After-Acquired Cause for Dismissal: What Employers Don’t Know Might Help Them

Employee Fraud

EMPLOYERS: Imagine that you dismiss an employee on without cause basis, perhaps as part of a restructuring, offer them a severance package, and then find out that they had been stealing from the company for years. Can you now allege that you had just cause for dismissal? What if the employee stole confidential information after the termination took place?

EMPLOYEES: Imagine that your employer dismisses you without cause, and offers you a severance package you are not pleased with. You consult an Employment Lawyer, and send a demand letter to your employer seeking the notice that you are entitled to. Suddenly your employer alleges that they just discovered you had been stealing from the company while employed, and that they do not owe you any severance pay at all. Can they do that?

The Law on After-Acquired Cause

It is well established that an employer can rely upon information learned after an employee’s dismissal to establish a just cause defence. As long as the after-acquired cause is sufficiently serious to warrant dismissal (which, as we all know, is a high threshold to meet), an employer can rely on it as justification for dismissal. That is true even if the employer did not know about it when they made the decision to dismiss.

Courts will seek to curb improper invocation and abuse of after-acquired cause. An employer may invoke grounds for dismissal of which it became aware after the employee’s dismissal, provided, however, that the employer could demonstrate:

  1. that they did not have knowledge of the misconduct (or were not wilfully blind to it) at the time the employee was dismissed; and
  2. that they did not expressly or implicitly condone it by omitting to take timely action.

Thus, an employer who is aware of a misconduct (or wilfully blind to it) at the time of dismissal, but fails to invoke it at that time, will generally be precluded from invoking it thereafter. For example, in Doucet v. Spielo Manufacturing Inc., the New Brunswick Court of Appeal held there was evidence to suggest the employer was aware or ought to have been aware of the employee’s misconduct, prior to termination, and ordered a new trial before a different judge since the trial judge had not distinguished between cause based on misconduct that had been hidden from the employer and cause based on misconduct that the employer ought to have known. That said, there have been some cases where employers have chosen not to dismiss for cause due to a desire to help the employee by not putting a “black mark” on their record, and courts have allowed them to subsequently allege cause based on misconduct they had previously been aware of.

Post-Dismissal (Mis)Conduct

Courts distinguish between an employee’s misconduct while employed and post-dismissal misconduct. An employer is entitled to rely upon evidence of misconduct which occurred prior to dismissal but is discovered subsequently, but an employer may not be allowed to rely upon post-dismissal conduct of an employee to “acquire” cause, after the fact, for dismissal. In the latter scenario, the employee’s post-dismissal conduct may have amounted to a repudiation; however, the employer may have already repudiated the contract by, for example, not providing adequate notice, and cannot after the fact attempt to ground the dismissal with cause.

Generally, based on the principle of repudiation, once a contract of employment has been terminated, the former employee’s subsequent conduct may not be relied on to justify the termination. The question is whether or not the employer had repudiated the contract, and in determining that, it is necessary to consider the adequacy of the notice period and severance offer. Using this logic, the Ontario Court of Appeal in Aasgaard v Harlequin Enterprises Ltd, 1997 CanLII 1262, affirmed the trial judge’s decision that where the employee’s conduct occurred after reasonable notice of dismissal was given (i.e. no repudiation by the employer), the employer could rely upon such conduct to show cause for summary dismissal.

In this case, the employee was given reasonable notice of termination and was told to close down his division. Instead, the employee started his own business during this close-down period and transferred the employer’s inventory to his business without informing his employer. The Court found that although a former employee’s subsequent conduct may not be relied upon to justify the termination, this proposition is an application of the principle of repudiation, and in order to determine whether there is an immediate repudiation, it is necessary to consider the employer’s intention, the adequacy of the notice period, and the severance pay that is offered. Since the severance offer in this case was reasonable, the employer had not repudiated the employment contract, and thus the contract continued in effect during the period in which the plaintiff engaged in the alleged misconduct. Accordingly, the defendant could rely on that conduct. It is significant that the Court recognized that had the terms of notice not been adequate, the conclusion would be different (i.e. the employer could not rely on after-acquired cause), as there would be an immediate repudiation.

Further, where an employee’s post-dismissal conduct exacerbated the grounds relied upon by the employer, the courts have accepted what amounts to “ex post facto support of a summary dismissal.

Practice Tips for Employers

  • Act in a timely manner. Do not condone an employee’s misconduct. Courts are reluctant to consider allegations of cause known at the time of dismissal but not relied upon by the employer at the time of dismissal. This reluctance reflects the Supreme Court of Canada’s jurisprudence in Wallace v. United Grain Growers Ltd. that “in the course of dismissal employers ought to be candid, reasonable, honest and forthright with their employees”.
  • Provide adequate notice when terminating without cause (even if there is cause to terminate and you decide to terminate without cause). If you fail to provide adequate notice, it may constitute a repudiation of the contract, and the employee’s alleged misconduct, even if accepted as true, may not justify your failure to provide sufficient notice of dismissal or, after the fact, ground the dismissal with cause.  
  • Ensure you have sufficient evidence to prove the after-acquired cause before making any allegations. Courts generally require strict proof, making it more difficult for employers to rely on such a defence.
  • Do not engage in bad faith litigation tactics and allege after-acquired cause without a basis. Employees can claim punitive damages if you do so, and the award can be significant. For example, in MacDonald-Ross v Connect North America Corp., 2010 NBQB 250, the New Brunswick Court found that the employer’s allegations were entirely without merit and reprehensible, and awarded the employee $50,000.00 in punitive damages in addition to wrongful dismissal damages.
  • Seek legal advice before you terminate anyone’s employment.

What does this mean for employees?

If you are dismissed for cause, your employer can rely on misconduct that they were unaware of prior to dismissal, as well as post-dismissal misconduct, to bolster the grounds relied upon by them to support summary dismissal. Similarly, if you are dismissed without cause, your employer can rely on after-acquired cause to establish just cause for dismissal, and as long as the misconduct is sufficiently serious to warrant dismissal, your employer may be entitled to dismiss you without any notice at all, even after they offered you a package. Whether you are dismissed for cause or without cause, it is important that you seek the advice of an Employment Lawyer to understand your rights as well as obtain the notice you are entitled to.

If you are an employer or an employee in need of assistance, we can help. We regularly advise employers to address these issues in a proactive manner and, when facing specific instances, act quickly and decisively to remedy the situation, in order to help avoid unnecessary and significant liability. Similarly, if you are an employee whose employment has been terminated, we can advise you with respect to your rights and offer potential solutions to ensure you get what you are entitled to.