Not a litigation tactic: The dangers of unfounded allegations of just cause for dismissal

allegations of just cause

The vast majority of employment relationships can be terminated at any time so long as the employer provides appropriate notice or pay in lieu of notice. One exception, of course, is where there is “cause” for dismissal (concept of just cause discussed in several other blog posts, which can be accessed here) in which case the employer can terminate the employment immediately, without any notice or compensation. In order to avoid the obligation to provide notice or severance, some employers will manufacture allegations of just cause, often combined with threats of ruination if the employee tries to defend their legal rights by filing a claim.

When an employer
wields unfounded allegations of cause as a weapon against an employee, they are
acting directly contrary to their obligation of good faith in the course of
dismissal. Courts will be extremely critical of such conduct and will not
hesitate to impose significant damage awards in favour of the employee, above
and beyond what they might be entitled to in terms of reasonable notice alone.
In other words, the employer that seeks to avoid its severance obligations and
dismiss someone for little cost may end up costing themselves a whole lot more:
severance, bad faith/moral damages, their own legal fees, and a portion of the
employee’s legal fees. At the end of the day, when we review these cases, our usual
comment is that “it would have been far less expensive to simply dismiss the
employee on a without cause basis than to make up allegations of cause”.

There have been many cases (see, for example, Lalonde v Sena Solid Waste Holdings Inc., which we wrote on here) over the years which illustrate the high penalties for such conduct, including, recently, in Ruston v Keddco Mfg. (2011) Ltd.. In this 2018 decision of the Ontario Superior Court of Justice, the employee in question was awarded a total of $125,000.00, in addition to a 19 month reasonable notice period, for punitive and moral damages based on the conduct of the employer.

At the time of his dismissal in the summer
of 2015, the employee was the President of the employer with 11 years of
service, and was 54 years old. In 2011, the employer was acquired by a private
company, Canerector Inc. In 2014, the employee began reporting directly to the
daughter of the owner of Canerector, Ms. Hawkins, whose goal was to analyze the
current state of the business and improve profits.

On June 1 and June 2, 2015, the employee met
with Ms. Hawkins to discuss the business. After these meetings, she instructed
him to take the rest of the week off, without explanation. A few days later,
the employee discovered that his work email account had been deactivated.
Shortly thereafter, he was directed to attend a meeting with Ms. Hawkins and to
bring all Company property with him to the meeting. At that meeting, on June 5,
2015, the employee was told that his employment was being terminated for cause
because he committed fraud. When the employee asked what she was referring to,
she refused to elaborate. The termination letter was also silent with respect
to any details regarding his dismissal for cause. The employee advised Ms.
Hawkins that she would be hearing from his lawyer, to which she warned him that
it would be a “very expensive process”. She also suggested that the Company
would counterclaim for damages if he commenced an action against it.

When the employee
sued for wrongful dismissal, the employer did indeed commence a counterclaim,
alleging $1,700,000.00 in damages for civil fraud, unjust enrichment and breach
of fiduciary duties.

At trial, Justice
Chiappetta determined that the employer’s allegations of just cause were not
supported by the evidence and dismissed the counterclaim in its entirety.
The employee was awarded damages for reasonable notice of 19 months, reflecting
his age and senior position, as well as the fact that he had “family ties to a
smaller area for the purposes of finding similar employment, was terminated for
serious allegations of cause and was not provided a letter of reference”.

Justice Chiappetta
also assessed whether the employee was entitled to punitive, aggravated and/or
moral damages based on “the nature of his termination, accusations of civil
fraud and resulting litigation”. After reviewing recent case law on the matter,
Justice Chiappetta awarded the employee $100,000.00 in punitive damages based
on the conduct of the defendant, noting that:

  • Ms. Hawkins had admitted to
    threatening the employee (and at least one other employee) that if he pursued
    an action against the Company, the Company would counterclaim against him;
  • Ms. Hawkins attempted to intimidate
    the employee while he was in a vulnerable position at the termination meeting;
  • The Company did not advise the
    employee of the particulars of its allegations for cause at the time of
    termination – in fact, the first time the employee learned of the allegations
    was when he received the counterclaim;
  • The Company made a number of
    allegations of cause in its pleadings in addition to fraud, including based on
    performance, and “disbursement of company funds for his own personal benefit”,
    which were subsequently dropped after no evidence was led in support of same;
  • The Company was clearly only using
    the counterclaim strategically to intimidate the employee and had no intention
    of proving any damages;
  • The Company accused the employee
    of fraud and then chose not to call any witnesses that could provide direct
    evidence to substantiate those allegations; and
  • The serious allegations made
    against the employee were entirely unfounded.

The court went on
to award the employee an additional $25,000.00 in moral damages, based on:

  • the Company’s failure to be candid
    with the employee during the termination meeting;
  • its acknowledgment that a claim of
    financial fraud would be stressful and costly for the employee;
  • the Company’s personal attacks
    against the employee and unfounded allegations of cause in its pleadings, which
    were later dropped;
  • The Company publicly pursuing
    unfounded and serious allegations of financial fraud against the plaintiff,
    which the court determined would “follow him on his career path for the rest of
    his life”; and
  • The fact that the termination,
    allegations of cause and $1,700,000.00 counterclaim had been “devastating” and
    “very stressful” for the employee.

In addition to the
significant damage award, totalling $604,627.06 (plus interest), the court also
went on to award the employee his costs on a substantial indemnity basis in the
amount of $546,684.73 (inclusive of HST and disbursements) (See 2018 ONSC 5022).
The decision to order such a substantial cost award was made as a direct result
of the employer’s conduct, including pursuing unfounded allegations of fraud
and its unjustified counterclaim, which rendered the action much more complex
and significantly extended the litigation process. So the total cost to the
employer, in addition to interest and their own legal fees, was $1,151,311.79.

The decision in Ruston sends a very strong and clear
message to employers that allegations of just cause should be made carefully,
openly (with full and clear disclosure to the employee with respect to the
reasons for dismissal) and in good faith. An employer should never attempt to
use unfounded allegations of serious misconduct to intimidate an employee into
dropping a claim or accepting a less than fair reflection of their
entitlements; such “tactics” can backfire spectacularly, as they did in this
case, resulting in substantial liability for the employer. As is often the
case, the employer could have saved itself a lot of money by acting in good
faith and dismissing the employee without cause if they wanted to end the
relationship. And, of course, that would have been the right thing to do.

By Brittany A. Taylor

Stuart Rudner, Rudner Law

Stuart Rudner is a leading HR Lawyer, mediator and a founding partner of Rudner Law, a firm specializing in Canadian Employment Law. At Rudner Law, their approach is simple. They want to understand your circumstances, your concerns, and your goals. They will then ensure that you understand the legal regime along with your rights and obligations. Once that is done, they work with you to design a cost-effective strategy that meets your needs. They want to be your trusted advisor.Read more

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