After-Acquired Cause for Termination
Before discussing after-acquired termination for cause, it is helpful to begin with some fundamental employment law principles: in Ontario, employers have the ability to terminate an employee’s employment, either with or without cause. However, even in the more flexible scenario of “without cause” terminations, it is not a ‘free-for-all’: employers still have limitations on how, why and when they can terminate employment. For example, employers cannot terminate for reasons of reprisal or discrimination, such as an employee requesting or going on maternity leave or medical leave of absence. Generally, the key distinctions between terminations with cause and without cause are:
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Employees who are terminated with just cause forfeit their entitlement to a severance package (financial compensation), which they would typically receive if they were terminated without cause.
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Terminations with cause can only occur under specific circumstances, usually involving serious employee misconduct. In contrast, employees can be terminated without cause for reasons unrelated to misconduct, as long as the employer provides any entitlements owed to the employee at the time of termination. Additionally, as noted, the termination must not be for discriminatory or other unlawful reasons.
With these foundational points in mind, we can then explore where “after-acquired cause” for termination fits into this framework.
“After-acquired cause” for termination refers to misconduct that occurred during the employee’s time of employment but was only discovered by the employer after the employee’s dismissal.
What is “After-Acquired” Cause for Termination
The common law rule of “after-acquired cause” can be relied on by an employer to support a just cause for termination if, following termination, the employer discovers conduct which took place during the employee’s tenure with the company that would have justified dismissal for cause had it been aware. In other words, the key factor is whether these facts justifying a termination for cause existed at the time of the dismissal. Therefore, post-dismissal conduct, on the other hand, has generally not been considered grounds for dismissal.
However, if an employer is aware of conduct justifying dismissal but chooses not to act on it, it may be found to have condoned the conduct. As such, the employer cannot afterwards dismiss the employee relying on the same conduct without new information. Whenever any new misconduct occurs, however, the “old offences” may be invoked and relied upon as cause for dismissal (para. 13):
“When an employer becomes aware of misconduct on the part of his servant, sufficient to justify dismissal, he may adopt either of two courses. He may dismiss, or he may overlook the fault. But he cannot retain the servant in his employment, and afterwards at any distance of time turn him away. … If he retains the servant in his employment for any considerable time after discovering his fault, that is condonation, and he cannot afterwards dismiss for that fault without anything new. No doubt the employer ought to have a reasonable time to determine what to do, to consider whether he will dismiss or not, or to look for another servant. So, also, he must have full knowledge of the nature and extent of the fault, for he cannot forgive or condone matters of which be is not fully informed. Further, condonation is subject to an implied condition of future good conduct, and whenever any new misconduct occurs, the old offences may be invoked and may be put in the scale, against the offender as cause for dismissal.”
In any event, if an employer alleges after-acquired cause for termination, it is still legally required to prove, at the time of dismissal, there were facts sufficient in law to warrant a dismissal (that is, misconduct that is seriously incompatible with the employee’s duties, going to the root of the employment contract).
Another key point is that the courts will scrutinize an employer’s claim that it had “after-acquired” cause for termination to determine whether, in fact, there is a legitimate reason for termination, or whether it is simply used as an excuse by an employer who is seeking to escape its obligation to provide an employee with a severance package (Herrod v. Marr’s Leisure Holdings Inc., 1998 CanLII 14746 (ON SC); and Christensen v. McDougall (2001), 17 C.C.E.L. (32) 44). As a result, an employer’s claim of after-acquired cause for termination claims not raised at the time of termination could impact their credibility or weight.
Case-in-Point
Ratz-Cheung v. BMO Nesbitt Burns Inc., 2024 ONSC 161
In this case, the court found that the employer failed to prove sufficient grounds to support its claim of after-acquired cause for termination. Although the employee was found to have violated the employer’s Code of Conduct, the Court considered the misconduct to be an error in judgment rather than an act serious enough to justify termination without notice. It was noted that no misuse of confidential client information occurred, and the employee’s argument of possible unfair treatment was acknowledged. As a result, the employee was granted 24 months’ notice along with compensation for lost commissions.
Background
The employee worked for BMO as an investment advisor at BMO for nearly 24 years 1994 to 2018. Although there was no formal written employment contract in place, she was still bound by BMO’s Code of Conduct policy, which included confidentiality requirements.
In February 2018, BMO terminated her employment without cause. At the time of her dismissal, she was 54 years old. Following her termination, she filed a wrongful dismissal claim.
It was during her examination for discovery that BMO learned of a significant issue: she had copied thousands of emails containing confidential client information onto a USB drive just a few months before her termination of employment. In light of this new information, BMO amended its Statement of Defence, introducing the argument of “after-acquired cause.” The company claimed that this misconduct meant she was not entitled to reasonable notice or pay in lieu of notice as part of her wrongful dismissal case.
What Happened During the Discovery Process?
The twist in the case came during the discovery process, which occurs when both parties share information relevant to the case. It was then that BMO discovered that she had copied thousands of confidential emails onto a USB device just months before her dismissal. The emails contained sensitive client information, and the company quickly amended its defence to claim that this discovery justified her termination for cause — a defence known as “after-acquired cause.”
An employment lawyer in Toronto would quickly recognize the importance of this step in the legal process. The defence essentially argued that the discovery of this misconduct after the dismissal gave them grounds to argue that the employee should not be entitled to severance or notice.
The Court’s Decision: A Win for Employees
Despite the serious nature of the allegations, the court ruled that BMO had failed to establish after-acquired cause for termination. Here are some key takeaways from the Court’s decision:
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Breach of Code of Conduct: While the employee had copied confidential emails onto a USB drive and stored them at home, the Court considered the breach to be a lapse in judgment rather than malicious intent. It was clear that the breach of confidentiality was significant, but the Court also noted that the employee had access to the same emails during the course of her work.
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No Intent to Misuse Information: Importantly, the employee did not disclose or use the copied information to anyone else. She had copied the emails primarily for personal reference and did not act on the information for any personal or financial gain. The Court acknowledged that her actions were more about managing her work and tasks that were assigned to her assistants, not an attempt to misuse client data.
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No History of Misconduct: The Court highlighted that the employee had a spotless record during her 24 years with BMO. There was no prior history of breaching the company’s Code of Conduct. This factor weighed heavily in her favor when determining whether her actions warranted termination without notice.
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Context Matters: One of the most interesting aspects of the Court’s decision was its consideration of the broader context in which the breach occurred. At the time, the employee had been going through a particularly challenging period in her personal and professional life. This context contributed to the Court’s view that her actions were a lapse in judgment, not a fundamental breakdown in the employer-employee relationship.
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Fair Treatment Concerns: Another important element in the ruling was the Court’s recognition of possible unfair treatment related to gender. the employee’s view that her communications had been unfairly criticized, potentially due to sexist perceptions of assertiveness in women, was acknowledged by the Court. This consideration played a role in the Court’s conclusion that her dismissal was not proportional to her actions.
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After-Acquired Cause Not Established: Ultimately, the Court ruled that the employee could not rely on the after-acquired cause defence. The misconduct did not meet the threshold required for just cause dismissal, meaning she was entitled to compensation, including 24 months of notice and damages for lost commissions.
What Does This Case Mean for Employees?
For employees facing potential wrongful dismissal, this case offers some important lessons.
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Just Cause is Hard to Prove: As this case illustrates, proving “just cause” for termination is a high bar. It’s not enough for an employer to point to a breach of conduct; they must also demonstrate that the breach caused a breakdown in the employment relationship.
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After-Acquired Cause is Not a Guarantee: Employers can sometimes rely on after-acquired cause to defend against wrongful dismissal claims, but this strategy is not always successful. If an employee’s actions, like in this case, don’t rise to the level of just cause, after-acquired cause will likely fail.
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Consider All Circumstances: Employers must consider the context of an employee’s actions. A lapse in judgment, especially in the context of long-term service and personal challenges, may not justify termination without notice.
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Gender Dynamics Matter: This case also sheds light on how gender dynamics can play a role in how employees are treated. If you suspect that you are being unfairly targeted or criticized because of your gender, this could impact the legal outcome of your case.
Key Takeaways
This ruling underscores the fact that proving just cause for dismissal is a significant challenge. When determining whether after-acquired cause applies, courts will thoroughly assess the misconduct involved, taking all relevant factors into account. If the misconduct is not serious enough to cause a breakdown in the employment relationship, then after-acquired cause cannot be established.
Even when an employee violates an employer’s Code of Conduct, this does not automatically justify dismissal for just cause. This case highlights the complexity of just cause dismissals, with courts carefully evaluating the circumstances to determine if termination is a fair and proportional response.
For both employers considering termination for just cause or after-acquired cause, and employees who face dismissal on these grounds, consulting with an employment lawyer is highly recommended. Legal guidance can help navigate the intricacies of employment law and ensure proper handling of such cases.
What Should You Do if You’re Facing Wrongful Dismissal?
If you find yourself facing a wrongful dismissal situation or are concerned about a potential severance package review, seeking expert legal advice is essential. A severance package review lawyer can help ensure that you receive the compensation you’re entitled to, while a wrongful dismissal lawyer can assist in navigating the complexities of wrongful termination claims.
Additionally, if you believe your employer is taking unfair action, a constructive dismissal lawyer can help you understand your options if the work environment becomes intolerable. And, if you’re in the process of negotiating or signing a contract, consulting an employment contract review lawyer ensures that your rights are protected before you agree to the terms.
For many employers, termination of employment is a difficult and confusing time, especially when it comes to drafting severance packages. Therefore, in a wrongful termination of employment, it is important for employers to consult with an experienced Ontario employment lawyer for a severance package review to understand the impact of wrongful dismissal on pension plans. If you are an employer or employee needing to speak with an experienced Ontario wrongful dismissal lawyer to discuss your options and next steps on how to deal with workplace issues, call Bune Law, employment law firm in Toronto. You will review and get guidance on your severance package before you agree to sign any termination documents, and help ensure that your severance package is fair and reasonable.