Termination for Cause

Updated January 7, 2023

Being terminated for cause in Ontario has been described as the capital punishment crime of employment law¹Render v. ThyssenKrupp Elevator (Canada) Limited, 2022 ONCA 310 at para. 43  

Also referred to as “termination for just cause”, the employee is not provided with notice of dismissal or a severance package. The dismissed employee may also be ineligible to collect employment insurance benefits and is likely to find it more difficult to find new employment. Being terminated for cause is often a humiliating experience that may result in the dismissed employee suffering from depression and other forms of mental distress. Nevertheless, it is an appropriate response by the employer if the employee has engaged in serious acts of wrongdoing and has not responded appropriately to attempts at progressive discipline.

The Ontario Court of Appeal has held that an employer many terminate an employee’s employment for just cause if the employee 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.”²R. v. Arthurs, Ex p. Port Arthur Shipbuilding Co., 1967 CanLII 30 (ONCA);

The employer bears the evidentiary burden of proving on the balance of probabilities (i.e. that it is more likely than not) that it had just cause to terminate the employee for cause. The employer bears this burden because it is the employer who has alleged cause.  Employers should exercise caution when terminating an employee for cause.  It is now well established that an employee who has been wrongly terminated for cause is entitled to a notice period at “the outer end of what is reasonable to reflect the additional challenge of finding new employment”.³see Lin v. Ontario Teachers’ Pension Plan, 2016 ONCA 619 at para. 53-54 and Johar v Best Buy Canada, 2016 ONSC 5287 at para. 27; 

In practice, an employer has a high hurdle to get over to successfully establish that it had cause to dismiss an employee. A court will only find that an employer had cause to dismiss an employee if the employer is able to prove that the act(s) or omission(s) of the employee are so significant that the effect was that the employee’s misconduct or incompetence repudiated the contract of employment. The employee’s misconduct must be incompatible with the employee’s duties or prejudicial to the employer’s interests. The employer must prove that not only the alleged misconduct took place but also that the misconduct was sufficiently serious to disrupt the employment relationship to the point where it can no longer continue. 

In Carscallen v. FRI Corp.⁴Carscallen v. FRI Corp., 2005 CanLII 20815 at paras. 70 and 72; Justice Echlin described a termination for just cause an “extreme measure” that must not be resorted to in trifling cases. The misconduct must be “serious” amounting to “a repudiation of the contract”. The misconduct must “evince an intention to no longer be bound by the contract”. 

Cause for dismissal is rarely found to be just in the absence of prior warnings and the imposition of lesser penalties for similar misconduct.⁵Payne v. Bank of Montreal, 2013 FCA 33 at para. 48;  

In Ontario there is a distinction between being terminated for cause at common law and an employer’s right to terminate an employee and not pay the employee their minimum entitlements owed pursuant to the Employment Standards Act (“ESA”). As noted by Court of Appeal in in Rahman v. Cannon Design Architecture Inc. at paragraph 30 the ESA only allows an employee to terminate an employee without notice for misconduct if the misconduct is “wilful”.  Wilful misconduct requires a subjective intention to commit misconduct.  This is different than a termination for cause which allows the employer to terminate for incompetence (which does not require subjective intention).  Being terminated for wilful misconduct requires a higher standard than being terminated for just cause.  In Render v. ThyssenKrupp Elevator (Canada) Limited⁶Render v. ThyssenKrupp Elevator (Canada) Limited, 2022 ONCA 310 the Ontario Court of Appeal held that to meet the wilful misconduct standard, the conduct would have to be preplanned.

There will be situations where the employee is not entitle to reasonable notice of dismissal because the employer had cause to terminate the employee’s employment but the employee will be entitled to receive their minimum entitlements pursuant to the ESA (reasonable notice is much more generous than an employee’s entitlements pursuant to the ESA) because their misconduct was not wilful misconduct.

An employee who has been dismissed for cause can challenge the employer’s decision by taking the position that he or she was wrongfully dismissed. If necessary, litigation is commenced.

The vast majority of wrongful dismissal actions are resolved by voluntary settlements between the employer and employee before reaching trial. Nevertheless, the only leverage the dismissed employee has to negotiate a fair settlement with a former employer is his or her willingness to litigate the matter should the employer refuse reasonable settlement offers. If the employer and employee do not reach a voluntary settlement a trial will be held and the court will decide whether the employer had just cause to dismiss the employee.

An employer who alleges just cause in bad faith as a tactic to avoid providing the employee with a proper severance package may be ordered by the court to pay punitive damages and/or moral damages for bad faith dismissal in addition to wrongful dismissal damages to the former employee.

How A Court Determines if An Employer Has Cause to Dismiss an Employee

A court will apply a contextual analysis when determining whether an employer had cause to fire an employee. Applying the contextual approach, the court will first determine the nature and extent of the employee’s misconduct. This review will include determining whether the employer is able to prove that the employee committed the misconduct alleged. If the misconduct is proven, the court will then consider the surrounding circumstances and decide whether dismissal is warranted (i.e. whether the punishment of dismissal for cause is proportional to the misconduct). 

When considering the surrounding circumstances, the court will consider the particular circumstances of both the employer and employee. For example, the court will consider the employee’s age, employment history, seniority, role, and responsibilities. The court will also consider the nature the employer’s business, any relevant employer policies or practices, the employee’s position within the organization, and the degree of trust placed in the employee.⁷Dowling v. Ontario (Workplace Safety and Insurance Board), 2004 CanLII 43692 (ONCA); Once this contextual analysis is complete the court will decide whether the employer, objectively, had just cause to fire the employee.

The employer’s subjective belief that it had cause to summarily dismiss the employee is not determinative. Moreover, an employer is general not allowed to set its own standard or policy as to what will constitute cause for dismissal.  Instead, a court will only find an employer has cause to dismiss an employee from his or her employment if the conduct justifies dismissal at law.

Application of a contextual analysis to allegations of cause has been the law in Canada since the Supreme Court of Canada’s 2001 decision McKinley v BC Tel.⁸McKinley v. BC Tel, 2001 SCC 38; Prior to McKinley there was a line of caselaw in Canada that held that some forms of misconduct, such as dishonesty, would automatically justify a dismissal for just cause no matter how severe the misconduct. The jurisprudence set out in this line of caselaw no longer represents the law in Canada.

If the employer is not able to establish that it had cause to fire the employee, the court will order the employer to pay the dismissed employee monetary damages for the employee’s failure to provide the employee with proper notice of dismissal.  

There are several types of misconduct that may be grounds for dismissal for cause. Examples of common grounds for dismissal, discussed in detail below, include the following:

• dishonesty (e.g. fraud, theft, breach of trust, deception etc.);
• breach of trust;
• workplace harassment and violence;
• insubordination and insolence; and
• absenteeism and lateness.

Incompetence or negligence can also be grounds to fire an employee for just cause, although it is difficult to do so. The actual standard is closer to gross incompetence, particularly for long service employees. If an employee is simply not meeting expectations a court is likely to take the position that the employer should have dismissed the employee without cause.

An employee who engages in off-duty conduct that detrimentally impacts his or her employer may also be fired for cause. Normally, an employer has no legitimate interest in what an employee does while not at work. However, if the employee’s off-duty actions have a direct adverse impact on the employer the result may be that the employee has fundamentally breached his or her employment contract.

In addition, an employer is entitled to rely on wrongdoing it discovered only after the employee was dismissed, commonly referred to as after-acquired cause. In other words, an employer who has already dismissed an employee without cause is entitled to rely on evidence discovered after the employee’s dismissal if that evidence would have justified the employer’s decision to terminate the employee for cause at the time of his or her dismissal. Court’s view allegations of after-acquired cause with some skepticism given the fact that the employer may be using the allegations in bad faith as a reaction to the fact that the employee commenced a wrongful dismissal claim.

An example of after-acquired cause would be an accountant dismissed without cause a result of a corporate downsizing and provided with a severance package. Several months after the accountant’s dismissal an internal audit discovers that the accountant had embezzled money from the employer. The employer would have the right to take the position that it had after acquired cause to terminate the accountant’s employment for cause and seek the return of the severance package provided to the former employee.   

An employer may have cause to dismiss an employee as a result of one very serious incident of employee misconduct or, more commonly, as a result of a series of incidents. Although a single act of serious workplace misconduct (e.g. theft or workplace violence) is generally cause for dismissal there are decisions in which the employer was found not to have cause even though the employee committed theft or a minor act of violence. Again, the court will consider the surrounding circumstances before reaching a decision.

Progressive Discipline and Performance Improvement Plans

If an employer intends to rely upon a series of incidents of misconduct to justify its decision to fire an employee for cause it will likely be required to demonstrate that it took the employee through a progressive disciplinary process prior to terminating the employee’s employment. 

The purpose of a progressive disciplinary plan is to ensure that the employee understands the seriousness of his or her misconduct and the result (i.e. termination of employment) if the misconduct continues. A progressive disciplinary plan involves providing the employee with written warning. The employer may also decide to suspend the employee as a final step in the disciplinary process prior to terminating the employee for cause. Note, however, that a suspension may allow the employee to take the position that he or she has been constructively dismissed unless the employee’s employment contract allows the employer to suspend the employee.

Similarly, if the employer is considering terminating the employee’s employment for cause as a result of the employee’s poor performance the employer should first place the employee on a performance improvement plan (often referred to as a “PIP”). The purpose of a performance improvement plan is to: 

1. inform the employee of the conduct or performance that has fallen below the required standard;
2. inform the employee of the required workplace standard; and
3. provide the employee with a timeline in order to meet the required standard and a clear view of what will happen if that standard is not met. 

The shortcomings in the employee’s performance should be documented as clearly as possible. Whenever possible the employer should ensure that the employee has been given objective, measurable performance goals that must be met in order to remain employed. The standard should also be fair and similar to the expectations placed on other employees. 

Subjective performance objectives are more likely to be successfully attacked by the employee’s lawyer. In particular, a red flag will be raised if the employee is achieving his or her measurable performance goals such as sales targets or profitability yet has been placed on a PIP for allegedly failing to meet subjective objectives such as “leadership” and “communication ability”. In circumstances such as this a suspicion will be raised, often for good reason, that the decision to place the employee on the PIP was made in bad faith (often the result of a personality conflict between the employee and his or her manager). 

In addition, if the performance objectives given to the employee are not achievable the employer may find itself at risk of being found liable for moral or punitive damages because of bad faith dismissal.

It is often advisable for an employee who has been placed on a performance improvement plan to consult with an employment lawyer. The employment lawyer can assist the employee in responding to the PIP in order to minimize the chance that the employee will be dismissed or, if the employee is ultimately dismissed, to minimize the likelihood that the employer will be able to successfully claim that it had just cause to dismiss the employee. In other words, the assistance of an employment lawyer will level the playing field for the employee in a situation in which the employee likely feels overwhelmed and outgunned. The lawyer will to provide the employee with objective feedback on the seriousness of the allegations and the strength of the employer’s position.

If you want legal advice that is specific for your case, book a consultation today.

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