Timing of Knowledge to After-Acquired Cause For Dismissal

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Dismissal for Just Cause

A dismissal for just cause is the ‘capital punishment’ of the employment relationship. This happens where an employee breaches the employment relationship so that continued performance of the employment contract is impossible. A company that dismisses an employee for just cause avoids having to pay the employee anything apart from the employee’s statutory entitlement at law – but must be able to support its decision to dismiss for just cause. The company may do this by pointing to evidence of the employee’s misconduct which led to the company’s inability to keep the employee employed.

Justifying Just Cause

Usually, a dismissal for just cause is based on information the company had prior to deciding to dismiss the employee. We advise our clients to speak with us if they become aware of possible misconduct that might justify dismissal. We can then guide them through the process of investigating and assessing their legal position in order to minimize liability. Otherwise, if they dismiss for just cause without a legitimate basis, they risk being on the hook not only for “severance”, but for a finding that they acted in bad faith and must pay additional compensation. Furthermore, wrongfully asserting cause has been found to repudiate the employment contract, and any termination provision in it, so that the company would not even be able to rely on a termination clause to reduce the amount of severance.

After-Acquired Cause For Dismissal

In the absence of a basis for a just cause at the time of dismissal, a company must dismiss on a without cause basis. What happens, however, if information comes to light after the dismissal which would have substantiated a ‘for cause’ dismissal? The doctrine of After-Acquired Cause comes into play. A defence of after-acquired cause is the company stating it has discovered information that if discovered during the employment relationship would have been the reason it dismissed the employee for cause.

Lake Ontario Portland Cement Co. v. Groner

The Supreme Court of Canada set out this concept in Lake Ontario Portland Cement Co. v. Groner, 1961 CanLII 1 (SCC) [Portland Cement] where it stated:

The fact that the appellant did not know of the respondent’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.   

Courts have applied the rule in Portland Cement to indicate that a company may assert after-acquired cause wherefacts are discovered by the employer after dismissal that were unknown at the time of dismissal” (Kaminsky v. Janston Financial Group, 2020 ONSC 5320 at para 34.).

The underlying idea, based on the Supreme Court’s statement of the rule in Portland Cement, is that a defence of after-acquired cause must be based on information discovered after the employee’s dismissal, which the employer was unaware of during the employee’s tenure. 

In practical terms, this is frequently information located in reviewing an employee’s files and devices post-dismissal. Many without cause dismissals have turned into after-acquired cause cases when the dismissed employee’s history of objectionable text messages are discovered and the company realizes the actual nature of their recently departed employee. Similarly, a for cause dismissal can get much stronger if the employer learns of additional misconduct after termination which it can then rely upon.

Typically, we advise employers that they cannot assert after-acquired cause based on information that they had or ought to have had prior to dismissal. On this theory, if they had reason to suspect wrongdoing and chose to be willfully blind to it and not to pursue it prior to dismissal, they would not be able to rely on that information if the employee alleged wrongful dismissal. That is the more prudent approach, as most courts will be critical of a company that buries its proverbial head in the sand rather than gather relevant information, and then tries to rely on that information after the fact.

McCallum v Saputo

In McCallum v Saputo, 2021 MBCA 62, the Manitoba Court of Appeal appears to have turned the concept on its ear. Here, the company (a cheese manufacturer) dismissed an employee for misconduct (stealing cheese from a store in the guise of his duties). In addition to other defences, the company relied on after-acquired cause and was successful at trial. The employee appealed, claiming that his alleged misconduct had been discoverable during his employment, and the employer could not rely on after-acquired cause where it did not exercise its due diligence during his employment and leading up to its termination to discover facts to support its allegations of wrongdoing.

The Court of Appeal rejected the employee’s assertion, noting that after-acquired cause remained good law in Manitoba. The Court’s remarks on the concept of the timing of the company’s knowledge of this information are interesting, noting:

It matters not whether the employer knew of the particular misconduct and chose not to rely on it at the time of dismissal, unless the employer both knew of and condoned the misconduct.

This statement appears to be a radical rethinking of the concept. Where the law appears to be that this defence must be based on information discovered after an employee’s dismissal, the Court of Appeal for Manitoba appears to indicate that this can also come from a company’s re-evaluation of information it had, or could have had, before the employee’s dismissal and determination that this would have formed the basis for cause.

This rule from McCallum does not appear to have been applied elsewhere, particularly in Ontario. As such, whether this is a restatement of the law or a misstatement of the law remains to be seen. However, if applied and permitted to stand, it constitutes a sea change in the concept and may provide a company with much broader reasons to support a dismissal and more creative defences to a claim of wrongful dismissal. It seems that time will tell.

Whether you are an employee or an employer, we will advise you and put your claim or defence forward as strongly and strategically as we can. So contact us before you dismiss an employee, or if you are considering a claim or have been sued for wrongful dismissal.

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