Ontario Court of Appeal considers whether finding of misconduct under E.I. Act bars an action for wrongful dismissal – again

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One of the main questions dealt with in Minott v. O’Shanter Development Co. (see “Employee “misconduct” under U.I. Act not just cause for dismissal, Appeal Court rules” on our Publications page) has been revisited by the Ontario Court of Appeal in Schweneke v. Ontario (February 10, 2000). That question is the legal doctrine of issue estoppel as it applies to a plaintiff in a wrongful dismissal action against whom a finding of misconduct has previously been made by a tribunal under the Employment Insurance Act. More broadly, the question also applies to anyone alleging wrongful dismissal who has suffered an adverse result before any number of tribunals established under employment-related legislation.

Issue estoppel, readers will recall, functions to prevent a party from re-litigating 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 decision creating the estoppel (in this case, that of a tribunal under the E.I. Act), must have been final and judicial; and 3) the parties in the two proceedings must be the same, or at least identical in interest.

MINOTT: DISCRETION TO REFUSE ISSUE ESTOPPEL

In Minott, the Court rejected issue estoppel as it applied to a finding of misconduct by a Board of Referees under what was then the Unemployment Insurance Act. More significant than the Court’s finding that the three-part test had not been met, however, was its statement that, even if all the requirements for issue estoppel had been in place, it would have exercised its discretion not to apply the doctrine in order to avoid unfairness to Minott by barring his wrongful dismissal action. Now, in Schweneke, the Court has stepped back from what appeared to be a wholesale refusal to bar wrongful dismissal actions by litigants who have suffered an adverse finding in the E.I./U.I. process.

In Schweneke’s case, the previous proceeding was before a U.I. Umpire, which is the highest level of appeal within the U.I. process, short of judicial review. Schweneke was an employee of the Ontario Ministry of Education who was seconded in 1982 to a German government-funded institution called the IFA. In 1990, Ontario suspended Schweneke, alleging that, without its knowledge, he had become a full-time employee of both Ontario and the IFA, and had received double compensation between 1982 and 1990. In October 1990, Ontario received a report from Price Waterhouse which concluded that Schweneke had been paid twice for some of his expenses. In July 1991, Schweneke resigned his position.

After initially succeeding in his claim for U.I. benefits, Schweneke was disqualified by the Board of Referees. He appealed to the Umpire, who upheld the disqualification.

When Schweneke’s wrongful dismissal action reached the Court of Appeal, the Court held that, unlike Minott, the three-part test to bar his action was met in this case. More important, however, the Court expanded on its view as to when courts should exercise their discretion not to apply issue estoppel in cases such as Schweneke’s.

SCHWENEKE: FROM THE POTENTIAL FOR UNFAIRNESS, TO ACTUAL UNFAIRNESS

After first noting that a “mechanistic” application of issue estoppel to the findings of statutory tribunals could lead to an injustice in subsequent civil litigation, the Court warned against going too far in the opposite direction, and automatically refusing to apply the doctrine:

“Although resort to the discretion [not to apply issue estoppel] may be particularly useful where the finding relied on was made by a tribunal whose procedures are adapted for the speedy resolution of specific claims, the discretion cannot be so broad as to preclude the operation of the doctrine of issue estoppel to findings made by those tribunals. The discretion cannot swallow whole the rule that makes the doctrine applicable to findings made by tribunals whose processes, although judicial, are less elaborate than those employed in civil litigation.”

Therefore, the Court stated, a party may not invoke general fairness concerns merely because of the streamlined nature of a tribunal proceeding relative to a court. Rather, it must demonstrate that unfairness actually occurred. Raising only the potential for injustice is not enough.

In Schweneke’s case, the Court concluded that no injustice would occur if he were barred from proceeding with his action by the Umpire’s findings: Schweneke knew about the contents of the Price Waterhouse report and supporting material given to the Umpire, and was able to make submissions in response; he had two and a half years to prepare for the hearing and had counsel for part of the time; and he could not claim that pressing financial circumstances hindered him from putting his case forward, given the two and a half years between initiating his appeal and the hearing before the Umpire.

Accordingly, the Court held that Schweneke had not persuaded it that issue estoppel should not be applied in his case.

In Our View

The one factor in Schweneke’s case seen by the Court as an argument in favour of allowing him to proceed with his wrongful dismissal action, was that the financial stakes in the U.I. proceeding were significantly less than those in a civil action. The Court held, however, that this factor, standing alone, cannot justify the refusal to apply issue estoppel, as the stakes in tribunal proceedings are almost always less than those in civil proceedings.

This decision should provide encouragement to employers resisting wrongful dismissal claims by employees who have lost in statutory proceedings. The Court appears to have reined in the policy-based reasons articulated in Minott for not applying issue estoppel in such cases.

For further information, please contact Jacques A. Emond at (613) 563-7660, Extension 224, or Colleen Dunlop at (613) 563-7660, Extension 222.