Written on behalf of Peter McSherry

When an employer severs an employment relationship with one of its employees, it may rely upon “just cause” for termination, seeking to avoid its obligation to pay termination and severance pay. This reliance is justified where cause to terminate a person’s employment exists, such as involvement in a violent incident at the workplace, harassing clients or coworkers, or engaging in fraud.

So, what happens when an employer fires an employee without cause, the employee commences litigation in relation to unjust dismissal, and the employer then discovers conduct sufficient to justify termination? In other words, if an employer engages in wrongful termination, only to later discover evidence that would justify the termination so as to make it rightful, can such evidence be used to obviate payment of termination and/or severance pay and/or reasonable notice damages to the dismissed employee? These questions were answered in the recent Ontario Superior Court of Justice decision in Ratz-Cheung v BMO Nesbitt Burns Inc.

Employee is Terminated After 24 Years of Service

The case of Ratz-Cheung v BMO Nesbitt Burns Inc. involved the plaintiff employee (the “employee”) who was an investment advisor that worked for the defendant employer (the “employer”) for 24 years, until her termination, ostensibly due to restructuring, at age 54. After her termination, the employee commenced a claim against BMO in which she sought damages for lost commission in the amount of nearly $375,000, damages for the lost opportunity to sell her book of business amounting to more than $1.1 million, and bad faith conduct damages of $100,000.

After the employee commenced her claim, the legal process unfolded between the parties in the usual manner. However, it was during the examination for discovery of the employee that the employer learned, for the first time, that the employee “had copied thousands of e-mails onto a USB key a few months prior to her termination. The e-mails contained confidential client information.” As this copying of confidential, proprietary data constituted a violation of the employer’s Code of Conduct, the employer amended its defence to allege that the after-acquired cause it had identified comprised a full answer to the employee’s assertions of wrongful termination.

Identifying Whether Dishonesty or Violation of Company Policy Constitutes Cause for Termination is Circumstantial

Generally, the courts rely upon the rule of thumb that “an employer is entitled to rely on wrongdoing discovered after the dismissal as just cause for the dismissal, so long as the wrongdoing occurred before the termination”. In other words, regardless of when “cause” is discovered, so long as the improper behaviour took place while the employee was still working for the employer, then the employer may rely upon this late-discovered evidence as cause for termination.

Whether dishonesty or violation of company policy will constitute sufficient cause for termination depends on the circumstances. The courts employ the test to find “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 their employer”. Under this test, the court must determine:

1. Does the evidence establish the employee’s deceitful conduct, on the balance of probabilities?
2. If the answer is yes, then do the nature and degree of dishonesty warrant dismissal?

The court must strike a balance between the misbehaviour identified and the type of penalty assigned to the wrongdoer; in other words, does the punishment fit the ‘crime’? In so doing, the court must:

1. Assess the nature and extent of the misconduct;
2. Consider the circumstances in which the misconduct occurred; and
3. Decide whether termination of employment constitutes a proportional response to the action.

In assessing the second criterion, the court will consider the employee’s age, employment history, seniority with the employer and the status and specialization of the employee’s role for the employer. As for the employer, the court will consider the type of industry in which the employer is engaged, relevant company policies and procedures, and the degree of trust vested by the company in the employee in question. In assessing point number three, the court will consider whether the misconduct engaged in can be rectified (or whether the parties can overcome the nature of the misconduct in order to continue to effectively work together).

Court Concludes Employer Wrongfully Dismissed Employee

After reviewing all of the circumstances and evidence, the court was satisfied that “the copying of the emails onto the USB key constituted a breach of the Code of Conduct”. The volume of information taken was quite large, and the employee had taken the USB key home and stored it in her home office, without taking any security measures to ensure the protection of the sensitive information. In assessing the nature and extent of this breach, the court noted that the employee had only copied emails that were her own and to which she was thus entitled access. Moreover, there was no evidence that anyone other than the employee had ever had access to the USB key. The nature of the materials copied related largely to email exchanges between the employee and her administrative assistants with respect to various office tasks that had been assigned. In other words, the content of the emails did not comprise sensitive, proprietary client data.

The court considered the circumstances in which the copying of confidential information occurred and concluded that, although the employee’s actions had violated BMO’s Code of Conduct, “the breach was not sufficiently serious to give rise to a breakdown in the employment relationship. A lesser sanction could have been effectively imposed … in relation to this breach”. In other words, termination of the employee’s employment was a disproportionate response to her breach of company policy. As such, BMO had failed to substantiate that it possessed sufficient after-acquired cause as to justify the employee’s termination. Ultimately, the court held that the employee’s termination was in fact, wrongful. In these circumstances, the court continued to assess the employee’s damages in light of the wrongful termination of her employment.

Contact Guelph Employment Lawyer Peter A. McSherry for Advice on Wrongful and Constructive Dismissal Matters

If you find yourself questioning whether you have been subject to a wrongful or constructive dismissal, or want to better understand the terms of your employment contract, contact the experienced employment law team at Peter A. McSherry Employment Lawyer. We provide our clients with practical advice and skilled representation in all facets of employment law. Contact us today online or by telephone at 519-821-5465 to schedule a confidential consultation with a member of our team.