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Wrongful dismissal update: Alleging just cause is a legal minefield

wrongful dismissal

A recent case (Headley v. City of Toronto, 2019 ONSC 4496 (CanLII)) shows that alleging just cause for termination for a long-service employee can be a risky and costly strategy.

The facts: Headley v. City of Toronto

After completing an internal investigation, the City of Toronto terminated Mark Headley, a shift leader at a men’s shelter, for just cause after 15 years’ service for allegedly stealing $5,000 from residents.

The decision

After an 11-day trial, the trial judge disagreed and awarded Mr. Headley 18 months’ pay in lieu of notice ($105,117.84) plus $65,000 in Wallace or aggravated damages plus legal fees which I suspect will exceed $100,000.

The City of Toronto conceded there was no direct evidence that Mr. Headley had stolen any money; it relied on circumstantial evidence. The judge stated that:

“the investigation here produced insufficient positive evidence to prove that Headley committed theft or was dishonest.”

But concluded Mr. Headley had issued a receipt to a resident for money that the resident did not pay in order to diffuse a dangerous situation. Although this action warranted discipline the judge concluded that termination was not justified in the circumstances.

Wallace damages

1. The test

I think it is very difficult to predict when a trial judge will award Wallace damages. The law is simple but quite general. Assessing whether facts will satisfy a judge that his legal test has been met however is difficult.

The trial judge adopted the Supreme Court of Canada’s test:

The obligation of good faith and fair dealing is incapable of precise definition. However, at a minimum, I believe that in the course of dismissal employers ought to be candid, reasonable, honest and forthright with their employees and should refrain from engaging in conduct that is unfair or is in bad faith by being, for example, untruthful, misleading or unduly insensitive.

2. Facts that attracted Wallace damages

Mr. Headley’s lawyer identified 29 facts which he claimed demonstrated bad faith.

When concluding Mr. Headley was not treated in good faith, the trial judge stated:

While it was reasonable to investigate Headley given the matters that came to light in June 2012, I find the City did not meet its obligation of good faith and fair dealing in the manner of Headley’s dismissal. Anstett was not forthright with Headley. Despite the gravity of the allegations and the foreseeable mental distress and negative financial implications that a dismissal based on unfounded allegations would have, ultimately the dismissal was based on unproven suspicions after an incomplete investigation, insensitively and unfairly conducted…… The termination letter was unduly harsh alleging unsubstantiated fraud and dishonesty…

Lessons to be learned

  1. Think twice about alleging just cause unless there is a direct, clear and cogent evidence of serious misconduct that has not been condoned.
  2. Before terminating an employee for just cause conduct a proper investigation with a competent investigator.
  3. Ensure that all employees sign an employment contract with an enforceable termination clause. Did you know that it can often cost an employer much less money to terminate an employee without just cause than the cost of proving just cause which requires the employer to first conduct a proper investigation and then often defending the decision and proving just cause in court?
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Doug MacLeod, MacLeod Law Firm

Employment and labour lawyer at MacLeod Law Firm
For the past 30 years, Doug MacLeod, founder of the MacLeod Law Firm, a Canadian labour and employment law firm, has been advising and representing employers in connection with employee terminations. If you have any questions, you can contact him at 416 317-9894 or at doug@macleodlawfirm.ca. Read more
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