To what extent can an employee pursue a meritless claim?

The breakdown of an employment relationship can often leave a sour taste in both parties' mouths.  In the most serious cases, an employee on their way out can be motivated to inflict as much pain and suffering on the business, and those who represent it, as possible.

Although an aggrieved employee is most certainly entitled to pursue their rights to the fullest extent permitted under law, there are two questions that often come to mind:  

1. To what extent can an employee pursue a claim when it either lacks merit, or is vexatious and has been lodged purely to spite the employer?
2. Is there any form of recourse that an employer can take in circumstances where they have been forced to defend themselves in this type of matter?