An employer who has dismissed an employee (either for cause or without cause) is entitled to rely upon evidence discovered after the employee’s dismissal if that evidence would have justified a decision by the employee to terminate the employee’s employment for just cause.
In 1961 the Supreme Court of Canada set out the law in Lake Ontario Portland Cement Co. Ltd. v. Groner:1
The fact that the [employer] did not know of the [employee’s] dishonest conduct at the time when he was dismissed, and that it was first pleaded by way of an amendment to its defence at the trial does not, in my opinion, detract from its validity as a ground for dispensing with his services. The law in this regard is accurately summarized in Halsbury’s Laws of England, 2nd ed., vol. 22, p. 155, where it is said:
It is not necessary that the master, dismissing a servant for good cause, should state the ground for such dismissal; and, provided good ground existed in fact, it is immaterial whether or not it was known to the employer at the time of the dismissal. Justification of dismissal can accordingly be shown by proof of facts ascertained subsequently to the dismissal, or on grounds differing from those alleged at the time.
Echlin J. in Rodrigues v. Powell2 stated at para. 29 that the 1889 Ontario Court of Appeal decision McIntyre v. Hockin3 was the seminal case on after-acquired cause. In McIntyre the Court wrote:
It is now settled law that if a good cause of dismissal really existed, it is immaterial that at the time of dismissal the master did not act or rely upon it, or even did not know of its existence, or that he acted upon some other cause in itself insufficient. The main question always is, were there at the time of dismissal facts sufficient in law to warrant it…
In 2014 the British Columbia Court of Appeal in Van den Boogaard v. Vancouver Pile Driving Ltd.4 set out the requirements to establish after-acquired cause at para. 34:
Regardless of whether dismissal for after-acquired cause or for cause is being argued, the issue is whether the employer can establish that, at the time of dismissal, there were facts sufficient in law to warrant a dismissal. If an employer knew of the misconduct and had expressly or implicitly condoned it, then claims of after-acquired cause will be defeated.
The fact that after-acquired cause may be raised by an employer after the commencement of litigation often raises the suspicion that the allegation has been made in bad faith as a litigation tactic or in retaliation against the former employee. Allegations of after-acquired cause often complicate the litigation process, making it more expensive and time-consuming for the employee to pursue litigation. If successful the tactic may drive the employee out of the litigation. Moreover, allegations of after-acquired cause may question the former employee’s integrity and honesty, possible damaging the employee’s professional reputation and placing the employee under significant mental distress. As a result, employers who raise false allegations of after-acquired cause run the risk that the court will award the plaintiff moral or punitive damages, in addition to wrongful dismissal damages, to punish the employer for its bad faith conduct.
Given the potential for abuse, courts are suspicious of allegations of cause made after the fact. Walters J., in the 2012 decision McGregor v. Atlantic Packaging Products Ltd.,5 wrote at para. 46 that “an employer does not have a duty to give reasons for dismissal at the time of termination, however, allegations of just cause alleged after the fact, will affect their weight.”
In Doucet and Dauphinee v. Spielo Manufacturing Incorporated and Manship6 the New Brunswick Court of Appeal also expressed caution when reviewing allegations of after-acquired cause writing at para. 13:
…the law should not encourage employers to take on the role of employment archaeologists, looking through the remnants of an employee’s work history in the hope of unearthing grounds for dismissal where none was thought to exist. The employer’s cry of “eureka” should fall outside the audible range of those judges who are tuned into the channel of righteous suspicion.
The Court in Boyes v. Saskatchewan Wheat Pool7 at para. 16 explained the reason why courts are suspicious of allegations of after-acquired cause:
It is not uncommon in a wrongful dismissal trial for the employer to dredge up every incident arising during the term of employment which might tend to show the employee in an unfavourable light, and the court must be diligent to distinguish between those incidents which comprise the grounds for the dismissal and those advanced for the sole purpose of discrediting the employee.
Similarly, Professor Geoffrey England in Halsbury’s Laws of Canada — Employment8 wrote at page 510:
An employer may justify summary dismissal by reliance upon employee misconduct, both known and unknown to the employer, at the time of dismissal. If the employer knows of the new grounds but fails to rely on them at the time of dismissal, not only will this be evidence that those grounds are not regarded as being “serious” by the employer, but also the employer may be treated as having condoned them.
The reluctance of courts to consider allegations of cause known at the time of dismissal but not relied upon by the employer at the time of dismissal is based not only on the suspicion that the allegations have been made in bad faith but also reflects the Supreme Court of Canada’s jurisprudence in Wallace v. United Grain Growers Ltd.9 at para. 98 that “in the course of dismissal employers ought to be candid, reasonable, honest and forthright with their employees”.
The risk an employer assumes if it attempts to rely on after-acquired cause as a bad faith litigation tactic can be seen in MacDonald-Ross v. Connect North America Corp.10 After the litigation commenced, the employer alleged that it discovered that the employee had misappropriated company property. The employer also filed a complaint with the police. At trial, the Court found that the employer’s allegations were entirely without merit and reprehensible. As a result, the Court awarded the employee $50,000.00 in punitive damages in addition to wrongful dismissal damages.
New Brunswick has modified the common law defence of after-acquired cause. Section 30(2) of New Brunswick’s Employment Standards Act11 requires that employers provide dismissed employees reasons for the dismissal in writing. As a result, New Brunswick employers are unable to rely on allegations of cause raised after the dismissal if the employer was aware of the misconduct prior to the employee’s dismissal and yet failed to rely on it at the time of dismissal. The New Brunswick Court of Appeal in Doucet wrote at para. 13:
While the concept of “after acquired cause” for dismissal provides employers with a valid defence to an action for wrongful dismissal, the defence is circumscribed by s. 30(2) of the Employment Standards Act, S.N.B. 1982, c. E-7.2. This provision overrides the common law by requiring employers to provide employees with written reasons if the dismissal is for cause. Despite the changes to the common law, there is still room for the employer in New Brunswick to invoke the concept of “after discovered cause” if two requirements are met: (1) at the time of the dismissal the employer did not know of the earlier misconduct; and (2) the misconduct, had it been known, would have warranted summary dismissal. In keeping with this framework, I hold there is a substantive difference between cause for dismissal based on discrete acts of misconduct hidden from the employer, or incapable of discovery in the normal course of the employment relationship, and acts which relate to job performance and which, with due diligence, should have been known to anyone who took the time to observe what was happening in the workplace.
Significantly, the reasoning in Doucet may also be applicable to federally regulated employers such as banks, airlines, railroads, and interprovincial trucking companies. Section 241(1) of the Canada Labour Code12 requires an employer to provide a dismissed employee with written reasons for dismissal if requested. Employees dismissed from federally regulated employers who are contemplating initiating either a wrongful dismissal action or an unjust dismissal complaint should request reasons for their dismissal prior to sending their employer a demand letter or initiating litigation. By doing so the employee will receive the employer’s reasons prior to the employer knowing that litigation is imminent, minimizing the chance that the reasons provided will have been made in bad faith as a litigation tactic.
Relying on After-Acquired Cause to Set Aside a Severance Agreement
An employer may be able to rely on evidence that it acquired after it entered into a settlement agreement (aka severance agreement) with a dismissed employee to have a court set aside the settlement agreement. The employer will have to convince that court that the evidence is sufficient to establish that it had just cause to summarily dismiss the former employee.
Settlement agreements are meant to be final. A court will enforce a settlement agreement as a matter of public policy unless enforcement would create a real risk of clear injustice.13 It is a high bar.
In Ruder v. 1049077 Ontario Limited14 the employer was able to overcome this high bar convincing the Ontario Superior Court to set aside a settlement agreement that it had reached with its former employee. Almost immediately after entering into a settlement agreement with the employee, the employer discovered that the employee had engaged in a competing business during working hours using the employer’s computer. The employee had deleted computer files in an attempt to avoid being caught. However, a whistleblower and subsequent forensic analysis of the employee’s computer was able to establish the former employee’s misconduct.
Justice Goldstein held that the employer would not have entered into the settlement agreement if it had known about the employee’s business dealings with competitors and customers. Goldstein J. the exercised his discretion and refused to enforce the settlement agreement stating that to enforce the agreement would “create a real risk of injustice.”
In contrast, in Dennis v Ontario Lottery and Gaming Corp.15 the court refused to set aside a settlement agreement finding that the after-acquired evidence did not amount to just cause for dismissal. The employee had been terminated without cause. After entering into a settlement agreement OLG discovered that $1,200 was missing from a social committee fund that the employee had administered. The employee was charged criminally with theft and breach of trust but these charges were dropped by the Crown at the first court appearance after it was learned the employee had been duped by an overseas scam, losing $15,000 of her own money. She then borrowed $1,200 from the social committee fund with the intent on paying the money. Despite the Crown’s actions, OPG took the position that it had after acquired cause to dismiss the employee.
Justice O’Marra, highly critical of OLG’s investigation into the alleged theft, held that OLG did not have cause to dismiss the employee for cause.
The differing outcomes in Dennis and Ruder appear to turn on whether the court viewed the after-acquired evidence relied upon by the employers as sufficient to prove just cause for dismissal.
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- Lake Ontario Portland Cement Co. Ltd. v. Groner, 1961 CanLII 1 (SCC);
- Rodrigues v. Powell, 2007 CanLII 29343 (ONSC);
- McIntyre v. Hockin (1889), 16 O.A.R. 498 at p. 501;
- Van den Boogaard v. Vancouver Pile Driving Ltd., 2014 BCCA 168;
- McGregor v. Atlantic Packaging Products Ltd., 2012 ONSC 2127;
- Doucet and Dauphinee v. Spielo Manufacturing Incorporated and Manship, 2011 NBCA 44;
- Boyes v. Saskatchewan Wheat Pool (1982), 18 Sask. R. 361;
- England, Geoffery: Halsbury’s Laws of Canada — Employment, 1st Ed. (Markham, ON: LexisNexis, 2008);
- Wallace v. United Grain Growers Ltd., 1997 CanLII 332 (SCC);
- MacDonald-Ross v. Connect North America Corp., 2010 NBQB 250;
- Employment Standards Act, SNB 1982, c E-7.2;
- Canada Labour Code, RSC 1985, c L-2;
- Brzozowski v. O’Leary, 2004 CanLII 4805 (ONSC);
- Ruder v. 1049077 Ontario Limited, 2014 ONSC 4389;
- Dennis v Ontario Lottery and Gaming Corp, 2014 ONSC 3882;