Employer Cannot Change Termination from Without Cause to With Cause
March 2023 - 3 min read
The Court found that an employer could not recharacterize a without cause dismissal of one of its employees as termination for cause when the material circumstances were known to the employer before the dismissal.
The employee served as the executive director of a non-profit organization (the employer), for approximately ten years before being terminated. A few years before his termination, the employer’s accountant resigned, alleging mistreatment by the employee. Other allegations surfaced as well, so the employer conducted an investigation, resulting in a decision to suspend the employee without pay. A few months into the suspension, the employer’s Board of Directors (the Board) received additional information and particulars relating to the allegations and decided to terminate the employee on a "without cause" basis, as evidenced in the Board resolution and the termination letter provided to the employee.
The employee termination letter provided him with eight weeks' severance per the Employment Standards Code ("base notice"), with an additional month's severance payable if he released the Board from all claims relating to the termination ("additional notice"). The employee received the base notice but refused to sign a release, foregoing the additional notice amount.
The employee brought a claim against the employer for additional severance. A trial took place, during which the employer defended its position on the basis of having terminated the employee for "just cause." The question was whether the Board could "change horses" and defend based on "just cause" when it was aware of all the allegations against the employee before it terminated him on a "without cause" basis.
The employer argued that:
- It had made a mistake in dismissing the employee without cause; and
- In any event, it had discovered new information about the employee's pre-termination conduct that constituted "just cause" for dismissal
What the Court Said
The employer claimed that it based its decision to terminate the employee without cause on the results of the first investigation it undertook, which showed no wrongdoing by the employee. However, the Court examined the evidence and found that the employer had not based its decision on the report. It also did not provide any explanation for the basis on which the Board decided to terminate the employee without cause. The Board did not present any evidence to support its position that it had made a mistake by not thinking that the situation would amount to just cause. Therefore, it was possible that the Board believed it had just cause to dismiss the employee but chose to dismiss him without cause instead. The Court reminded us that an employer aware of just cause is not obligated to dismiss for cause and can choose to dismiss without cause.
The employer also claimed that it acquired some information after the employee’s termination that reflected "just cause" for dismissal. However, the evidence did not support this argument. Instead, the evidence showed that the Board had received the full particulars of the accountant's allegations against the employee and the material particulars of alleged abuse, harassment and mistreatment made by two other employees or former employees before the decision to terminate had been made. The Board did not acquire any new post-termination information which would render the principles of "subsequently discovered cause" applicable.
The Court also concluded that there was no free-standing right to recharacterize a without cause dismissal as a dismissal "for cause" generally, without a mistake or new information. When an employer with full knowledge of the circumstances decides to terminate without cause and pays severance accordingly, it will be deemed to have waived its right to later claim just cause.
The Court held that the employee was entitled to 14 months of reasonable notice pay, with the employer receiving credit for the severance paid to date. It dismissed the employer's claim for repayment of the existing severance and the employee’s claim for aggravated damages.
Employers must carefully consider the characterization of the termination before dismissing an employee. The threshold for trying to later disavow a without cause termination is high and difficult to meet. If an employer chooses to terminate an employee on a without cause basis, and the employee disputes its termination pay or termination benefits, the employer cannot defend itself on a "with cause basis" unless the facts that would amount to just cause were discovered after the termination.
If you're facing a complaint or legal action from a dismissed employee, contact Francesca Ghossein in Edmonton, Steve Eichler in Calgary or any member of Field Law's Labour + Employment Group for assistance.
Link to decision: Ayalew v The Council for the Advancement of African Canadians in Alberta, 2023 ABKB 113