A recent case from the Ontario Superior Court of Justice, Gordon v. Altus Group Ltd.,1 serves as a reminder that employers should not exaggerate facts when asserting a defense of “just cause” termination.

Decision

On November 1, 2008, Alan Gordon (“the plaintiff”) sold the assets of his business to Altus Group Ltd. (“the company”), through an asset purchase agreement, which contained an arbitration clause governing any disputes pertaining to the agreement.  The plaintiff became an employee of the company under a separate written contract of employment.  The employment contract included termination payout provisions in the event that the company terminated the plaintiff’s employment “without cause.”  

In early 2010, the plaintiff gave notice that he wanted to activate the asset purchase agreement’s arbitration clause to resolve a dispute relating to that agreement. The relationship between the parties quickly deteriorated. At the end of March 2010, the company terminated the plaintiff’s employment.

Around the time of termination, the company made a number of allegations against the plaintiff, including that he was not working productively; that he disparaged the company’s senior management; that he used excessive profanity in the workplace; and that he concealed a conflict of interest from the company.  The company’s position was that the plaintiff termination was for cause, and thus he was not entitled to the contracted severance. The plaintiff brought an action for wrongful dismissal.

Justice Glass disagreed with the company and found that the plaintiff’s alleged insubordination did not support a finding of just cause. The judge noted that if there was any improper behavior, the company should have exercised the progressive discipline scheme that it provided for in its employee handbook.  Justice Glass also concluded that it was the plaintiff’s notice to pursue arbitration that precipitated the company’s decision to terminate the employment relationship for cause.  In Justice Glass’s words, the company “ran roughshod over the Plaintiff” and “decided to be cheap and then conjured up a cause for firing in order to save money.”  Accordingly, the court held that the plaintiff’s termination was without just cause.

The court awarded the plaintiff wrongful dismissal damages under the contract (which were calculated at $168,845 for over 10 months’ pay) and ordered the company to pay $100,000 in punitive damages.  In awarding punitive damages, the judge denounced the company’s refusal to pay severance and manufacturing of unfounded allegations to justify the termination, calling the company’s conduct “outrageous,” “harsh” and “mean.” The judge also commented that the company failed to perform the employment contract in an honest manner.2

Analysis and Takeaways

Gordon v. Altus Group Ltd. demonstrates that it can be quite costly for an employer to pursue a case for cause without substantiated allegations. In this case, the court noted that if there was improper behaviour by the plaintiff, the company should have exercised progressive discipline, as provided for in its policies.  This means that employers with progressive discipline policies should set out the expectations that must be met going forward and provide the employee with time to improve their performance. Furthermore, an employer’s failure to make use of its progressive discipline policy can only emphasize its own deficiencies in effectively managing its employees. It is not enough to have such a policy in writing; employers should follow through on their prescribed steps and demonstrate that they did so, through documented evidence, in order to support any “just cause” allegations.

The decision is also a reminder that courts can award extraordinary damages for bad faith and harsh conduct in the dismissal of employees. In Altus, the court was particularly critical of the company exaggerating the employee’s alleged misconduct to justify dismissal.  The court found that it was the activation of the arbitration clause – and not the alleged misconduct – that precipitated the company’s negative treatment of the plaintiff and the decision to terminate his employment.  Accordingly, the court noted in its punitive damages reasoning that the company failed to perform the employment contract in an honest manner. The court’s conclusions are in line with Bhasin v. Hrynew,3 where the Supreme Court of Canada enunciated that the duty of honest performance requires parties to perform their contractual duties honestly and reasonably, and not capriciously or arbitrarily.  

As demonstrated in Altus, the duty of honest performance applies in the employment context and requires employers to be honest and forthright with their employees.  Knowingly misleading employees with respect to the performance of the employment contract can lead to an award of extraordinary damages imposed by the courts.