Firing an employee for dishonesty? Put things in context first

Theory that any dishonest conduct is grounds for dismissal no longer holds

Firing an employee for dishonesty is a relatively simple matter, right? Don’t be so sure — according to the Supreme Court of Canada, it depends on the circumstances.

In a recent case, McKinley v. BC Tel [2001] 2 S.C.R. 161, the Supreme Court examined the issue of dishonest conduct as grounds for termination for “just cause” and adopted a “contextual approach.” The Supreme Court stated that just cause for dismissal exists where the dishonesty: (1) violates an essential condition of the employment contract; (2) breaches the trust necessary in a work relationship; or (3) is fundamentally or directly inconsistent with the employee’s obligations to the employer.

In the past, even relatively minor acts of dishonesty could be considered grounds for dismissal for cause. The theory behind dishonesty as cause for dismissal was founded on the principle that dishonesty revealed the “bad character” of an employee and that an employer could no longer be expected to trust the employee. This approach was rejected in the McKinley case. The employer is now required to consider the dishonest conduct in the context of the surrounding circumstances.

In McKinley, the employee was a chartered accountant employed by BC Tel. In 1991, McKinley was promoted to the position of controller, treasurer and assistant secretary to several BC Tel companies. In 1993, he started suffering from high blood pressure, and in 1994, took a leave of absence on his doctor’s advice. Shortly after his leave of absence, his supervisor began discussing termination of McKinley’s employment if he could not fulfill his duties. McKinley advised his supervisor that he wanted to return to work, but in a position with less responsibility. BC Tel advised him that they would attempt to find him a suitable position.

However, McKinley was never offered alternative employment even though two positions for which he was qualified were filled during the relevant period. BC Tel terminated McKinley’s employment in August 1994. McKinley sued for wrongful dismissal.

BC Tel relied on various defences to the claim including frustration of the employment contract and the offer of a severance package that constituted reasonable notice. Three days into the trial, BC Tel obtained the court’s permission to amend their pleadings and put forward a defence of just cause, based on McKinley’s dishonest conduct.

The dishonesty in question was the fact that McKinley’s doctor had recommended that taking a certain medication would help control his blood pressure and aid him in returning to work. BC Tel claimed that McKinley deliberately concealed his doctor’s advice that he could return to work with the assistance of this medication. McKinley took the position that he did not lie to his employer.

The jury found that while McKinley had been dishonest, the dishonesty was not of a degree that was incompatible with the employment relationship. The British Columbia Court of Appeal overturned that decision, on the theory that any dishonesty within an employment relationship provides grounds for just cause for dismissal. The Supreme Court of Canada overruled the B.C. Court of Appeal, and in so doing, stated that a contextual approach must be used.

This approach examines not only the category and possible consequences of the misconduct, but also the nature of the employment and the status of the employee. Quite simply, the analysis of what degree of dishonesty constitutes just cause depends not only on the nature of the dishonest conduct but also on the employee’s position and track record with the employer. The sanction imposed by the employer must be proportional to the severity of the employee’s misconduct. The Supreme Court of Canada held that in these circumstances the dishonesty in question did not give rise to just cause for dismissal.

This approach is in keeping with the Courts’ general protectionist stance towards employees. The Courts have taken particular care to protect employees due to the perceived power imbalance in the employer-employee relationship and the resulting vulnerability of employees, as well as the sense of identity and self-worth that employees derive from their employment.

Termination for cause based on dishonesty is no longer a black and white issue. The employer must assess the employee’s status, position, history of employment, duration of employment, the nature and seriousness of the dishonest conduct, and determine whether the employer can trust the employee in the future. Within this contextual framework, the employer must ultimately decide if the employment relationship has been irreparably damaged by the employee’s conduct. When alleging termination for cause, it is advisable to consult a lawyer first (preferably prior to the investigation stage) to ensure you have handled the process correctly and to determine whether there are sufficient grounds to allege just cause for termination.

Protecting your firm

As an employer, what do you do when faced with evidence or suspicion of employee dishonesty?

1. Investigate the situation fully. Be certain that dishonest conduct has actually occurred. If you allege dishonest conduct, and fail to prove it at trial, the damages paid to the employee will be increased significantly.

2. Confront the employee with the allegations and provide an opportunity to explain the situation.

3. Before deciding whether or not to terminate for cause, step back and assess the entire context of the situation including the following:

•Consider the employee’s status. Is the employee in a position of trust or authority?

•Review the history of the employment relationship. Has the employee been a good employee? How long has the employee been with your company? Have there been any previous incidents of dishonest or questionable conduct?

•What was the nature of the dishonesty. Was it a deliberate, premeditated act or merely a momentary lapse in judgement?

•When confronted with evidence of the dishonesty, did the employee admit the conduct and show remorse or did he deny it and continue to lie to cover up the original dishonest conduct?

•Has the incident undermined the employment relationship to the point where you can no longer work with or trust that employee?

What the courts are saying...

•In Mutton v. AOT Canada Ltd., the Ontario Superior Court of Justice found that an assembler of tires was terminated for just cause because he had taken stretch wrap from the employer for personal use without proper authorization. The Court acknowledged that the value of the stretch wrap was minimal but, citing the McKinley decision, it classified the employee’s behaviour as misconduct that could break down the work relationship or breach the good faith necessary for the work relationship. Applying the contextual approach used in McKinley, the court emphasized that the employee had been employed for less than a year and, as such, was not afforded the same level of job security that a long term employee would have received. Another factor taken into account was the fact that there had been specific employee training outlining that such behaviour would lead to termination. Mutton v. AOT Canada Ltd. [2002] O.J. No. 696.

•Interestingly, the Ontario Court of Appeal, in Thompson v. Lex Tec Inc., ruled that a lower court had correctly applied the contextual approach outlined in McKinley in finding that an employer did not have just cause to dismiss an employee who physically and verbally assaulted a superior. The employee had shoved the superior a couple of times and shouted profanities at him. The lower court characterized the incident as a “single instance of poor judgement’’ and noted that the superior had provoked the incident with sarcastic remarks in response to the employee being an hour late for work. The lower court determined that the superior knew the employee’s temperament and had deliberately “pressed his buttons.” The Court took into account the almost six years of service the employee had given the company, the supervisory capacity of the position, past positive job evaluations and the fact that tardiness was not habitual. The employee was awarded a notice period of eight months. Thompson v. Lex Tec Inc. [2001] O.J. No. 3651.

Peter Israel is counsel to Goodman and Carr LLP, a Toronto law firm. He is also the head of its Human Resources Management Group and the GC Human Resources Management Training Institute. For more information contact [email protected], (416) 595-2323 or visit
The author gratefully acknowledges the assistance of Chris Foulon and Donna Clark in the preparation of this article.

To read the full story, login below.

Not a subscriber?

Start your subscription today!