Every employee, at every level, owes a duty of fidelity to their employer. Although the extent of this duty depends on the particular circumstances of the employment relationship, all employees have a duty to act in a manner consistent with the employer’s interests (i.e. duty of loyalty). Where the conduct of an employee is dishonest and inconsistent with the employer’s interests, the trust in the employment relationship can be compromised and can amount to just cause for dismissal.

In 2001, the Supreme Court of Canada determined that a contextual approach is to be applied when determining whether an employee’s conduct amounts to cause for dismissal with consideration of two key factors: (1) can the conduct at issue be proven? And, (2) does the nature of the conduct, given all the employment circumstances, warrant dismissal (McKinley v. BC Tel).

Whether an employee’s conduct breaches the trust inherent in an employment relationship to the extent that termination is warranted is a question of fact. Proportionality is a key consideration and the circumstances of the particular case must always be considered. Two relatively recent New Brunswick cases dealing with breach of trust demonstrate the nuances involved in a just cause analysis.

In Palmer v. Godfrey Associates Ltd. (affirmed in the Court of Appeal), a bookkeeper and business administrator at an engineering firm was terminated for cause, 11 months into her one-year maternity leave, after it was discovered that she failed to issue some 30 invoices totalling $70,000 in receivables over an eight month period. During that time, she repeatedly deceived management about the status of those invoices and her conduct detrimentally affected the cash flow of the business. Both the Court of Queen’s Bench and the Court of Appeal sided with the employer and held that there was just cause for dismissal. Clearly, the trust in the employment relationship had been compromised.

Conversely, the diversion of church offerings from one beneficiary (i.e., the general fund) to another (i.e., the fund designated for the poor) by a church secretary without consent of the donors wasn’t just cause for termination. In Arseneault v. Roman Catholic Bishop of Saint John, the Court of Queen’s Bench held that although her conduct was deceitful and contrary to directions received from the parish, the plaintiff derived no profit from her actions and had a previously exemplary record. Applying the contextual and proportionality analysis advocated by the Supreme Court of Canada in McKinley, the Court of Queen’s Bench wasn’t satisfied that just cause existed. Although the conduct at issue was deceitful, the nature and degree of dishonesty or misconduct weren’t sufficient to warrant dismissal as there was no theft, misappropriation of funds or serious fraud involved.

Both cases involved financial irregularities and conduct on the part of employees that compromised the trust in the employment relationship. What explains the contrasting results? Obvious factors include the amount of money involved (i.e., $70,000 versus $100 per week) and the effect of the conduct on the employer’s business (i.e., work not being billed versus moving funds between arms of the same entity). Other factors were likely the length of service (i.e., approximately two years versus 11 years) and the degree to which the conduct strikes to the root of the employment relationship.

Contrast the above with the more recent case in Ontario’s Reichard v. Kuntz Electroplating Ltd. where a long-term, key management employee was terminated after it was discovered that he had been having an affair with an administrative assistant contrary to the employer’s non-fraternization policy. Applying the McKinley analysis, the court sided with the employer and held that conducting an affair with a direct subordinate, contrary to a well-known policy and continually denying its existence seriously compromised the trust, integrity and honesty the employee was expected to demonstrate in the performance of his duties.

What this means for you

An employee’s conduct that compromises the trust in the employment relationship and breaches the duty of fidelity can amount to just cause for dismissal. However, whether conduct compromises the trust in the employment relationship to the extent that dismissal for just cause is warranted involves a careful analysis that must consider both the context (the type of misconduct compared to the nature of employment) and the proportionality of the response (the seriousness of the misconduct compared to the nature of employment and history of the employee).