v. O'Shanter Development Co., a decision of the Ontario Court of Appeal (see "Employee "misconduct" under U.I. Act not just cause for dismissal, Appeal Court rules" on our Publications page). In Minott, issue estoppel was invoked by the employer to bar an employee, against whom a finding of misconduct had been made by a Board of Referees under the Employment Insurance Act, from suing in court for wrongful dismissal.

The claim of issue estoppel was rejected in Minott as being inapplicable in that case but, significantly, the Court went on to note that, even if the three-part test is met, courts retain a discretion to refuse to apply the doctrine where to do so would create unfairness. Now, in a decision released on July 12, 2001, the Supreme Court of Canada has used its discretion to refuse to bar an employee who was unsuccessful before an Ontario Employment Standards Officer from going to court to pursue her claim.

EMPLOYMENT STANDARDS PROCEEDING "PROCEDURALLY UNFAIR" TO EMPLOYEE

The case, Danyluk v. Ainsworth Technologies Inc., concerned an employee whose employment was terminated following a dispute in which she claimed entitlement to $300,000 in unpaid commissions. The employee, Danyluk, filed a claim under the Employment Standards Act in October 1993 and commenced an action for wrongful dismissal in court in March 1994.

Danyluk's interaction with the Employment Standards officer assigned to her claim consisted of some telephone calls and a one-hour meeting on January 30, 1994. When the employer responded to her claim in June 1994, none of its submissions were copied to her and she was never advised of the employer's position or given a right to respond.

In October 1994, the officer advised Danyluk that she was entitled to only two weeks pay in lieu of notice, and that her entitlement to the commissions was rejected. The officer also advised her of her right to appeal to the Director of Employment Standards. Danyluk declined to do so, electing to pursue her remedy through the courts.

In court, the employer asserted that Danyluk's claim was barred by issue estoppel, because it had already been rejected by the Employment Standards officer. The court held in favour of the employer, and this ruling was upheld by the Ontario Court of Appeal, despite the fact that that Court found that the Employment Standards officer had failed to observe procedural fairness. Danyluk appealed to the Supreme Court of Canada.

A TWO-STEP ANALYSIS

In upholding Danyluk's appeal, the Supreme Court noted that, despite the laudable objectives behind issue estoppel, when the application of the doctrine "bars the courthouse door against [a] $300,000 claim because of an administrative decision taken in a manner which was manifestly improper and unfair (as found by the Court of Appeal itself), a re-examination of some basic principles is warranted". It observed that issue estoppel required a two-step analysis: first whether the three-part test described above has been met; second, whether, despite this fact, the Court should exercise its discretion to apply the doctrine.

In this case, the Court held that, although the preconditions for issue estoppel had all been met, the Court of Appeal had erred in not addressing the issue of discretion more closely. The Court then considered the factors relevant to the exercise of discretion in Danyluk's case, and concluded that barring court action would be unfair:

"As a final and most important factor, the Court should stand back and, taking into account the entirety of the circumstances, consider whether application of issue estoppel in the particular case would work an injustice. [The Court of Appeal] concluded that [the employee] had received neither notice of the [employer's] allegation nor an opportunity to respond. ... Whatever [the employee's] various procedural mistakes in this case, the stubborn fact remains that her claim to commissions worth $300,000 has simply never been properly considered and adjudicated."

Accordingly, and observing that the doctrine of issue estoppel contained within it "the seeds of injustice" if improperly applied, the Court used its discretion to refuse to apply it in this case.

In Our View

The factors listed by the Court in determining whether to exercise its discretion to bar Danyluk's court action included:

• the fact that, at the time, the ESA specifically did not suspend any civil remedy available to an employee against an employer;
• the risk that the application of issue estoppel to ESA decisions could put pressure on parties to devote too many legal resources to a procedure that was specifically designed to provide expeditious dispute resolution;
• the availability of an appeal process under the ESA (this factor worked against Danyluk);
• whether the procedures in the prior process were adequate for dealing with complex legal issues; and
• the fact that the ESA officer had no legal training and was considering complex issues of contract law.

In general, the Court stated that "the discretion [on applying issue estoppel] is necessarily broader in relation to the prior decisions of administrative tribunals because of the enormous range and diversity of the structures, mandates and procedures of administrative decision-makers". This will put a heavier burden on employers seeking to block court actions by employees who have suffered an adverse result before an administrative tribunal.

For further information, please contact Jacques A. Emond at (613) 563-7660, Extension 224, or George Rontiris at (613) 563-7660, Extension 275.