Asserting Just Cause AFTER Termination
Every so often, we see a scenario where an employer, having dismissed an employee on a not-for-cause basis, decides - usually after getting a demand letter from the employee - to take a 'just cause' position instead.
It's not always in bad faith, per se. There can be scenarios with an arguable case for cause, where an employer's assessment of the magnitude of its liabilities can legitimately influence whether it makes the strategic decision to press that issue.
But it always has a bit of a stink to it, and it can be difficult or impossible to put a 'not-for-cause' genie back in the bottle, as an Edmonton employer recently discovered.
The Facts
Mr. Aleyew was the Executive Director of the Council for the Advancement of African Canadians in Alberta ("AC") until early 2018. In response to certain allegations of mistreatment by employees, the Board of Directors retained an employment lawyer to conduct an investigation, and suspended him without pay (NB: while not the issue in this case, that's usually the wrong process).
The Board received an interim report from the investigator, which included the particulars of certain allegations, but concluded (based on the lack of corroboration) that Aleyew had not engaged in bullying or harassment, etc. (To be clear, a lack of corroboration does not bar an investigator for finding misconduct: An investigator can make a credibility assessment. But when faced with two competing versions of events and no compelling reason to believe the complainant over the respondent, the inevitable conclusion is that the subject matter of the complaint is not substantiated.)
After receiving that report, the Board decided to end his employment, sent a letter that expressly dismissed "without cause", paid him his statutory minimums, and offered him a modest additional payment for a release.
(The final report, released a week later, wasn't substantially different from the interim report.)
When Aleyew rejected the offer and sued instead, they alleged 'just cause', taking the position that the investigator had gotten it wrong, they'd relied on the investigator's interim report, and only after the termination did they discover that the investigator's report was wrong.
They pleaded based on the doctrines of 'after-acquired cause', which is a fairly common issue in wrongful dismissal, and 'mistake', which is not.
The Decision
Justice Lema rejected the employer's position and awarded 14 months' of notice.
He found that the employer did not, in fact, rely on the interim report when dismissing: The Board of Directors took a dim view of both the interim and final report from the outset.
Furthermore, he rejected the defendant's claim to have "acquired post-termination information reflecting just cause". (Note the wording there - that's how the defendant framed their defence, for reasons, but that's not a proper articulation of 'after-acquired just cause'. More on that later.) It looks like the employer's general theory of the case, that something new caused them to change their position afterward, was lacking in factual support.
The indication that the dismissal was on a 'without cause' basis was unequivocal, and there was no basis for the employer to resile from it.
However, Justice Lema was fairly forgiving of the employer's litigation approach, in a way many judges wouldn't have been. Their decision to assert just cause, and to counterclaim for repayment of the statutory amounts paid, was based on an incorrect view of the facts and law, but he didn't see that as being "outrageous, egregious, or capricious". (Furthermore, no evidence was led as to compensable injury suffered by their misconduct.)
Discussion
Hat tip to Joel Fairbrother of Bow River Law LLP for drawing attention to this decision with his own article. He suggests that the doctrine of mistake, given that employment law is just a specie of contract law, could create a defence with different evidence.
I respectfully disagree about that. (Genuinely respectfully. I value any contribution premised with 'after all, employment is really just a contract'.) In my view, the whole argument is, and should remain, completely subsumed within the after-acquired cause doctrine.
The doctrine of mistake means a couple different things: Under narrow circumstances, it can allow for rescission of a contract entered into based on a unilateral or mutual mistake. Suffice it to say that the test for this is high, and rescission is almost never going to be available in a wrongful dismissal case.
I suspect that, doctrinally, the mistake being talked about in this case is more along the lines of a related doctrine whereby a party who pays money because of a mistake of fact is entitled to be reimbursed. This doctrine is primarily equitable, tying in to unjust enrichment, but also has contractual elements: Contrary to Monopoly rules, it's most often invoked when the bank mistakenly advances funds - notably in connection with 'bad cheque' schemes.
In a case like this, the election to dismiss on a not-for-cause basis is neither equivalent to entering into a contract (such that it can be voided by mutual or unilateral mistake), nor is it equivalent to payment of money. (If you mistakenly paid out severance in a case where you were asserting cause, that doctrine might arguably apply on the right facts to allow recovery of those funds. But the decision of whether to assert cause is a different kind of process.)
There are more problems than I can count with advancing this position on an equity basis, and while I would generally accept that the implied contractual term of 'a party who advances funds by mistake is entitled to recover them' applies in employment law, that's a vastly different statement than asserting that you can generally resile from contractual elections that you later decide were in error.
It's critical to understand what, precisely, is going on when an employer chooses to dismiss with or without cause. The best summary is from the 1964 Ontario decision in Tracey v. Swansea Construction:
The simple position appears to me to be this. The defendant desired to dismiss the plaintiff. If there was misconduct or default sufficient to justify discharge it had one of two courses open to it. It could have summarily dismissed for cause or it could have decided to overlook, waive or condone the misconduct and terminate upon notice, or payment in lieu of notice, in accordance with the provision of the contract for termination implied by law. It could not do both, for one would operate as a repudiation of the contract for a breach thereof, and the other, conversely, would operate as an affirmation of the contract and the adoption of its provisions for termination. The fact that the defendant was in error as to the length of, or sufficiency of, the notice given could in no way alter the effect of its intention as expressed by its conduct.
Put more simply: An employee engaging in misconduct that amounts to 'just cause' has breached the contract, giving the employer the right and obligation to elect whether to "accept" the employee's repudiation and treat the contract as ended by it, or to "affirm" the contract and treat it as surviving the breach. When an employer, knowing of conduct that may justify dismissal 'for cause', nonetheless elects to dismiss on a 'without cause' basis, the employer has implicitly elected to affirm the contract following the employee's (arguable) repudiation.
The 'after-acquired cause' approach limits the Tracey proposition to cases where the employer knew of the particulars of the misconduct at the time of dismissal, which generally makes sense: You can't bind yourself to an election flowing from the employee's repudiation...if you don't know about the employee's repudiation.
But short of that...if you were aware of the facts surrounding the employee's misconduct, you can't access after-acquired cause. That's fairly well-established law, and attempts to suggest otherwise are problematic.
The argument by AC is essentially this: "We knew all about the particulars of the allegations, but dismissed him without cause on the assumption that we wouldn't be able to prove cause, and therefore IF we can successfully prove cause, our prior assumption was mistaken and we shouldn't be held to it." That logic, if accepted, would warrant a re-casting of a just cause position in almost any scenario.
The lesser argument - not available on the evidence, but conceivable nonetheless - would be a similar argument but where you're actually marshalling new evidence that wasn't available to you at the time of dismissal: Imagine a similar scenario where, after the employer made its dismissal decision, new video evidence came to light that corroborated the allegations against the employee.
That seems to be more persuasive, on its face, but it still suffers from the same 'floodgates' problem, in the sense that nearly every case will have the potential for additional evidence to be discovered after the dismissal decision. (Even the equitable persuasiveness is only skin-deep. Start asking why the decision was made before the employer had marshalled the evidence to make an informed decision, and quickly the scenario becomes less compelling.)
But, perhaps most importantly, it's misaligned with the law of repudiation more generally, which relies heavily on the finality of the non-breaching party's election.
The law of after-acquired cause is reasonably well-established: It's used in cases where the employer genuinely (and reasonably, according to some appellate-level case law) only found out about alleged serious misconduct after dismissal. And it's closely scrutinized by the courts.
Above all else, the law should not encourage employers to take on the role of employment archaeologists, looking through the remnants of an employee’s work history in the hope of unearthing grounds for dismissal where none was thought to exist. The employer’s cry of “eureka” should fall outside the audible range of those judges who are tuned into the channel of righteous suspicion.
This whole case was one big Hail Mary attempt to expand that doctrine to allow an employer to turn to after-acquired "information" relating to just cause - on a generous read of the employer's position, after-acquired 'evidence' (which is practically and doctrinally problematic) or, less generously, after-acquired positions of just cause (which is precisely what the doctrine is built to avoid).
The more legitimate grey area in after-acquired cause is how we deal with 'cumulative cause' arguments: Where the dismissal decision was made on a 'without cause' basis despite serious misconduct which was known at the time of dismissal, but where additional serious failures come to light after the dismissal. (For example: We knew the employee made mistakes A, B, and C, and dismissed him 'without cause' because of them. But after dismissal, it came to our attention that he had ALSO messed up D and E, and lied about them. If D and E are, on their own, sufficient to constitute cause, we can almost certainly rely on after-acquired cause. But if they don't get their on there own...had we known about them at the time of dismissal, we'd have advanced a just cause argument premised on the five issues combined. This seems like a plausible argument to me, subject to a threshold of seriousness for the culminating incident - we should actually be talking about the seriousness of the culminating incident in light of the history of serious misconduct, and not simply that a new trivial incident discovered after the fact re-opens the door to weighing just cause based on all the allegations taken together.)
But that's not what was going on here.
Aggravated Damages
While the refusal of aggravated damages is probably justified on the basis of the lack of evidence of damages advanced by the plaintiff, the treatment of their litigation position as copacetic is probably an error of law: The duty of good faith and fair dealing places affirmative obligations on employers, taking a zero-liability position and suing him to recover amounts they had paid under a statutory obligation, without any justification for reversing their earlier position, seems very inconsistent with that duty.
This is particularly egregious when their own investigator cleared him of misconduct, and it's not apparent to me that they articulated any coherent reason for rejecting the findings.
The subtext here may have something to do with the merits of the just cause position, had it been allowed to proceed. As one would expect, it appears that AC did call evidence to try to prove the allegations of just cause, but Justice Lema's summary of that evidence is thin. He does not describe that evidence, reach findings as to the credibility of those witnesses, determine whether the alleged harassment occurred, nor conclude whether it would have been sufficient to warrant summary dismissal.
Arguably, he doesn't need to reach those findings, given his conclusion that the employer was not entitled to reverse its earlier 'not-for-cause' position. But the absence of any commentary about the merits of the misconduct allegations is still notable, because the bona fides of an unsuccessful 'just cause' position are still relevant to the question of good faith and fair dealing.
So the inference here may be that, while the employer's earlier decisions precluded it from actually advancing the just cause position, the just cause case would have been sufficiently serious that Justice Lema doesn't want to hold it against the employer for advancing it. (I still think that's a dubious analysis: My objections to the employer's approach don't assume that the just cause allegations themselves would have been frivolous or unsuccessful.)
Considerations for Employers
There are scenarios where an employer can change to a 'just cause' position. As noted, 'after-acquired cause' is the most common, where you can't be said to have been aware of the misconduct at the time you made the dismissal decision.
There are other cases where courts have allowed employers to assert just cause after the fact even though the termination letter was ambiguous on the point: i.e. where you tell the employee, "We're dismissing you because we're concerned about the conduct, but we're offering you money anyways." There's a spectrum here - from a letter that's simply ambiguous about whether the misconduct is being said to amount to just cause, to a letter that alleges just cause but offers a 'gratuitous amount' on a without prejudice basis.
Trying to straddle the line between 'just cause' and 'not-for-cause' is risky, however, and I don't recommend it. To me, there's always at least a whiff of bad faith about that: If you were confident of your just cause position, you wouldn't be offering anything, but instead you're trying to leverage your tenuous 'just cause' position to get the employee to take less than their entitlements. The courts may let you argue cause, but if you're unsuccessful in making the argument, the courts won't be happy with you.
And if you've explicitly withheld the statutory minimum payment (and failed to prove cause), to leverage that entitlement against a release, you've committed an offence.
The right answer is to make an informed decision at the front end: Hire a good investigator, let them do their work, and then fully review their findings. You're not bound by the investigator's findings, but if they conclude that there isn't misconduct, you'd best have a very compelling reason to not follow them. If it's practically necessary to suspend the employee while the investigation runs its course, do so with pay. (I know, people don't like that idea. It's important, though. A suspension without pay, under most non-union circumstances, is a constructive dismissal. You may be tying yourself into a 'just cause' position just by issuing the unpaid suspension at the front end. Besides which, there are arguments - not made here - that an employer placed on an unpaid suspension cannot then be fired for cause for the same offence.)
The investigation, and interim measures as may be appropriate to protect the workplace during the investigation, should be transparent with the subject of the investigation: Let them know the nature of the allegations, that they're being investigated, etc., so that there's no confusion about what the employer is actually doing.
Once the investigator releases their report, review it promptly with everyone who needs to be part of the decision-making process for how to action it. This isn't something that can be allowed to sit on a backburner for any period of time, and should generally involve legal counsel if dismissal or serious discipline is on the table.
And look at the disciplinary decision as being final and binding: If you want them gone, and think there's a basis to dismiss for cause, dismiss for cause - and roll the dice. There are risks of doing so, but there's never going to be a better time to commit to those risks than at the point of dismissal. (If they sue, and you want to settle the claim at some point, you can. But there are a bunch of reasons why it's better to resolve a just cause claim through counsel, anyways.)
And remember: The investigation is a truth-finding exercise. Sometimes management hopes that a complaint turns out to be unsubstantiated, and end up mad at the investigator for turning up evidence to the contrary. Other times, management hopes that the investigation will turn up evidence to justify getting rid of the person, and is disappointed when it fails to do so. (That's what happened here. What's the tell, you ask? That management decided to be rid of him anyways, even though the investigation failed to substantiate wrongdoing.)
The reality is that, as long as the investigation is thorough and reaches sound conclusions on the evidence, it's a win for the employer: If the misconduct happened, it's to the employer's benefit to know that, to be able to take appropriate management actions moving forward. If it didn't, it to the employer's benefit to know that, too, to avoid making legal missteps based on beliefs they can't substantiate.
Other than legitimate 'after-acquired cause', there's no good reason why an employer should ever find itself in the position of wanting to reassess the not-for-cause nature of a dismissal after the fact, and a case like this suggests that the employer either didn't appropriately deliberate the decision at the front end, or acted without getting advice as to their risks and liabilities.
*****
This post does not contain legal advice, but only general legal information. It does not create a solicitor-client relationship with any readers. If you have a legal issue or potential issue, please consult a lawyer.
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