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Employers ask: what conduct by an employee constitutes cause for dismissal


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I am frequently asked by employer clients to describe what type of conduct by an employee will be held by the courts to qualify as cause for dismissal. Employers are often frustrated by the answer they receive – that it seems that nothing less than stealing money from the company will suffice. In the case of long time employees without prior instances of misconduct, theft may still be insufficient. A recent decision of the Ontario Superior Court has fortunately clarified the circumstances in which courts will find cause for dismissal as a result of dishonesty. What is striking about the decision is the reliance of the judge on a seemingly insignificant act committed by a nineteen year employee.

The plaintiff had been working for Costco Wholesale Canada for nineteen years. At the time of her termination, she held the position of Night Floor Merchandise Supervisor, which she had held for three years. In that position, she was responsible for supervising twenty to twenty-five employees. She was earning $65,000 a year and was entitled to an extensive list of benefits. She had a Grade 12 education. On April 15, 2011, Costco terminated her employment for cause, and therefore provided no notice, nor any payment in lieu of notice. Costco took the position that the plaintiff had falsified a claim she filed for health benefits. It alleged that the plaintiff had filed intentionally false claims for medical expenses incurred by her son, who was not covered under the terms of the policy.

In 2004, the plaintiff had discovered an error in the details of her benefits, in that there was an individual listed as her dependent daughter. The plaintiff did not have a daughter. Over a period of six years, the plaintiff attempted to have this person removed from her coverage, without success. According to the plaintiff’s evidence, she became frustrated by the insurer’s failure to rectify her profile. She therefore decided to engage in a course of conduct designed to draw the insurer’s attention to that issue. She began submitting false expense claims in the name of the fictitious beneficiary under the policy. As there was no real person, the plaintiff submitted bills for treatment she had received herself. She did this by doctoring the documents to remove her name and insert the name of the fictitious daughter. The total of the fraudulent claims was $170. This amount was received and retained by the plaintiff.

Although the plaintiff testified that she did this only in order to have this person removed from her profile, she told the benefits administrator, when asked, that the claimant was in fact her daughter. It was her evidence that she did so because she was frightened to tell the truth.

Given the inconsistencies in her evidence, it was no surprise that the judge chose to reject the plaintiff’s evidence on the issue. The main difference in the position taken by the parties at trial surrounded the legal implications of the admitted dishonesty. The plaintiff stood by her explanation as to the reason for her dishonesty. The defendant argued that the plaintiff had set up this scheme in order to derive additional benefits before a planned change in the coverage imposed a reduction to her benefits. So while both parties accepted that the plaintiff had submitted the false claims, they differed as to the implication of such falsification and whether it was sufficient to constitute cause for dismissal.

The employer argued that the attempt to file false claims caused it to lose trust in the employee. This, it was argued, was compounded by the employee’s failure to provide an honest explanation when invited to do so. The court also found that the employee had also doctored receipts for treatments for her son to make it appear that he was the recipient of certain treatments for which she could claim payment under the benefit plan before the plan benefits changed. She sought to explain this claim by stating that she did not understand how the new benefit plan worked, and that she was allowed to allocate benefits between herself and her son as she chose. The court rejected the explanation for this dishonesty as being illogical and unreasonable.

The court reviewed the actions of the employer as against the policies in place for dealing with the termination of long term employees. The court found that Costco had, in fact, followed the policies as set out in its Policy Manual and that Costco had acted properly in securing the necessary evidence, and providing the employee with the opportunity to respond to it. The court concluded that the evidence that the employee had falsified documents and had not “confessed” when given two opportunities to do so justified the employer in losing trust in the employee. Also, the Costco Employee Handbook contained a specific provision that “falsification of company records… including omitting facts or willfully giving wrong and misleading information…” was cause for termination.

The employee’s solicitor was obviously facing a difficult factual situation. He argued that Costco failed to adhere to its own policies regarding progressive discipline prior to dismissal. However, the employer responded that such a policy did not apply in cases of outright dishonesty. The court accepted Costco’s argument.

Although it seems that this decision is a clear statement with respect to the implications of employee dishonesty, the judge did refer to the often cited Supreme Court of Canada decision in McKinley v. B. C. Telephone for the principle that, “…each case the facts must be analyzed as to whether the alleged conduct is sufficient to prove cause.” However, where the dishonesty goes to the core of the employment relationship, the courts will generally hold it to be cause for dismissal.

The case is consistent with previous decisions of the Ontario court which have held that in order to justify dismissal without notice, the employer must have a “good reason to have lost confidence…” in the employee’s ability to faithfully discharge his duties. It has also been held in a number of cases that, “dishonesty, falsification of documents, misappropriation of benefits, and forgery…” will also justify termination for cause. As trust and honesty are the foundation of any employment relationship, a breach of trust or dishonest conduct will usually be held by the court to be sufficient for cause for dismissal. The employer’s position will be buttressed where there is a clear policy providing that dishonesty will be considered cause for dismissal.

As was seen in the Costco case, the court will still consider whether or not the misconduct is sufficient to disentitle the employee to the opportunity to rectify her conduct. Where the actions of the employee were due either to lack of knowledge or a mistake in the understanding of policies, the court may, in fact, find that the employee was entitled to a second chance. As in all cases of dismissal for cause, it is impossible to generalize as to which cases will meet the bar. Detailed advice as to each instance of employee misconduct should be obtained.

Earl Altman
Garfinkle, Biderman LLP

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Earl Altman

Legal consultant at EA Consulting
Earl Altman was a partner at Garfinkle, Biderman and now heads his own consulting firm. Earl has practiced commercial and employment litigation. Earl’s practice focuses on employment disputes, including acting for employees and employers in wrongful dismissal claims, and in breach of contract and breach of fiduciary duty claims. Read more
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