Lessons for overzealous class action lawyers in landmark court decision

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Following decertification, Justice Morgan awarded the defendants $100,000 in costs. Nearly three years later, that award remained unpaid and interest had accrued. The defendants then sought to have class counsel, Monkhouse Law, added as a party responsible for paying it. Justice Morgan agreed.

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He was critical of class counsel for continuing to advance the proceeding and adding further costs despite the lack of class support for the lawsuit.

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Compounding that concern was the court’s expressed understanding that the representative plaintiff and class were indemnified against adverse costs by their counsel, Monkhouse Law — standard practice in the legal profession. When Justice Morgan learned that such indemnification did not appear to exist, he was concerned with counsel pressing forward in the absence of a supportive class. In response, the court exercised its supervisory authority and added Monkhouse to the costs order.

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Every plaintiff-side class-action firm in Canada should take notice.

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Class proceedings create a profound financial asymmetry.

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Defendants may spend millions responding to claims that never reach trial. Certification alone can impose reputational damage, extensive costs, years of management distraction and overwhelming commercial pressure to settle.

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Plaintiff counsel generally act on contingency. They invest time and carry opportunity cost, but may view their ultimate financial downside as limited. If a case succeeds, the fees can be enormous. If it fails, the loss may be relatively limited. Meanwhile, if the representative plaintiff is impecunious, the successful defendant will have little realistic prospect of recovering its costs.

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That imbalance can encourage proceedings that would never be commenced if plaintiff counsel were exposed to the same commercial discipline and risks as the defendant.

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The Navaratnarajah v. FSB decision corrects that.

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It warns lawyers that they cannot simply locate one dissatisfied worker, build a sweeping class around that individual and assume that every meaningful financial risk belongs to someone else.

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A contingency fee is not a one-way option. Counsel should not receive the upside from creating and controlling the litigation while externalizing the downside to an individual plaintiff without the means to satisfy a costs award.

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Before launching an employment class action, counsel must investigate more than whether an arguable legal theory can be pleaded.

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They must determine whether the employees represented actually share the representative plaintiff’s interests and want the relief being pursued.

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Do the workers genuinely wish to challenge the compensation model under which they have operated?

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Could the proposed remedy expose them to tax, commercial or ownership consequences?

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Would reclassification impair their independence or jeopardize their interests in their books of business?

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Are they prepared to surrender control over individual claims and negotiating strategies to lawyers they didn’t select themselves?

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Is there a genuine class-wide grievance — or merely one dissatisfied claimant and counsel in search of a class?

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And once employees have already opposed certification, whose interests are advanced by class counsel continuing?

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These are not public relations questions. They go to the legitimacy of the proceeding.

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There will, of course, be legitimate cases in which workers fail to appreciate their rights, fear retaliation or resist litigation for reasons unrelated to the merits. Opposition cannot automatically defeat certification.