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August 8, 2012

Firing for dishonesty – an introduction to just cause termination

Authors Malcolm MacKillop and Hendrik Nieuwland

A just cause termination has serious consequences, which is why it is referred to as the “capital punishment” of employment law. It can also be expensive, since it often leads to a wrongful dismissal lawsuit against your company. But sometimes it is essential for managers and human resources professionals to “pull the trigger” and authorize a just cause termination. The most common reason for doing so is employee dishonesty.

Employee dishonesty can range from trivial “white lies” to far more serious misconduct such as theft or fraud. A common question is whether any act of dishonesty justifies termination? Prior to 2001, there was a line of court cases that said exactly that. However, in McKinley v. BC Tel, [2001] 2 SCR 161, the Supreme Court of Canada rejected this line of cases.

In McKinley, the employee had high blood pressure that caused him to be absent from work. The employee wanted to return to work but in a position that was less stressful. He told his employer that his doctor said he could only return to work in a lower level position. This was untrue. The employee’s doctor had actually said he could return to his former job if they used drugs to control his blood pressure. The employer uncovered this lie and concluded it had just cause to fire the employee. However, the Supreme Court of Canada said this single act of dishonesty did not provide the employer with just cause to terminate.

The McKinley test is now used in all just cause cases. Broadly speaking, the test is “proportionality”. The punishment must fit the crime, and only serious misconduct will justify summary dismissal.

Whether an employer has just cause to terminate is now always a question of fact. The question a judge must ask is whether the circumstances show employee misconduct that is fundamentally inconsistent with the continuing existence of an employment relationship. This question is answered by looking at the nature and degree of the employee misconduct, whether the misconduct violates the essential conditions of the employment contract, or whether the misconduct breaches the necessary faith and trust an employer must have in the employee. Most cases involving dishonesty typically turn on whether the employer has justifiably lost all faith and trust in the employee. Theft is probably the most common example of employee dishonesty that ends in a successful termination for just cause. For example, in Cosman v. Viacom Entertainment Inc., [2002] O.J. No. 1828, an employee who submitted inflated mileage expenses in order to recoup his membership fees in a local business association was found to be terminated for just cause.

Even the theft of very small sums can justify termination for cause. For example, in Chatten v. Linamar Transportation, 2011 CarswellNat 3467, a case our law firm argued for the employer, a payroll administrator with over 20 years of service secretly removed a small but mandatory deduction from her regular pay. The employee had pocketed less than $20.00 when the employer learned what she had done and fired her. The adjudicator concluded there was just cause because the employer needed to trust employees working on its payroll, and the theft, however small, was sufficient to destroy that trust.

But not all thefts result in cause for termination. In Kidd v. Hudson’s Bay Company,[2003] O.J. No. 1474, the employee (a manager) left a Zeller’s store (a subsidiary of the employer) without paying for two items in his pockets. When confronted by security, the employee said he was upset by a personal matter and simply had forgotten that he had the items. No charges were laid. The next day the employee told his supervisor about the incident and apologized. He was fired shortly thereafter. The judge found there was no just cause because the employee had no intention of stealing the items, and termination was therefore a disproportionate response.

Similarly, in Varsity Plymouth Chrysler (1994) Limited v. Pomerleau, [2002] A.J. No. 929, the employee (a new car sales manager) personally used one of the employer’s trucks without paying for it and then sold the truck for personal profit. The trial judge found there was no just cause because the employer had tolerated similar bad behaviour from other employees in the past.

These last cases emphasize the central importance that context plays in just cause cases. When faced with dishonest conduct, managers and human resources professionals must carefully examine the context (including any mitigating factors) to determine whether “capital punishment” fits the crime.

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