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Is employee dishonesty grounds for dismissal for cause? • What are the potential personal liabilities of officers and directors if the corporation breaches an agreement?

Is employee dishonesty grounds for dismissal for cause?

One of our employees continues to lie on his time sheets. Our company communicates both the procedure to log hours of work as well as the penalties for falsifying the time sheet entries. Is employee dishonesty grounds for dismissal for cause?

Answer: The general principle of wrongful dismissal is that an employee is entitled to reasonable notice of termination of his contract by the employer. But an exception to the general rule exists when there is just cause for dismissal.

In a contract of employment, traditionally there is an implied duty of faithfulness and honesty owed by the employee to the employer and breach of that implied duty is cause for dismissal. The principal justification for this type of dismissal is the lack of confidence and trust which must exist between the employer and employee, particularly if the employee is in a responsible position.

But recently the Supreme Court of Canada overruled a Court of Appeal decision which had held a single act of dishonesty, no matter how minor, constitutes just cause for dismissal. The Supreme Court proposed a new analytical framework to determine whether the context and nature of an employee’s dishonesty warrants dismissal or not.

According to this “contextual approach” the dishonest act must be viewed in the context of the employment relationship as a whole. The main factor to be considered is whether, following the dishonest act, the current employment relationship is reconcilable. If the dishonesty goes to the core of the employment relationship the dismissal will be just.

This Supreme Court decision does not preclude an employee from being punished based on his dishonest act — it simply provides for lesser sanctions for less serious misconduct. The spirit of this decision is to have a just and fair punishment that is proportional to the offence instead of a strict rule that equates dishonesty to just cause for dismissal. Each case must be evaluated on its own facts.

You suggest in your question that the employee “continues” to lie on his time sheets. If this is a recurring problem for which the employee has been repeatedly warned and disciplined, there may be just cause for dismissal. But bear in mind that given the dishonest act in question, dismissal will likely only be justified after lesser penalties have first been imposed. For example, before dismissing the employee you could dock his pay for the loss incurred by the company and/or suspend him without pay. If the dishonest acts continued, you could then impose harsher penalties eventually culminating in the termination of his employment for cause.

What are the potential personal liabilities of officers and directors if the corporation breaches an agreement?

What are the potential personal liabilities of officers and directors of a corporation if the corporation breaches an agreement?

Officers and directors of corporations cannot be held civilly liable for the actions of the corporations they control and direct unless there is some conduct on the part of those directing minds that is either itself tortious or that exhibits a separate interest or identity from that of the corporation.

A corporation is a legal entity, distinct from its shareholders and directors. Therefore shareholders and directors are generally accorded the advantages of limited liability: the liability of the corporation is limited to the assets held by the corporation. In other words the assets of the corporation’s individual directors are not available to satisfy liabilities in excess of the value of the corporation’s assets.

Since a corporation must essentially function through the thoughts and actions of its director, agreements that a director causes a corporation to enter into can result in potential liability to the corporation. But except for a few statutory and fact-specific exceptions, unless a director is acting outside her capacity within the corporation, she will not be personally liable for agreements she has entered into on behalf of the corporation.

Peter Israel is the head of Goodman and Carr LLP’s Human Resource Management Group. He can be reached at (416) 595-2323 or [email protected]. Address questions to [email protected].

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