Payback? Not So Fast

One of your employees has really done it this time. They botched a sales pitch and cost your company a new client. Or they broke an expensive piece of equipment. Or they let a table leave without paying. The worst part is that this is not the first time, and you warned the employee that a repeat of this behaviour may result in their dismissal for cause.

So, you dismiss the employee for cause. The employee will be gone but the impact of their mistake remains. Can you recoup these funds from the employee, either by withholding the outstanding amount from the employee’s final paycheque or by suing the employee?

What if the employee sues the company for wrongful dismissal? Can you counterclaim against the employee for the outstanding funds? In the worst-case scenario, if you are ordered to pay the employee in lieu of notice, would the Court offset these funds from whatever it awards the employee?

Surprisingly (or unsurprisingly, depending on your perspective), none of this is the case. Courts have been clear regarding an employer’s entitlement to sue an employee for mistakes:

Even fiduciary or key employees are not expected to be perfect and any employer who seeks to impose liability for mistakes or errors committed by imperfect employees in the course of their duties face a high burden. Courts are not inclined to allow employers to sue their own employees, whether fiduciary employees or regular employees, for mere mistakes, incompetence, or simple negligence.¹

The Court has confirmed that instead of suing, the “…preferred remedy is employment discipline, with dismissal being the most extreme action.”²

The exception, where an employer is permitted to sue the employee for the impact of the employee’s mistakes, is where the damage is due to “either intentional or grossly negligent conduct” on the part of the employee.³

 Hiebert v Zimco Instrumentation Inc. shows the standard the Court will apply to determine if the employer can make the employee pay for the cost of their mistakes.

The Facts

The defendant, Zimco, dismissed the employee, for cause, after approximately eleven years of service, citing performance issues and alleged misconduct. The employee sued for wrongful dismissal, and Zimco counterclaimed for $500,000.00, alleging the employee’s poor performance led to a loss of sales and of recurring business. Zimco was unsuccessful in establishing it had cause to dismiss the employee and the Court awarded a ten month notice period.

 The Court then examined the counterclaim. Zimco asserted that the employee had breached the implied terms of his employment contract by failing to reply to customers on several occasions, which damaged Zimco’s business relationships. Zimco provided a list of a number of lost business opportunities ranging in value from $767.99 to $231,395.88 which it alleged were due to the employee’s conduct.

Zimco did not provide anything to substantiate its position, including not calling representatives from the companies whose business it claimed to have lost due to the employee’s actions.

 The Court’s Analysis

The Court noted that the employee’s actions were attributable to the performance issues which had led the employer to dismiss the employee, but that Zimco had not presented any evidence to suggest that the employee’s conduct was intentional or grossly negligent. Further, Zimco could not demonstrate that the lost business was due to the employee’s actions.

The Court noted that at least one loss attributed to the employee was due to an issue with the products Zimco sold and its failure to obtain reimbursement from the vendor, none of which was due to the employee’s action or inaction. The Court dismissed the counterclaim.

Takeaways

 An employer not being able to recoup losses from an employee’s wages is an integral part of many pieces of Canadian employment standards legislation. If an employer cannot do this during an employee’s tenure, it is logical that it will not be able to do so after the employee’s departure.

 In most circumstances, an employer incurring a loss due to an employee’s mistake is a cost of doing business, the remedy for which is the employer’s ability to terminate the employee’s employment for cause. All hope is not lost: where the employer can show that a loss was due to an employee’s deliberate or grossly negligent actions, the employer may sue the employee for their conduct.

We frequently work with both employees and employers to help them understand their rights and potential liabilities, including assessing the appropriate common law notice period in the circumstances. If you are an employee who has been dismissed, or an employer considering parting ways with a member of your team, we encourage you to contact us before taking any action that could jeopardize your position.