May 03, 2010

Dismissing an Employee for Cause: Are Reasons Required?

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An employer can always dismiss an employee for just cause. Just cause can arise from a broad range of circumstances, from criminal conduct to violations of employer policy. However, given the potential for legal proceedings arising from dismissals, employers should be aware that many issues can be created by the manner of dismissal. If the matter proceeds to court, it is likely that the employer will not only be required to prove the existence of just cause, but also the manner in which the employee was dismissed. This is because the circumstances surrounding a dismissal can have a significant impact not only on the overall success of any litigation but also on the damages that may be awarded.

Generally speaking, when an employee is dismissed for cause, the employer relies on specific conduct or behaviour of the employee which it was aware of at the time of the dismissal. With limited exceptions, the courts have been consistent in finding that employers do not owe their employees a duty of fairness (including a duty to investigate or hear the employee’s side of the story) prior to dismissal.

As such, the question of whether an employer should give reasons at the time of dismissal is an important one. In New Brunswick, employers are statutorily obligated to give reasons. Section 30(2) of the New Brunswick Employment Standards Act states the following:

30(2)Where an employer dismisses an employee for cause he shall do so in writing, setting out the reasons for such action, and, subject to section 31, unless this section is complied with no dismissal without notice is valid notwithstanding that cause for such action exists.

By contrast, there is no similar statutory obligation in Prince Edward Island, Newfoundland and Labrador or Nova Scotia. There is also Nova Scotia case law taking the position opposite of the New Brunswick statute: the Court of Appeal in Pulsifer v. GTE Sylvania Canada Limited held that an employer is under no obligation to inform an employee of the reasons for termination aside from informing the employee that the dismissal is for cause.

As such, in jurisdictions other than New Brunswick, an employer is not required to state the reasons on which it is relying. However, an employer who dismisses an employee without cause, and then subsequently seeks to rely on cause (when, for example, there is a dispute over severance pay) will have a difficult evidentiary burden to overcome. The natural question for the Court will be why the employer did not rely on cause at the time of the dismissal, if cause in fact existed. In wrongful dismissal cases, the burden is on the employer to prove just cause existed. As such, while an employer is not required to provide reasons, there are several good reasons to do so:

  1. As above, an employer who has reasons and does not state them faces an evidentiary burden at trial as to why the reasons were not stated at the time of dismissal. By contrast, an employer who gives consistent reasons at dismissal and at trial is more likely to be successful.
  2. When confronted with their own misconduct, employees are more likely to confess or negotiate.
  3. When no reasons are given, an employee might obtain legal counsel to determine the reasons why. This 'escalates' the matter and will often require the employer to expend greater resources.
  4. A policy of giving reasons for dismissal ensures that an employer has adequately investigated and considered the matter before terminating the employee. Should the dismissed employee pursue litigation, a shoddy investigation (or the complete lack of an investigation) may create evidentiary challenges in that the employer may not possess sufficient evidence to justify its allegation of just cause.
  5. A poor investigation may also give rise to an allegation of bad faith on the part of the employer which, if proven, may give rise to additional damages (see below).

In short, while failing to investigate and give reasons may not be fatal to the defence of a wrongful dismissal suit, the failure to do so may give rise to other tactical and evidentiary issues down the line.

Bad Faith The Supreme Court of Canada’s decision in Wallace v. United Grain Growers established that the manner in which an employee is dismissed may give rise to damages over and above the common law notice period otherwise awarded to a wrongfully dismissed employee. These damages were calculated as an addition to the notice period and were commonly referred to as “Wallace damages”.

The Supreme Court recently changed the method by which damages for bad faith are calculated. In Honda v. Keays, the top court held that employers could be liable for “moral damages” where they act in bad faith, such damages being awarded to compensate an employee for the actual harm suffered as a result of the employer’s misconduct.

Bad faith may be found to exist in a number of circumstances. For example, as noted above, subpar investigations may give rise to a claim of bad faith. A proven bias by the employer against the employee in the manner of the investigation can give rise to moral damages. The courts have also awarded moral damages where the employer's actions harm the employee’s reputation and chances for reemployment.

Bad faith is also a relevant concern for employers with unionized workforces. In a recent decision from the federal jurisdiction, Public Service Alliance of Canada, Local 0004 v. Greater Toronto Airports Authority, Arbitrator Owen Shime found that the duty to bargain collective agreements in good faith extended to the operation of those agreements, and therefore questions of dismissal pursuant to those agreements. In the above case, the employer was found to have conducted a bad faith investigation that resulted in unfair treatment towards an employee. The employer secretly observed an employee who had a history of physical and sexual abuse, including being stalked. The employer was aware of this history, but thought that the employee was malingering after having had knee surgery. Based on the surveillance, but without obtaining a medical opinion, the employer terminated the employee for alleged malingering. The Arbitrator found that the employer had acted in bad faith, and awarded over $500,000 in damages, including damages for mental distress caused by the bad faith conduct.

In conclusion, employers should be wary of being seen to act in an unfair, arbitrary, or otherwise improper manner lest they be found liable for an increased damage award. The best way to avoid this is to ensure that when terminating an employee for just cause, sufficient reasons and evidence exist, and that the employee is notified of such when he or she is terminated.

Inquiries may be directed to:

New Brunswick - Trisha Gallant-LeBlanc at (506) 462-4764
Newfoundland & Labrador - Chris Peddigrew at (709) 570-5338
Nova Scotia - Tom Groves at (902) 491-4104
Prince Edward Island - Karen Campbell, QC at (902) 629-3911

Cox & Palmer publications are intended to provide information of a general nature only and not legal advice. The information presented is current to the date of publication and may be subject to change following the publication date.