Manufacturing allegations of cause can increase severance costs

As readers will know, there are two types of dismissals in Canada: with cause and without. The difference between the two can be tremendous: When an employee is dismissed without cause, they will be entitled to notice and/or pay in lieu, which can be extensive. Conversely, when an employee is dismissed with cause, they have no such entitlement.

So, it is easy to see why employers can be tempted to assert that they have just cause in order to avoid paying any severance. However, doing so without a plausible basis can lead to substantial liability, as we have seen in cases such as the British Columbia Supreme Court case Hrynkiw v Central City Brewers & Distillers Ltd.

Daryl Hrynkiw was employed for a little over six years, initially as controller and then as CFO at Central City Brewers & Distillers.  He was dismissed for cause, and the employer alleged, among other things, that he had paid himself unauthorized share bonus amounts. As the court found, the issues came down to this:

“The plaintiff says the parties agreed at the time of his employment that he would receive four weeks of vacation per year, and that as of May 2016, he was entitled to $50,000 in annual share bonus compensation. The defendant says the plaintiff unilaterally and deliberately assigned himself a level of vacation entitlement greater than that agreed to by [CEO Darryll] Frost, and also paid himself unauthorized share bonus compensation. This, along with other related allegations of misconduct against the plaintiff, constitutes what the defendant says is cause for the plaintiff’s dismissal. The defendant counterclaims for the recovery of what it says were unauthorized share bonus payments to the plaintiff.”

The court engaged in a fairly extensive and detailed analysis, and concluded that there was no just cause for dismissal:

“I find that the plaintiff’s share bonus compensation was authorized and that his annual vacation entitlement was 20 days as the plaintiff has maintained. These findings effectively dispose of these alleged grounds of just cause for dismissal…

“However, even if I was incorrect in my interpretation of the terms of the employment contract, it would still be necessary to consider whether the plaintiff’s actions in relation to the share bonus compensation and vacation entitlement constituted cause for dismissal. The fact that the plaintiff may have mistakenly understood his compensation and vacation entitlement to be greater than it actually was would not, in my view, constitute cause for dismissal. This is particularly so in a case where the terms of the employment contract are entirely oral, thus creating the potential for misunderstanding…

“In my view, whatever view one takes of the terms of the employment contract, the evidence simply does not support a finding of deliberate wrongdoing by the plaintiff.”

Having rejected the allegations of just cause, the court considered Hrynkiw’s entitlement to notice and made an award on the upper end of the range; he received 12 months of notice after a little over six years of employment. Courts have significant discretion in determining the period of reasonable notice, and while the court did not say anything here, it is conceivable that the employer’s conduct was an implicit factor in this finding.

The court went on to consider whether additional damages were warranted. As the court said: “I have no difficulty in concluding that the defendant breached its duty of fair dealing and good faith in the manner of dismissal by: (i) failing to conduct a balanced investigation into the plaintiff’s alleged misconduct prior his termination; and, (ii) advancing and maintaining meritless allegations of serious misconduct against the plaintiff.”

Notably, there was evidence of the impact of these allegations on the plaintiff’s mental health and professional opportunities. The court found that “[t]he termination caused the plaintiff anxiety, disrupted his sleep, and affected his motivation. It also affected his relationship with his wife, as he became irritable and had fits of anger. The plaintiff says it took a couple of months to even begin returning to his previous self.” As a result, an additional $35,000 in aggravated damages was awarded.

I have spent an inordinate amount of time studying the law of just cause for dismissal, including writing a text, You’re Fired! Just Cause for Dismissal in Canada, and updating it twice a year. In reviewing every just cause case, I have come to the following conclusions:

• The threshold for establishing just cause is high but
• as I often say, “just cause is not a lost cause”; there are many cases every year where summary dismissal is upheld, and
• courts do not look favourably upon employers that make baseless allegations of just cause in order to attempt to avoid their legal obligations, particularly when they maintain those allegations all the way to trial.

The case discussed above is a perfect example of what can happen when employers make spurious just cause allegations; whereas they probably could have concluded the dismissal with a payment of less than 12 months’ pay, they ended up paying 12 months of compensation, plus $35,000, plus their legal fees, plus a portion of Hrynkiw’s legal fees.