After-acquired cause for dismissal

When lines blur or situations evolve, what starts out as a “standard” dismissal without cause may change

After-acquired cause for dismissal
Stuart Rudner

We have discussed dismissals with cause versus dismissals without cause on many occasions. Sometimes, though, the lines are blurred or situations evolve, and what starts out as a “standard” dismissal without cause becomes one where just cause may exist.

Imagine this scenario:

  1. You let someone go on a without cause basis.
  2. The individual accepts a severance package pursuant to which you agree to pay a certain amount of severance in exchange for a full and final release.
  3. You begin paying her salary continuance, or perhaps you pay out a lump sum.
  4. You discover she was involved in egregious misconduct while she was employed.

What can you do? If there had been no signed severance agreement, then you would be in a position to assert that you had after-acquired cause for dismissal and refuse to pay any termination pay or severance.

But since you entered into a post-dismissal agreement, pursuant to which you agreed to pay certain amounts, can you get out of it?

This is a scenario I contemplated when writing my book, You’re Fired! Just Cause for Dismissal in Canada. As I wrote:

“The situation will be different where the employer has simply offered some form of notice of dismissal or pay in lieu thereof on a unilateral basis, but no binding agreement has been entered into. In that case, if a portion of the notice period remains, then it will be much easier for the employer to take the position that it has just cause for dismissal, and end any payments.

It may even be possible for the employer to seek to recover the amounts already paid, although that will undoubtedly be more difficult and, depending on the amounts involved, may not be worth pursuing.

In short, just because an employer only learned about the cause for dismissal after the dismissal took place, that does not, in and of itself, preclude the employer from relying upon that information in order to justify summary dismissal. The only thing that may preclude the employer from relying upon such information is a termination agreement, entered into between the parties, which provides for certain notice or pay in lieu thereof which the employer may not be able to resile from.

Otherwise, the impediments to relying upon after-acquired cause will typically be practical ones, such as whether any payments in lieu of notice remain or whether the employer will be forced to pursue the employee in order to recover amounts already paid.

Of course, it should go without saying that allegation of after-acquired cause will be assessed like all allegations of cause, as discussed throughout this text, and the employer will be required to prove not only that the individual engaged in the alleged misconduct, but also that the misconduct in question amounted to just cause for dismissal.”

There has been a lot of speculation regarding how the scenario above would be handled by our courts, but little in the way of jurisprudence. A recent case, however, has addressed the issue head on. In York University v. Markicevic, there were findings that the employee misappropriated nearly a million dollars from York University in Toronto while he was the assistant vice-president of campus services and building operations. His plot included

  • falsely invoicing York for work that was never performed
  • inflating a quote
  • having York employees perform work at his house
  • charging York for the materials used at his house.

This is where it gets interesting: York became aware of the allegations. When Michael Markicevic learned of York’s plan to investigate, he utterly and aggressively denied any misconduct. Perhaps surprisingly, York believed him and, having realized it could no longer continue to employ him, entered into severance negotiations with him.

It terminated him on a without cause basis and they agreed upon a severance package based on three years’ compensation. York then proceeded with its investigation and discovered the full extent of his misconduct. It then sought to set aside the severance agreement and recover the money Markicevic stole and the severance payments.

Markicevic defended the claim by, among other things, arguing that there was an agreement between the parties that could not be undone. At trial, the university was successful. According to the trial judge, Markicevic’s misrepresentations while negotiating the severance agreement were the basis for undoing it.:

“When one party has induced another party to enter into an agreement by making a material misrepresentation, the principal remedy is rescission. A misrepresentation, to be material, must relate to a matter that would be considered by a reasonable person to be relevant to the decision to enter the agreement in question. It is not necessary for a plaintiff to establish that the misrepresentation was the sole inducement for acting and it does not matter if the misrepresentation was only one of several factors contributing to the plaintiff’s decision.

Markicevic made a material misrepresentation to both Mr. Brewer and Ms. Lewis when he denied any wrongdoing. There is no question that if Mr. Brewer had known of any (of) Mr. Markicevic’s fraudulent activities, York would not have terminated him without cause, would not have paid him a large severance (or any severance at all), and would not have granted him the release. The severance agreement, including the release, must therefore be set aside.”

Markicevic appealed this decision, but was no more successful before the Ontario Court of Appeal.

It is interesting to me that York was able to get out of the contract based upon Markicevic’s misrepresentation when it, arguably, had reason to suspect him of misconduct at the time of dismissal. If not, it would not have commenced an investigation. Nevertheless, the court found that the university had reasonably relied upon Markicevic’s assertions that he had done nothing wrong and, as a result, allowed it to get out of the severance agreement.

We know that employers can rely upon after-acquired cause when they were unaware of the employee’s misconduct at the time of dismissal. And based upon this decision, they may even be able to get out of a severance agreement that they entered into if they can show that they reasonably relied on misrepresentations by the employee indicating they did not engage in misconduct.

That being said, I would still advise an employer that suspects misconduct to hold off on affirming any severance commitments until they complete a proper investigation.

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