General Principles

The Ontario Court of Appeal described the circumstances when an employee may be terminated for just cause in its seminal decision Port Arthur Shipbuilding Co.1 finding that an employee may be terminated for cause if he or she is “guilty of serious misconduct, habitual neglect of duty, incompetence, or conduct incompatible with his duties, or prejudicial to the employer’s business, or if he has been guilty of wilful disobedience to the employer’s orders in a matter of substance.”

The analytical approach used by a court when determining whether an employer has just cause to dismiss an employee was set out in McKinley v. BC Tel.,2 a decision of the Supreme Court of Canada.  In McKinley, the Court held that courts should apply a “contextual” approach when assessing whether an employer has cause to terminate an employee’s employment.  It is a fact-based inquiry.  Although McKinley considered the case of an employee dismissed for dishonesty, subsequent decisions have applied the reasoning to all cases where an employer has alleged that it has cause to dismiss an employee.

Justice Iacobucci, writing for the Court in McKinley, described the contextual approach at paragraphs 48 and 49 as follows:

In light of the foregoing analysis, I am of the view that whether an employer is justified in dismissing an employee on the grounds of dishonesty is a question that requires an assessment of the context of the alleged misconduct. More specifically, the test is whether the employee’s dishonesty gave rise to a breakdown in the employment relationship. This test can be expressed in different ways. One could say, for example, that just cause for dismissal exists where the dishonesty violates an essential condition of the employment contract, breaches the faith inherent to the work relationship, or is fundamentally or directly inconsistent with the employee’s obligations to his or her employer.

In accordance with this test, a trial judge must instruct the jury to determine: (1) whether the evidence established the employee’s deceitful conduct on a balance of probabilities; and (2) if so, whether the nature and degree of the dishonesty warranted dismissal. In my view, the second branch of this test does not blend questions of fact and law. Rather, assessing the seriousness of the misconduct requires the facts established at trial to be carefully considered and balanced. As such, it is a factual inquiry for the jury to undertake.

Put simply, in McKinley the Supreme Court of Canada recognized the serious consequences of a dismissal for just cause and held that a summary dismissal will only be upheld by a court if the employee has committed a serious act(s) of misconduct.  The key is that the punishment must be proportional to the misconduct.  In reaching its decision the Court overruled a line of previous lower court decisions that had held that any act of dishonesty, no matter how severe, was cause for dismissal.

Subsequently, in Dowling v. Ontario (Workplace Safety and Insurance Board)3 the Ontario Court of Appeal clarified the test that Ontario courts should follow when applying a contextual approach to determine if just cause for dismissal existed, writing at paragraphs 49 to 53:

Following McKinley, it can be seen that the core question for determination is whether an employee has engaged in misconduct that is incompatible with the fundamental terms of the employment relationship.  The rationale for the standard is that the sanction imposed for misconduct is to be proportional — dismissal is warranted when the misconduct is sufficiently serious that it strikes at the heart of the employment relationship.  This is a factual inquiry to be determined by a contextual examination of the nature and circumstances of the misconduct.

Application of the standard consists of:

  1.  determining the nature and extent of the misconduct;
  2.  considering the surrounding circumstances; and,
  3.  deciding whether dismissal is warranted (i.e. whether dismissal is a proportional response).

The first step is largely self-explanatory but it bears noting that an employer is entitled to rely on after discovered wrongdoing, so long as the later discovered acts occurred pre-termination.  See Lake Ontario Portland Cement Co. v. Groner, 1961 CanLII 1 (S.C.C.), [1961] S.C.R. 553.

The second step, in my view, is intended to be a consideration of the employee within the employment relationship.  Thus, the particular circumstances of both the employee and the employer must be considered.  In relation to the employee, one would consider factors such as age, employment history, seniority, role and responsibilities.  In relation to the employer, one would consider such things as the type of business or activity in which the employer is engaged, any relevant employer policies or practices, the employee’s position within the organisation, and the degree of trust reposed in the employee.

The third step is an assessment of whether the misconduct is reconcilable with sustaining the employment relationship.  This requires a consideration of the proved dishonest acts, within the employment context, to determine whether the misconduct is sufficiently serious that it would give rise to a breakdown in the employment relationship. 

In summary, the contextual approach requires the circumstances surrounding the proven misconduct be considered in its entirety when determining whether or not dismissal for cause is the appropriate response to the misconduct.  The court must balance the severity of the misconduct with the sanction imposed.  The focus is on whether or not the sanction imposed for the misconduct was proportional.  When applying the contextual approach, a court will review the circumstances of both the employee and the employer as well as the proven misconduct.  A dismissal for cause will only be upheld by a court for serious acts of misconduct.

In practical terms, the application of a contextual approach means that:

  • an employee may only terminated for cause based on a single incident in the most serious of circumstances.  Employers will normally have to rely upon a serious of incidents to establish cause and provide evidence that the employee was warned that his or her employment was in jeopardy if the misconduct continues; 
  • it is much more difficult for an employer to dismiss a long term employee for cause than an employee of short service; 
  • if the employee is asked to undertake a job which is outside his or her expertise, the court will be less likely to find just cause for dismissal; 
  • an employee who engages in an act of misconduct and later denies his or her involvement is more likely to be found to have fundamentally breached his or her employment contract than an employee who takes responsibility for his or her actions.  Similarly, if the employee attempted to conceal his or her misconduct this fact will weight in favour of the employer’s decision to terminate for cause; 
  • managers or employees in position of trust (i.e. responsible for money) will be held to a higher standard than other employees; 
  • employees working in certain industries such as banking will be held to a higher standard; 
  • any previous disciplinary actions will likely be relevant in determining if the employer had cause; 
  • an employer is required to warn an employee that his or her employment is in jeopardy except in cases of serious acts of misconduct.  The employee should understand the employer’s expectations, be given a reasonable amount of time to meet those expectations a result of the employee’s misconduct or failure to meet the employer’s expectations.

A court may be reluctant to allow an employer insert language into an employment contract that attempts to significantly deviate redefine what will constitute just cause for summary dismissal at common law.   For example, in Tomala v. Wal-Mart Canada Corp.4 Justice Charbonneau considered the case of a pharmacist who had been fired for cause for a single incident of berating and swearing at other employees.  The pharmacist had taken his car to a service center operated by Wal-Mart.  The pharmacist became upset when he discovered his tires had been improperly inflated, causing a safety risk.  He drove his care back into the service area and attempted to correct the problem himself.  Two attendants told the pharmacist that he was not allowed in the service area.  The pharmacist responded by telling the attendants that they had “fucked up” his tire pressure and he was going to fix it himself.  He then told the two attendants they were incompetent.

Walmart defended its decision to terminate the pharmacist for cause by arguing that his conduct had breached the code of conduct required of all Wal-Mart employees.  The code required that employees not use any profanity, be respectful and not harass any other employee.  Wal-Mart argued that its code of conduct were essential terms of the pharmacist’s employment contract and that by his conduct, the pharmacist had breached all three rules of conduct.  Justice Charbonneau rejected Wal-Mart’s arguments writing at paragraph 16:

I find that the plaintiff’s conduct that day does not constitute gross misconduct as defined by Wal-Mart standards.  In any event, Wal-Mart is not entitled to decide that just any conduct will justify dismissal at law.  If Wal-Mart wishes to specify that an employee will be terminated for conduct, which will not generally warrant dismissal at law, it is free to do so but it must then also comply with the reasonable notice provision of the law. [emphasis added] 

Nevertheless, an employer’s policies or code of conduct can influence a court when it applies to the contextual approach.  For example, in Roe v. British Columbia Ferry Services Ltd.,5 the British Columbia Court of Appeal, in allowing the appeal of a trial decision that had held that the employer did not just cause, relied upon the employer’s code of conduct which stated that employees were “to act in an honest and ethical manner at all times” when applying the contextual analyst.  Other factors considered by the Court the supported the summary dismissal were the fact that the plaintiff had tried to conceal his dishonest misconduct and also that the plaintiff had held a senior position of trust within the organization.
  1. R. v. Arthurs, Ex p. Port Arthur Shipbuilding Co., 1967 CanLII 30 (ONCA);
  2. McKinley v. BC Tel, 2001 SCC 38;
  3. Dowling v. Ontario (Workplace Safety and Insurance Board), 2004 CanLII 43692 (ONCA);
  4. Tomala v. Wal-Mart Canada Corp., 2005 CanLII 2819 (ONSC);
  5. Roe v. British Columbia Ferry Services Ltd., 2015 BCCA 120;