The Court of Appeal for Ontario’s recent decision in Correia v. Canac Kitchens [2008], ONCA 506 (CanLII), is a must-read for counsel advising in respect of the investigation and termination of employees involved in criminal activity. The case is a cautionary tale, highlighting the serious legal pitfalls that can arise when criminality is suspected and investigated.

Background

When Canac Kitchens and its parent company suspected theft and drug dealing at one of Canac’s plants, they hired private investigators, including an undercover agent. The police were kept apprised, but were not directly involved. The investigation disclosed that several employees were engaged in criminal activity.

Among the identified wrongdoers was a long-time employee, 62. He was brought into his employer’s human resources office, accused of theft, fired for cause, turned over to the police, and arrested. There was just one problem: he was innocent. He had been confused with another employee.

The plaintiff sued the employer, parent company, security firm, police, and certain individuals for, among other things, negligent investigation, intentional infliction of mental distress, inducing breach of contract, intentional interference with economic relations, and wrongful dismissal.

The court allowed the "negligent investigation" claim to proceed against the security firm, but not against the employer.

To determine whether an employer and/or a private investigation firm could owe duties of care to an employee, the court began with the Supreme Court’s decision in Hill v. Hamilton-Wentworth Regional Police Services Board [2007], 3 S.C.R. 129 (CanLII), where it was held that the police can owe a duty of care to a suspect. Is the same true of a private security firm or the employer that hired it?

Applying the two-part test in Anns v. Merton London Borough Council [1978], A.C. 728 (H.L.), the court held it was foreseeable that a negligently conducted investigation could harm the employee.

In a previous decision, BMG Canada Inc. v. Antek Madison Plastics Recycling Corp. [2006], O.J. No. 4577 (S.C.J.); November 14, 2006 (Ont. C.A.), the court had held that an employer could not foresee that police would lay charges based only on the employer’s findings. In this case, the employer and security firm had conducted the entire investigation, then "handed a completed case to the police," so it was potentially foreseeable that the police would lay charges without further verification.

As well, the court considered that, just as in Hill, the employee had "high interests" at stake, including "his freedom and his reputation," which supported finding a relationship of proximity and a duty of care.

The court also considered the argument that recognizing a duty of care may discourage employers from reporting criminal activity, but essentially held that this concern does not apply to sophisticated private security firms that otherwise would operate unsupervised. Moreover, unlike in the insurance context, contract law does not provide adequate remedies. The court ruled that the security firm may owe a duty of care to the plaintiff, rejecting the argument that this duty would distort the relationship between employer, employee, and investigator: there is "no incoherence in requiring a private investigator to be careful in its investigation; surely the client would expect nothing less .…"

However, the court found that imposing a duty of care on the employer, which was not in the investigation business, would be inconsistent with existing law that an employer need not have good faith reasons for dismissal.

Although the employer could not be sued for negligent investigation, it was not out of the woods. The court noted that, if the employer "was negligent in its investigation, in the context where it knew the serious consequences of a wrongful charge of criminal conduct against an employee, its conduct may well be found to be outrageous and to meet the requirement for intentional infliction of mental distress." This claim was allowed to proceed.

The court dismissed the claims for intentional interference with economic relations and inducing breach of contract.

Proceed with Caution

This decision underscores the need for care when investigating employee criminality. When a security firm is engaged, it is now foreseeable that the police may arrest employees based only on the firm’s findings. It is therefore imperative that the firm and employer ensure that the investigation is fair, and, to use the Court of Appeal’s word, "careful." It may also be wise to involve, from the start, outside counsel with some criminal law expertise.

In situations where the company investigates "in-house" without a security firm, it should make clear to the police in writing that it is not a professional investigator, the investigation was not conducted for the purpose of a criminal prosecution, and it expects the police to conduct their own investigation prior to taking any action.

This article first appeared in the fall 2008 issue of CCCA Magazine, the official publication of the Canadian Corporate Counsel Association.