Canada: Investigations Before Dismissal: Legally Optional, Practically Mandatory

A recent decision out of Manitoba saw its Court of Appeal confirm that an employer was not obligated to conduct an investigation before dismissing an employee for "cause". This is decision can certainly be considered a "win" for employers, who are feeling the pressure as the cost of litigating dismissals during the COVID-19 pandemic continues to rise. But there's more to the story.

In McCallum v Saputo, 2021 MBCA 62, the Court upheld an employer's decision to dismiss an employee "for cause". The defendant employer, Saputo Dairy Products GP received information that its employee, the plaintiff, had taken product from one of its customer's stores without authorization. Saputo terminated the plaintiff's employment without conducting any further investigation. The Court found that it remains the case in Manitoba that, at common law, an employer has no duty to investigate prior to dismissing an employee. Put another way, the employee had no procedural right to an investigation where cause was being alleged.

This makes sense and would be the likely outcome if this had happened in Ontario. If a judge finds there was "cause" for dismissal, it (generally) does not matter if the employer's investigation was flawed, or even non-existent. At the end of the day, if you're right, you're right.

But what if you're wrong? Despite upholding the dismissal, the Court had this to say:

Similarly, other courts across Canada have answered that question by refusing to uphold cause dismissals in cases of flawed investigations and often awarding significant aggravated and punitive damages. Practically speaking, the cost of getting a cause case wrong carries a $20,000-$50,000 premium. The risk management message is clear: An employer may not be legally obligated to conduct an investigation prior to dismissal, but they might as well be.

The following cases are just a few examples to highlight what happens when an employer "got it wrong" and the growing trend of cause claims failing in the absence of a proper investigation. Before diving in, it is important to remember that while there may not be a free-standing right to an investigation before dismissal at common law, many jurisdictions, including Ontario, have statutes that do mandate workplace investigations in certain circumstances. These usually involve cases of harassment, sexual harassment, or workplace violence.

The Cost of Getting It Wrong

Courts across Canada have released a number of decisions where flawed investigations have led to significant consequences for employers.

In British Columbia, Hrynkiw v Central City Brewers & Distillers Ltd., 2020 BCSC 1640, saw an employer fail to establish cause based on allegations of financial misconduct. The plaintiff was the chief financial officer and had been with the company for 6.3 years. He was 56 years old at the time of dismissal. The judge found the employer's investigation was lacking and amounted to a breach of the duty of good faith in the manner of dismissal. Some of the more egregious issues highlighted by the judge included the fact the employer had concluded from the outset of the

investigation that the employee was guilty. There was no genuine effort to review the full circumstances of the allegations. The employer failed to consider new documentation with an open mind. It failed to preserve documents relevant to the investigation after dismissal. The employer's failure to conduct a proper investigation cost it $35,000 in aggravated damages in addition to almost $167,000 in damages consisting of 12 months of notice, vacation and lost share value.

An earlier decision out of Ontario, Ludchen v. Stelcrete Industries, 2013 ONSC 7495 saw an employer unable to maintain its dismissal for cause due to a failure to conduct a proper investigation. In this case, the employer alleged the employee had an angry outburst and made inappropriate and discriminatory comments about the company ownership. He was dismissed for cause and without notice. Significant issues with the employer's investigation included a failure to the names of the employees who had direct knowledge of what the employee had allegedly said. The employer's reliance on second hand reports were insufficient. The judge also found that despite receiving a very serious allegation of misconduct, the employer's HR manager chose not to conduct any investigation into the truth of the allegations against the employee. She did not arrange to speak with any of the men who had heard the remarks, and did not tell the employee what he was alleged to have said. The employer relied solely on the second hand report of a private investigator, who was working undercover at the facility while investigating another issue. At trial the judge found this investigator to have "non-existent" credibility. In part this had to do with the non-production (or failure to retain) any notes of their investigation, and a report that was submitted was flawed and full of errors. In this case, the judge did not award aggravated or punitive damages, but did award 12 months of notice, less mitigation.

In Czerniawski v. Corma Inc., 2021 ONSC 1514, the plaintiff was awarded approximately $85,054 amounting to 19 months of notice based on a salary of $48,800, and 10% benefits after the employer failed to establish cause. Although the judge did not award aggravated or punitive damages, the employer's failure to conduct a proper investigation ultimately meant it did not have sufficient evidence to meet its burden. After 19 years of service working for the defendant, the plaintiff was terminated from his employment as an assembler, allegedly for just cause. Following a dispute with a co-worker, the plaintiff failed to comply with an order to leave the workplace. After several requests that he leave, the general manager called the police, and the plaintiff was escorted off the premises. The employer conducted a summary investigation after the altercation and dismissed the plaintiff. The employer did not interview the employee. The judge found that the defence witnesses had overstated their evidence and that the objective evidence such as a police report, did not corroborate their version of invents. The judge found that the employer should have interviewed the employee but that this was "less egregious than it might otherwise had been" because of surrounding factors. Because of the weakness of the investigation, the employer failed to establish cause.

Finally, Humphrey v. Mene, 2021 ONSC 2539 saw a judge award $25,000 in punitive damages, and $50,000 in aggravated damages where an employer had initially dismissed its COO for cause stemming allegedly from misconduct and poor performance. The employer dropped the cause allegation approximately 1 year after dismissal. The judge highlighted significant issues with the investigation, including the employer's inability to produce relevant documents, its failure to advise the employee she was being investigated, and because it appeared the investigation was not impartial. At the time of dismissal she had been employed for 3 years and earned a salary of approximately $90,000. The employee was also awarded 11 months notice, to be calculated by counsel.

The Take Away

Dismissals alleging cause are usually "all or nothing" litigation. Because cause is the "capital punishment" of employment law, judges can be reluctant to uphold these dismissals and the burden is on the employer to prove its case. Where an employer unsuccessfully alleges cause, the monetary consequences are significant. While the cases outlined demonstrate that a flawed, or non-existent, investigation will not always attract aggravated or punitive damages, it makes establishing cause particularly difficult. Over and above the usual exposure to damages for reasonable notice, costs, and its own counsel's fees, there is a real risk of a five figure aggravated or punitive damage award. The message is clear, an investigation before dismissal is legally optional but practically it's mandatory.

Not all investigations need to be done by external counsel. However, all proper, and legally defensible, investigations will share these commons characteristics:

1. Get someone who knows what they are doing. Cause investigations are high stakes and often involve allegations of fraud, violence, or other serious misconduct. The employer's choice of investigator (internal or external) needs to reflect this.
2. Get information straight from the source. Employers should not be (solely) relying on second hand "hearsay" accounts of misconduct. If Jack says Jane saw Bob doing something bad, you need to follow up with Jane. Do not just rely on what Jack said.
3. Get objective evidence. Do not rely on rumours or assumptions. Corroborate subjective accounts with objective evidence. Is there video footage? Financial records? Computer use monitoring software? Google locate data?
4. Get both sides of the story. Before the decision to dismiss is made, employee should be given an opportunity to explain their side of the story. They may reveal information that alters the situation.

Ultimately, the Manitoba Court of Appeal probably has it right. Absent statutory requirements, employees do not have a freestanding procedural right to an investigation. Employers are not obligated to conduct an investigation before they dismiss an employee for cause. But when weighed against the cost of getting a cause dismissal wrong, they might as well be mandatory. While investigations can be time consuming, costly, they will also greatly increase an employer's chance of upholding the cause dismissal. As these cases have shown, proper investigations will invariably be cheaper than getting it wrong.

See McCallum v Saputo, 2021 MBCA 62 (CanLII)

Originally published Aug 25, 2021

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.