We were trying to spare your feelings, but…

In some cases an employer can terminate an employee without cause – and then show cause when challenged
By Stuart Rudner
|Canadian HR Reporter|Last Updated: 05/20/2004


an an employer terminate an employee without cause and then later claim that it indeed had just cause for termination?

Although it may seem counter-intuitive, there are many cases where the law lets an employer do so.

It’s particularly true where the evidence shows the employer chose to proceed on a without-cause basis only to spare the feelings or reputation of the employee.

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 sue.

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)

, 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 banquet hall manager. Giancola took a five-week vacation after giving his employer just one hour of notice. He did this despite having been told explicitly that if he went on vacation, he should not bother coming back. What’s more, he failed to arrange for a replacement during his vacation. He simply assumed another manager would cover for him during his absence.

The trial judge took note of the fact that six years earlier, Giancola had taken a vacation without giving any real notice to his employer. At the time, he was 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. Despite this delay and despite the wording of the termination letter, the judge found the employer was not precluded from alleging cause at trial.

The case reached the Court of Appeal, which 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], 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 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 his life.

Sometimes, however, the employee does not simply move on, starting instead 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. This approach 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. This scenario would not benefit any of the parties involved.

Sometimes HR professionals 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 can 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.

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

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 reacts negatively and initiates a claim for wrongful dismissal, the employer can still allege cause.

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.

For more information, see

Tracey v. Swansea Construction Co.

[1965] 2 O.R. 182, 50 D.L.R. (2d) 130 (Ont. C.A.) and

Giancola v. Jo-Del Investments Ltd.

(2003), (November 4, 2003), Doc. CA C37288, 2003 CarswellOnt 4284 (Ont. C.A.).

Stuart Rudner practices commercial litigation and employment law with Miller Thomson LLP’s Toronto office. He can be reached at (416) 595-8672 or via email at srudner@millerthomson.ca.

Protecting your firm

Whether you’re dismissing an employee with cause or not, keep in mind the following termination steps.

•Just cause can be difficult to prove. Consult with an employment lawyer to determine whether such an allegation is tenable in the circumstances.

•If you do not have just cause, the only “legal” way to dismiss the employee is by providing all of the notice/pay in lieu and severance that are required by both statute and common law.

•If you have just cause, you must make a decision between terminating the employee for cause and terminating on a without cause basis (with all required notice and severance).

•If you choose to terminate the employee for cause, make it clear in the termination letter that the dismissal is for cause, (although the law does not necessarily require that an employer specify the cause). If you want to provide the employee with some sort of pay at the time of termination, make it clear that any payment is made on a goodwill basis and that there is no legal obligation to do so. Remember that an employer can rely upon information obtained after termination to support an allegation of just cause.

•If you choose not to terminate the employee for cause even though the circumstances warrant it, if the employee subsequently brings a claim for wrongful dismissal, it may still be open to you to allege cause even if you did not do so at the time of termination. However, the longer that you wait to dismiss the employee, the greater the chance that you will be found to have condoned the behaviour in question. As well, if the employee isn’t terminated for cause, the amount of notice can’t be discounted “because of circumstances.”

•In either case, remember that spurious allegations of just cause can result in additional, or “Wallace”, damages for bad faith conduct. If you provide a letter of reference, be sure not to say anything that might contradict an allegation of just cause.

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