Legal flip-flop

In some cases an employer can terminate an employee without cause – and then later take the position it had cause

Stuart Rudner
Can an employer terminate an employee on a without-cause basis, and then subsequently take the position that it had just cause for termination?

Although it may seem counter-intuitive, the fact is the law in Canada allows an employer to do so in many cases. That is particularly true where the evidence is the employer only chose to proceed on a without-cause basis initially in order to spare the feelings or reputation of the employee in question.

In that context, allowing the employer to change its position is reasonable. A company should be allowed to proceed on a goodwill basis at the time of termination without prejudicing its rights if the employee subsequently decides to go to court.

Recently the Ontario Court of Appeal had the opportunity to consider this issue and confirm the position of the courts. In Giancola v. Jo-Del Investments Ltd. (2003), 2003 CarswellOnt 4284 (Ont. C.A.), termination letters delivered by the employer indicated Giancola’s employment was being terminated due to a restructuring. When the threat of litigation emerged, however, the employer alleged it had terminated his employment with just cause.

Giancola worked for the defendants for 18 years as a manager of their banquet hall. The trial judge found as fact that Giancola took a five-week vacation after giving his employer a mere one hour of notice. Previously, Giancola had explicitly been told that if he went on vacation, he should not bother coming back. Furthermore, the plaintiff failed to arrange for a replacement during his vacation. He simply assumed that the other manager would cover for him during his absence.

The trial judge took note of the fact that Giancola had also taken a vacation, without any real notice to his employer, six years earlier and been warned not to do so again. The judge found that leaving for five weeks without notice or an arranged replacement was incompatible with the plaintiff’s duties as a manager. As a result, she accepted that there was just cause for termination.

The trial judge then addressed the fact the letter of termination did not allege cause at all, but referred to a reorganization as the reason for termination. The judge accepted the evidence of the defendants that the termination letter was worded to facilitate an amicable parting. In reaching this conclusion, the judge considered the fact that a replacement was hired to fill Giancola’s position shortly after he was terminated. This clearly suggested the termination was not for the purpose of eliminating his position.

Furthermore, the judge recognized the defendants had difficulty terminating the plaintiff and sought at all times to avoid conflict. In fact, when Giancola returned from vacation, the defendants, due to an admitted lack of courage, did not immediately tell him his employment had been terminated. In effect, they allowed an “ambiguous situation,” as described by the trial judge, to persist for a full month after he returned from vacation. The judge found the employer was not precluded from alleging cause at trial, despite the wording of the termination letter and the delay in dismissing the plaintiff.

When the case reached the Court of Appeal, it confirmed that “it has frequently been held that an employer who first states that an employee is dismissed without cause will not necessarily be precluded from later asserting cause, especially where the employer’s initial position was taken out of concern for the feelings of the employee.”

In its decision, the Court of Appeal referred to the earlier decision in Tracey v. Swansea Construction Co. [1965] 2 O.R. 182, 50 D.L.R. (2d) 130 (Ont. C.A.), which confirmed there is no obligation on the part of an employer to state the grounds for termination at the time of dismissal.

That decision also confirms it is not even necessary that the employer be aware of all such grounds; just cause for dismissal may be proven using facts that the employer only becomes aware of after termination.

Many human resources professionals believe that once an employer chooses the “no cause” route, they are precluded from subsequently alleging cause. If that were the case, it could create real difficulties for employers.

In many cases, employers that want to terminate an employment relationship have just cause to do so. But they may not want to allege cause, perhaps because they do not want the employee to suffer from the stigma of having been “fired” as opposed to “downsized” or “let go” (although all of these terms have the same legal meaning, they carry very different social nuances). Whatever the reason, the decision is often made not to terminate the employee for cause. The hope is the employee will accept the notice or pay in lieu and move on with their life.

Sometimes, however, the employee does not simply move on. Instead they start litigation alleging wrongful dismissal. When that happens, the employer would be in a very unfortunate position if it were precluded from alleging cause due to the previous goodwill. The recent Court of Appeal decision confirms the law is flexible.

Employers can proceed, whether out of goodwill or otherwise, with a termination on a without-cause basis, knowing that if push comes to shove, they can subsequently raise allegations of just cause where the supporting facts exist. That is beneficial to all parties. If the law were otherwise, employers might feel as though they have to terminate employees for cause at the outset or be forever barred from raising such allegations. That would not benefit any of the parties involved.

Sometimes clients ask whether they can dismiss employees for cause but still “give them a little something” to help them land on their feet. As a practical matter, an employer can terminate one of its employees on a with-cause basis and still give him some money, strictly on a goodwill basis.

The amount of the payment could be equivalent to pay in lieu of reasonable notice, or some lesser amount. Employers proceeding in this manner, however, should ensure it is absolutely clear that the employee is being dismissed for cause and any payment is being made on a goodwill basis and without prejudice to the employer’s position.

If the employer is concerned the employee may start a wrongful dismissal action, and a court might not agree that just cause existed, providing some amount of money to the employee can be a prudent course of action. Doing so can substantially reduce the employee’s potential damages award at trial. If the payment is close to what a court might award by way of reasonable notice, then the employer can effectively negate the potential damages. In that type of scenario, a good lawyer will advise the former employee not to sue at all, as there would be almost no benefit in doing so.

A goodwill payment may also deflate any allegation the employer acted in bad faith.

Having said that, damages for bad faith, either in the form of an extended notice period or as a separate head of damages, are often awarded where a court finds that allegations of cause were made, and maintained, without any legitimate basis.

The bottom line is that companies should not be afraid to terminate an employee on a without-cause basis if they want to proceed in a benevolent manner. If the employee in question reacts negatively and initiates a claim for wrongful dismissal, the employer is unlikely to be precluded from subsequently alleging cause if the facts exist to support such an allegation.

Alternatively, the employer can dismiss the employee for cause but still make a goodwill payment. All of this assumes, of course, the employer is inclined to be generous to the employee in question.

Otherwise, the employer can simply proceed to dismiss the employee for cause, although it must be remembered that just cause can be a difficult thing to prove.

Stuart Rudner practices civil litigation and employment law with Miller Thomson LLP’s Toronto office. He can be reached at (416) 595-8672 or via e-mail at [email protected].

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