You won’t believe the result: Is there a reasonable basis to allege cause for termination?

A recent decision of the Ontario Superior Court has opened the door to punitive damage awards against employers alleging cause for dismissal.  It is a good reminder to employers about the challenges of investigating and alleging cause leading up to and after termination.

In Morison v Ergo-Industrial Seating Systems Inc., the Court considered a wrongful dismissal claim.  The Court awarded damages in lieu of reasonable notice of termination.  The most interesting aspect of the case, however, was the employee’s claim for aggravated and punitive damages.

The company alleged cause in its termination letter to Mr. Morrison as well as in its court pleadings.  Mr. Morrison argued that cause was used as a bargaining tactic and sought aggravated and punitive damages for making the allegation in bad faith.  At trial, Ergo’s key witnesses took the position that the company had a reasonable basis to believe it had cause, and there was no foundation to award damages.

Additional damages would not necessarily flow from abandoning an allegation of just cause made at termination or in litigation.  An employer can allege just cause and should not be punished provided the employer had a reasonable basis to do so.  If the employer cannot substantiate that the cause allegation was reasonable it may have some exposure.  

In this case, Ergo did not bring material evidence in support of the reasonableness of its belief.  Just cause generally involves conduct so serious there is a complete breakdown in the relationship.  The Court found no such complete breakdown.  Rather, Ergo decided to terminate Mr. Morrison one month before it did.  The Court pointed to Ergo’s handbook, referencing an untenable relationship or material detriment to the company as cause.  Ergo did not investigate any alleged misconduct, which was at odds with any factual concept of cause.

The Court dismissed the aggravated damages claim on the basis that there was no evidence of actual damages sustained by Mr. Morrison.  However, the Court awarded $50,000 in punitive damages.  The Court concluded Ergo breached its duty of good faith by asserting cause for dismissal without a reasonable basis.  Further, the Court characterized Ergo’s delay in providing a record of employment and significant delay in paying statutory amounts owing as behaviour calculated to financially impact the plaintiff. 

The Court reasoned that punitive damages of $50,000 were rationally required to punish Ergo and to meet the objectives of retribution, deterrence, and denunciation, saying “Employers cannot be allowed to behave in such a fashion without a clear message being sent by this Court that this is not acceptable.”

The case stands as a good reminder to employers when cause for termination is in issue.  Serious misconduct amounting to cause is typically actionable, including by termination.  Allegations of cause should not be made lightly and without reasonable belief.  Thus, an employer should get advice regarding the basis for cause and the related investigation.  Employers owe a duty of good faith, which they may breach by failing to properly investigate, making unsubstantiated allegations of cause or withholding statutory entitlements.