Employer’s claim of after-acquired cause denied

Can a without-cause dismissal be recharacterized later as for cause — even if the material circumstances were known to the employer before the dismissal?

“The answer is no.”

So said an Alberta judge in a recent case that confirms employers can’t change their minds or “change horses” when it comes to just cause — reinforcing the importance of HR getting employee terminations right in the first place.

Mistreatment allegations lead to investigation

The case involved Tesfaye Ayalew, who served as the executive director of The Council for the Advancement of African Canadians in Alberta (Africa Centre or AC) for about 10 years.

In late 2017, the centre’s accountant resigned, alleging mistreatment from Ayalew. The board of directors hired an employment lawyer to conduct an investigation, and other allegations also surfaced, so Ayalew was suspended without pay in January 2018.

In mid-March of that year, the AC decided to terminate his employment, with the termination letter stating the dismissal was “without cause.” There was no mention of any perceived shortcomings in performance and the board stated it had “taken no position on the veracity or otherwise” of the complaints.

Ayalew was given eight weeks’ severance, per the province’s employment standards, along with a further month’s severance if he released the board from all claims relating to the dismissal – but he did not sign the release for the extra month.

Instead, Ayalew sought additional severance and it was then the centre decided to “change horses,” said Justice Michael Lema. The employer said that it made a mistake in dismissing without cause and it had discovered new information about Ayalew’s pre-termination conduct that constituted just cause to dismiss him.

The centre claimed the information and reports provided by the investigator that said there was no misconduct were incorrect, and it didn’t find this out until later. It also said that the centre didn’t rely on the (interim or final) report in deciding to terminate without cause.

But in his Feb. 27, 2023 decision, Lema did not agree there was a mistake.

“With no explanation offered or even suggested, it is possible the board believed it had a just-cause basis for dismissal but decided, for its own reasons, to dismiss without cause,” he said.

“The board’s ‘mistake’ position has no anchor. To advance that position, it had a practical onus to provide evidence of the asserted mistake. As noted, it provided no such evidence.”

As for evidence emerging later, Lema again disagreed.

“No evidence supports the [centre’s] position that, post-termination, it came into new information bearing Mr. Alayew’s conduct or in any case bearing on possible just cause for dismissal.”

As a result, the principles of after-acquired cause or “subsequently discovered cause” have no application, he said.

In the end, Lema concluded Ayalew was dismissed without cause and the board “cannot now recharacterize the dismissal as for cause on the basis of mistake, new information or otherwise.”

He awarded Ayalew 14 months’ reasonable notice but did not award aggravated damages.

Understanding just cause

Termination for just cause typically involves conduct that is serious enough, either by itself or in combination with other factors, to justify the employer ending the employment relationship, according to Francesca Ghossein, a lawyer at Field Law in Edmonton.

“We're not talking about a simple dissatisfaction with the employee’s performance, we're talking about conduct — and this is paraphrasing from case law — such as to undermine or seriously impair the trust and confidence the employer is entitled to place in the employee and the circumstances of their particular relationship. So, the conduct has to be so serious that the employment relationship cannot subsist.”

Despite that brief summation, it's not a straightforward concept.

“It's a very fact-dependent and it is a contextual analysis,” she says, citing factors such as the status of the employee and the nature of the work.

But it’s very important that the employer has evidence supporting just cause, says Ghossein, and the requirements for how rigorous an investigation there must be “will vary based on the nature and size of the employer and capacity of the employer.”

However, if an employer thinks it has sufficient evidence for cause, the standard is not perfection, she says.

“As long as they can establish that they did their due diligence, that there was in some cases more progressive discipline in place, that the employee knew of the consequences, that there would be consequences to certain actions and those types of factors, then the employer could be justified in terminating with cause.”

“And with due diligence, then the employer can establish cause without fear of failure or being automatically exposed to a finding of bad faith.”

In trying to assess if just cause is justified, it’s about understanding whether the employee's misconduct amounts to a breakdown in the employment relationship, says Vik Mall, barrister and solicitor at Kahane Law Office in Calgary, meaning “it's so bad that it's destroyed the relationship — you can't expect to give the employee what they sometimes refer to as a second chance.

“That's why it's often so hard for employers to argue it.”

There's also the doctrine of “cumulative cause,” which means it may not be one specific act or misconduct, he says, but “several instances put together, either individually or cumulatively, that justify summary dismissal.”

A recent decision of the Ontario Superior Court of Justice served as a rare example in which the court upheld the dismissal of a long-service managerial employee for just cause.   

Why not pursue just cause?

The advantage for an employer in claiming just cause is they are not required to provide notice or payment in lieu of notice.

And yet in the Ayalew case, the African centre decided to terminate his employment without cause, despite the allegations and investigation.

While it’s not clear why, there can be multiple reasons why an employer doesn’t pursue just cause even if their case looks solid, according to Ghossein.

“First of all... a result of trial is never certain. So, even if an employer retains legal counsel and are advised that yes, this is most probably just cause, you can never guarantee results at trial if the employee decides to contest that decision. So, to avoid legal costs, maybe even on a more practical and not legal level, to avoid an unnecessary, difficult conversation, you just move on with the employees that you currently have and maintain your operations and then maintain the peace, if you will.”

Employers must also have sufficient evidence, and show they’ve done their due diligence, she says. “On a practical level, it's just easier sometimes.”

Strategically, an employer will weigh the risks in going to trial when alleging just cause, says Mall.

“Do you want to spend tons of money to go all the way to trial and get sued, only to then have that argument? Or do you want to package this person out on a without cause basis, and offer a severance amount, come to a deal, settle the deal? Everything's quiet, no trials. And often, that's what employers do.”

Employers don’t always have perfect information, and they're always calculating the odds, he says.

“They're saying, ‘OK, well, how much is it going to cost us to fight this reputationally? What's it going to be? Can we prove it?” says Mall.

“Trials are very expensive — economic costs and reputational costs are involved. So whether it's for an employer or employee, either way, they're very expensive to go all the way to trial.”

It could take three or five years to reach a decision, along with requiring time and effort from witnesses.

“So, yes, there is a bunch of reasons why even if an employer might have a basis for cause, they won't initially allege it.”

What’s needed for after-acquired cause?

Faced with the claim for additional severance, the Africa centre decided to “change horses” and claim it had just cause to dismiss Ayalew. This, of course, did not go over with the Court of King’s Bench of Alberta.

To succeed, after-acquired cause means material fact has been discovered — after the employee’s termination — that would justify a just cause termination, says Ghossein.

“Establishing just cause is difficult enough, and now you're adding the additional hurdle of having to establish that you weren't aware of those facts or you couldn't have been reasonably aware of those facts before the termination.”

Practically speaking, if you can’t establish after-acquired cause, then the law on without cause termination will apply, she says, “so you might have to pay the employee the extra notice if the court does not find in your favour.”

The B.C. Supreme Court recently ruled that an individual’s hours of secret recordings of co-workers and management was serious enough misconduct that the employer could use it for after-acquired cause.

If an employer initially put termination “without cause,” to try to change it later is very difficult if you don't have new information, says Mall.

“The court has made pretty clear that... if you start with a termination without cause, it's going to be hard for you to change that answer at trial, or anytime prior to — unless you can present new evidence, clear new evidence that you did not have when you made the decision to terminate without cause.”

Plus, a former employee facing an allegation of cause may adopt different litigation and settlement strategies than without cause, he says.

“It just changes the entire nature of that litigation, if you will, and the employee’s assessment, because now the employee has a lot more to lose. And that's why courts are so strict about it… This employee made a bunch of decisions — went out and hired a lawyer or sued on the basis that you weren't arguing cause — and now all of a sudden you are?”