When a contract spells out what misconduct warrants dismissal

Getting specific on just cause

Colin Gibson

Contractual definitions of ‘just cause’

Question: If an employment agreement has specific examples of misconduct that constitute just cause for dismissal, can the employer automatically dismiss the employee without notice if they are guilty of that misconduct?

Answer: Just cause for summary dismissal is normally difficult to prove. In McKinley v. BC Tel, the Supreme Court of Canada described just cause as serious misconduct that gives rise to a breakdown in the employment relationship. Just cause will exist where the employee’s behaviour violated an essential condition of the employment contract, breached the faith inherent in the work relationship, or was fundamentally or directly inconsistent with the employee’s obligations to the employer.

In some cases, an employer may want to include language in an employment contract specifying certain types of misconduct that will be just cause for dismissal without notice or severance compensation. Clauses of this nature can be effective in tailoring an employment agreement to the particular requirements of the employer’s business.

Generally speaking, a court will enforce a contractual definition of just cause, provided the definition is clear and does not violate statutory termination restrictions, such as those found in human rights, labour relations or workers’ compensation legislation. Care must be taken in drafting provisions of this nature, however, because like clauses that seek to limit an employee’s notice or severance rights on a termination without cause, they will often be subjected to careful judicial scrutiny.

It is important to ensure that if an employment agreement lists certain infractions that will be just cause for dismissal, the list concludes with a catch-all phrase such as “any other act or omission that would constitute just cause for dismissal at common law”. Otherwise, categories of serious misconduct that do not appear on the list (even theft, for example) will not be grounds for dismissal without notice or severance compensation.

If a contractual definition of just cause includes conduct by the employee that can’t be measured objectively, and depends on the exercise of the employer’s subjective judgement, a court will expect the employer to act in fairly and in good faith in its application of the clause: Truckers Garage Inc. v. Krell. In Meyer v. Partec Lavalin Inc., the Alberta Court of Appeal ruled that if the employer has exercised its discretion under a provision of this nature honestly and in good faith, the court should not overturn the employer’s decision on grounds of reasonableness.

Where an employment agreement defines just cause more broadly than the applicable employment standards legislation, an employer may find itself in the position where it is required to provide the employee with statutory notice or severance compensation, even though summary dismissal is permissible under the terms of the employment contract.

In Khashaba v. Procom Consultants Group Ltd., the termination language in the employment agreement defined cause as “any grounds at common law for which an employer is entitled to dismiss an employee summarily without notice or compensation in lieu of notice.” The Ontario Supreme Court found that this provision violated Ontario’s Employment Standards Act, 2000, which requires a higher standard of “wilful misconduct” for summary termination. However, while the court found that the definition of just cause in the contract was void, it rejected the employee’s argument that under the principles expressed in Machtinger v. HOJ Industries Ltd., this also invalidated the other termination provisions in the agreement.  In ruling that the employee was limited to the severance outlined in his contract, the court cited the comments of the B.C. Court of Appeal in Miller v. Convergys CMG Canada Limited Partnership, that “the construction of an employment contract remains an exercise in contractual interpretation, and the intentions of the parties will generally prevail, even if this detracts from employment law goals that are otherwise presumed to apply.”

For more information see:

McKinley v. BC Tel, 2001 SCC 38 (S.C.C.).

Truckers Garage Inc. v. Krell (1993), 3 C.C.E.L. (2d) 157 (Ont. C.A.).

Meyer v. Partec Lavalin Inc., 2001 ABCA 145 (Alta. C.A.).

Khashaba v. Procom Consultants Group Ltd., 2018 ONSC 7617 (Ont. S.C.J.).

Machtinger v. HOJ Industries Ltd., [1992] 1 S.C.R. 986 (S.C.C.).

Miller v. Convergys CMG Canada Limited Partnership, 2014 BCCA 311 (B.C. C.A.).

Colin G.M. Gibson is a partner with Harris and Company in Vancouver. He can be reached at (604) 891-2212 or cgibson@harrisco.com.

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