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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

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Rudner Law, Employment / HR Law & Mediation

Employment Lawyers and Mediators at Rudner Law
Rudner Law specializes in Canadian employment law and Alternative Dispute Resolution. They provide clients with strategic advice regarding all aspects of the employment relationship, and represent them before courts, mediators and tribunals. Read more
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