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October 16, 2015

The Significance of Progressive Discipline and the Duty to Act Honestly in the Manner of Dismissal

Author Todd Weisberg

The Ontario Superior Court of Justice’s recent decision in Gordon v. Altus Group Limited serves as a reminder for employers about the importance of executing proper progressive discipline and the consequences of being dishonest in the reasons for termination.

The plaintiff, Alan Gordon, sold his business assets to the defendant corporation, Altus Group Limited. A certain portion of the sale proceeds from the asset purchase were linked to the performance of the business after closing, with an adjustment to be made just less than 1.5 years after the sale. The purchase agreement contained an arbitration clause with respect to any disputes regarding future proceeds.

The plaintiff was subsequently hired by the defendant on a three year employment contract, with the possibility of further renewals. As the deadline approached to address the plaintiff’s asset sale proceeds, a dispute arose regarding the correct amount to be assessed. The plaintiff sought to activate the arbitration clause in order to resolve this dispute. About a month later, the plaintiff was dismissed, allegedly for just cause.

The defendant relied on numerous allegations occurring over the course of the plaintiff’s employment to support its position that it had just cause. Specifically, the defendant claimed that the plaintiff had not been producing effectively, was disruptive in the workplace and was involved in a conflict of interest, in which the plaintiff did not disclose lending money to a company with which the defendant was doing business. However, none of these complaints were brought forward to the plaintiff at the time they had allegedly occurred.

Justice Glass determined that the defendant had no basis to terminate the plaintiff’s employment for just cause. The defendant’s claim regarding the conflict of interest was refuted, as the plaintiff had spoken with his manager prior to engaging in the loan transaction and permitted the transaction to occur. Furthermore, Justice Glass determined that the defendant should have engaged in the practice of progressive discipline, especially because the defendant had set out a procedure for progressive discipline in its employee handbook. In this regard, the defendant did not follow its own process in providing warnings to the plaintiff with written directions on how to improve.  As a result of this failure, Justice Glass found that the alleged misconduct could not be relied on by the defendant and that just cause had not been proven.

In addition to awarding damages for the plaintiff’s wrongful dismissal, Justice Glass also determined that the defendant failed to perform the employment contract with the plaintiff in an honest manner and awarded $100,000.00 in punitive damages.

As outlined by Justice Glass, in order to award punitive damages, there must be an independent actionable wrong separate and apart from the dismissal. Justice Glass found the independent actionable wrong to be the defendant’s dishonest reasons for termination; the defendant said it had just cause to terminate, but the truth was that it terminated the plaintiff because he gave lawful notice to pursue arbitration.

This case is a clear example of the consequences that await employers who are dishonest in the reasons for dismissal. While not explicitly stated by Justice Glass, it would appear that the defendant could have avoided an award of punitive damages by simply terminating the plaintiff without cause and not, as Justice Glass found, “conjured up a cause for firing in order to save money”. As evidenced in the decision, this type of dishonesty will only cost employers in the long run.

This case also evidences the pitfalls that await employers who do not engage in progressive discipline.  Progressive discipline is a process of actively addressing employee misconduct by imposing increasingly severe discipline for each subsequent offence, prior to termination. A failure to engage in progressive discipline may prevent an employer from being able to rely on previous misconduct to justify termination.

Accordingly, employers and HR professionals alike need to ensure that progressive discipline is practiced properly and that any policy regarding progressive discipline is followed. Progressive discipline involves the employer discussing the misconduct with the employee at each step, setting out the expectations that must be met going forward and providing time for the employee to improve. Progressive discipline typically follows the path of verbal warning, written warning, suspension and finally termination, although serious misconduct can justify skipping certain steps in order to impose more serious discipline.

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