Sorry, but you were fired! When to assert cause in dismissal

Exclusive to Canadian HR Reporter from Rudner Law.

It seems obvious, doesn’t it? When you dismiss an employee for cause, you need to tell them they’re being dismissed for cause at the time. But sometimes, you want to be nice, or you want to avoid a confrontation, or you want them to receive some severance and be eligible for employment insurance benefits, so you choose not to mention just cause.

If the matter becomes contentious, can you subsequently assert that you had just cause even though you didn’t mention that at the time of dismissal? The answer is a definite maybe, but at least one decision from Ontario’s Court of Appeal may help you.

A dismissal for cause has been called the capital punishment of the employment relationship, and in many ways it is. Where the employer can show that it had cause to dismiss the employee, it has no obligation to provide the employee with notice or pay in lieu of notice (certain locations may require a statutory payout).

Justifying just cause

A court will treat the dismissal with a high degree of gravity: the outcome is all or nothing for the employer or employee. To determine whether the employer had cause, the court will carry out a contextual analysis, looking at the employer’s basis for dismissing the employee with cause and the employee's record with the employer.  

Dismissing an employee for cause without a defensible basis may create liability for the employer, who will find itself having to not only pay the employee's entitlements on termination but also potential bad faith damages.

Further, wrongfully asserting cause can repudiate the employment agreement, preventing the employer from relying on a termination clause in it to limit their obligations to the employee on dismissal.   

Timing of dismissal for cause

Typically, an employer must advise the employee at the time of dismissal that they are dismissing the employee for cause. Failing to do so means that the dismissal was without cause, and that the employer condoned all employee misconduct leading up to dismissal. 

Normally, the only exception is where the employer locates evidence after the employee's dismissal which would have substantiated a dismissal for cause during employment. Here, the employer may take the position that it had after-acquired cause to dismiss the employee.

After-acquired cause is the company stating it has discovered information that if discovered during the employment relationship would have been the reason it dismissed the employee for cause.

Sometimes, however, an employer may have had cause to dismiss the employee but opted to proceed without cause for its own reasons. If the employee challenges the dismissal, can the employer then assert that the dismissal was for cause, and use this as its defence? Surprisingly, the answer is “sometimes”.

Post-dismissal defence of cause

The Court of Appeal for Ontario addressed this situation in Giancola v Jo-Del Investments Ltd. (2003). Here, the employer initially advised the employee in the dismissal letter that their dismissal was due to a restructuring. The employee challenged their dismissal and threatened litigation against the employer. The employer then changed its position, advising that the dismissal was actually for cause.

At trial, the employer outlined its basis for dismissing the employee for cause, which the court accepted as valid. The employer also indicated that it advised the employee that the dismissal was without cause in order to keep the matter amicable. The court noted that the employer had been hesitant to advise the employee that their employment had been terminated. Instead, the employer allowed the employee to continue working for a month following their vacation, despite having decided to dismiss the employee during this vacation.

Finally, the court noted that the employer had filled the employee's vacated position almost immediately upon their dismissal, which the court found indicated that the dismissal was not due to restructuring. The court found that the employer had dismissed the employee for cause.  

Conclusion on just cause dismissals – after without cause

Giancola is not a way to fix a botched dismissal. An employer may not abruptly assert cause just because the employee has challenged their severance package. It remains in an employer’s interest to assert cause at the time of dismissal, if the employer can substantiate cause to dismiss.

Remember that you can dismiss for cause and then make a without prejudice offer, which can:

• give the employee some money to help them through the transition
• get you a Full and Final Release, all the while preserving your right to assert just cause if the matter becomes contentious. 

While Giancola suggests that an employer may assert a good faith defence of cause in the face of subsequent legal action, the court’s reliance on the facts surrounding the dismissal suggests that a similar situation without identical facts may not result in the same outcome. If the court perceives that the employer chose not to assert cause out of goodwill or with good intentions, they may allow them to raise the issue later.

But if a court thinks that just cause was only raised out of spite, to punish or intimidate the dismissed employee and discourage a wrongful dismissal claim, bad faith damages are likely.

Giancola does not appear to have been cited in the two decades since the court handed it down. In theory, it remains good, obscure law. A court may agree with it but also distinguish it from a matter before it.

The way to avoid issues is to do things properly. Assert cause if it can be proven; otherwise, dismiss without cause. However, an employer that believes it has cause but does not want to impact the employee's feelings may be able to dismiss without saying why, and rely on its evidence as a defence should the employee return for more. 

As employment lawyers, we regularly field calls from clients who are considering dismissing an employee for cause. We advise them to speak with us when potential misconduct comes to their attention and before taking any action. We can then work with the client to investigate to ensure that they have a defensible legal position before determining whether to dismiss the employee for cause.

Geoffrey Lowe is an associate lawyer at Rudner Law in Toronto. He can be reached at (416) 864-8500 or [email protected].