Can we fire manager who told staff to falsify records?

If we suspect that a manager is falsifying records and has instructed her staff to do so, can we terminate for cause?

Brian Johnston
Question: Our HR policy, under rules of conduct, lists falsification of records as a serious matter resulting in disciplinary action up to and including termination. If we suspect that a manager is falsifying records and has instructed her staff to do so, can we terminate for cause?

Answer: The answer is that you probably can, but caution has to be exercised. Dismissing for dishonesty is not as simple as it once was.

Whether an employer can justify dismissing an employee on the grounds of dishonesty requires an assessment of the context of the alleged misconduct. The Supreme Court of Canada, in McKinley v. BC Tel, said the test for dishonesty is:

“… whether the employee’s dishonesty gave rise to a breakdown in the employment relationship. This test can be expressed in different ways. One could say, for example, that just cause for dismissal exists where the dishonesty violates an essential condition of the employment contract, breaches the faith inherent to the work relationship or is fundamentally or directly inconsistent with the employee’s obligations to his or her employer.”

Courts have rejected an argument that dishonesty standing alone and unexamined in light of circumstances is always just cause for dismissal. The ultimate question is whether the dishonesty constitutes a breakdown in the employment relationship by revealing the bad character of an employee. For example, in Day v. Wal-Mart the Nova Scotia Court of Appeal said that “reasonableness” is a governing factor in upholding a trial judge’s instructions to a jury on the issue saying that a zero tolerance policy for dishonesty “is a laudable expression of principle, an ideal, but it is inconceivable that courts would uphold the dismissal, without warning or notice, of a senior employee with an unblemished record, for eating a candy from a broken bag.” Thus, the context of dishonesty will be examined by courts.

Justice Finch of the British Columbia Supreme Court, in Niwranski v. H.N. Helicopter Parts International Corp, said that dishonest conduct is not proven on mere suspicion but requires clear intention to defraud:

“To establish dishonest conduct on the part of an employee as a ground justifying her dismissal, the employer must show that there was a clear intention on the part of the employee to defraud or otherwise cheat the employer. That is because the courts find “cause” for summary dismissal in the revelation of the employee’s untrustworthy character, rather than in any specific improper act.”

Cases say that a manager has a higher duty to be trustworthy and honest than subordinate employees. If, after conducting a complete investigation, it appears more likely than not that the manager actively participated in a dishonest scheme (such as instructing subordinates to falsify records), in breach of a consistently applied company policy, the company should have just cause to dismiss.

In Alvi v. YM Inc. (Sales), an Ontario Superior Court of Justice ruling, a district manager, who would not receive a bonus in respect of a store’s sales for the month if inventory shrinkage exceeded one per cent, instructed staff that they would have to pay for missing merchandise and adjust inventory sheets accordingly. The court found there was just cause to dismiss the district manager saying:

“A supervisory employee who instructs a subordinate to record a non-existent purchase and pay for missing inventory has breached the trust and confidence which his employer must repose in him and which is inherent in his position.”

A full investigation should be done before making any decision to terminate based on falsification of company records. Although punitive damages are only awarded in rare and extreme cases, those wrongful dismissal cases where punitive damages have been awarded are usually where there has been unjustified conduct by an employer such as an unsupported accusation that an employee falsified company records or the employer has conducted a faulty or negligent investigation. Such conduct may also attract Wallace damages.

Brian Johnston is a partner with Stewart McKelvey Stirling Scales in Halifax. He can be reached at (902) 420-3374 or bjohnston@smss.com.

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