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Employee misconduct: To investigate or not | Stuart Rudner

Monday, August 16, 2021 @ 2:24 PM | By Stuart Rudner


Stuart Rudner %>
Stuart Rudner
For years, the prevailing wisdom has been that employers should investigate suspicions of misconduct before firing an employee. We certainly advise our clients to. But what happens if you don’t? Can an employer be liable simply for failing to investigate? Is the answer different if a court finds that there was just cause for dismissal?

We all know that employers have a duty to act in good faith in the course of dismissal. We also know that the threshold for establishing just cause for dismissal is high, and that even if an employer can show that the employee engaged in misconduct, that does not necessarily mean they can fire them. In many cases, a court will conclude that the misconduct warranted discipline, but not dismissal. That may be based upon mitigating circumstances that an employer could discover in the course of an investigation.

Another benefit of an investigation is that it may prevent an employer from mistakenly concluding that an employee did something wrong. It seems unlikely, but it happens. For example, many years ago I advised a client that was convinced that one of their senior managers had stolen items from the reception area; in fact, they even had video evidence of him doing so. After I advised them to investigate, and to give him an opportunity to respond to the allegations, they learned that he had moved the items for safekeeping. His explanation was entirely credible and, as a result, they not only avoided a wrongful dismissal claim, they avoided losing a valued member of their management team.

Speaking of giving the employee the chance to respond to the allegations, we continue to get pushback from clients when we advise them to do so. Most clients dismiss the notion, saying that there is no point since the employee will just lie anyway.

The reality is that in many cases, the employee will do something to make the case for dismissal even stronger. For example, if you suspect an employee of engaging in theft, and they are dishonest in the investigation, you will have an even stronger basis for saying that the trust has been broken and the relationship irreparably harmed, which, of course, is the test for assessing whether just cause for dismissal exists. When I review the just cause decisions each year in order to update my book, You’re Fired! Just Cause for Dismissal in Canada, I frequently say that the employee’s response when confronted is a critical factor.

So, back to the initial thrust of this submission: do employers have to investigate before firing an employee for cause? Two recent cases on the subject say no.

In Mazanek v. Bill & Son Towing, 2021 ONSC 4512, a trial court decision out of Ontario, a tow truck operator was suspected of stealing gas and the employer did the opposite of what we usually recommend: they fired him immediately without taking the time to investigate. He sued, and the court ultimately rejected the allegations of theft.

This is the worst-case scenario we often discuss, usually in conjunction with a warning that such circumstances could lead to an award of bad faith damages if the employer fired the employee without even investigating. However, although the court was critical of the employer’s failure to investigate or even speak with the employee before dismissal — “while the expectation for a small employer is not necessarily to conduct a full-fledged investigation, at a minimum, Bill & Son ought to have provided Mr. Mazanek with an opportunity to respond to this serious allegation” — no additional compensation was awarded.

A second recent decision on point emanates from the Manitoba Court of Appeal. In McCallum v. Saputo Dairy Products GP, 2021 MBCA 62, the employee was also accused of theft. In that case, the employer met its burden of establishing theft, and the court found that there was just cause for dismissal. Interestingly, on appeal, the employee asserted that employers have a “free-standing, actionable duty to investigate circumstances of its employee’s alleged wrongdoing prior to dismissing the employee for cause.” If that argument was successful, an employee could be entitled to compensation for the failure to investigate, even if a court found that they were justly dismissed. However, the argument failed, with the Court of Appeal confirming that, at least in Manitoba, “an employer has no duty to investigate prior to dismissing an employee. That is not to say that such a course of conduct is without risk to an employer because, if it cannot establish just cause at trial, it will be liable for damages for breach of contract, as well as potentially for punitive damages for the manner of dismissal.”

So, according to that case, if the employer does not investigate and then fails to establish cause, they could be liable for additional damages beyond wrongful dismissal. As is often the case, it seems that such an award would be based on the particular circumstances of the case.

In my view, the logical approach is simple: if an employer can be shown to have acted in bad faith, then additional damages should be awarded. Dismissing people for cause when there is no credible reason to think they engaged in misconduct, or alleging just cause as an intimidation factor, should result in bad faith damages (what I still occasionally refer to as “The Damages Formerly Known as Wallace”  — from Wallace v. United Grain Growers Ltd. (c.o.b. Public Press), [1997] S.C.J. No. 94). Conversely, if an employer has a legitimate reason for asserting that it has cause, but simply fails to meet its evidentiary burden, then they should not be ordered to pay additional damages. Whether or not the employer conducted an investigation should be a factor in this assessment, but there should be no absolute duty to investigate or automatic award of damages for a failure to do so. When I am acting as mediator, that is the approach I adopt when assessing litigation risks for both sides.

Stuart Rudner is a leading Canadian employment lawyer and mediator at Rudner Law. He is the author of You’re Fired! Just Cause for Dismissal in Canada. He can be reached at 416-864-8500 or stuart@rudnerlaw.ca.

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