There is both good news and bad news for employers arising out of the Ontario Court of Appeal’s recent decision in Correia v. Canac Kitchens[1], dealing with employer liability for negligent workplace investigations.

Canac Kitchens and its parent company, Kohler, suspected that there was theft and drug dealing occurring at the Canac plant. As a result they retained a private investigation firm, Aston, to conduct an investigation. Aston chose to place an undercover agent at the Canac plant who proceeded to identify several employees who were engaged in the theft and drug dealing. The local police were kept informed of the progress of the investigation as it unfolded, but did not investigate the issues independently.

One afternoon in October 2002, Joao Correia, a 62-year old long term employee of Canac, was called into Canac’s Human Resources office where he was accused of theft and fired for cause on the spot. Mr. Correia was then escorted into another office where he was arrested by the police for theft, based on Canac’s investigation.

As it turned out, however, Mr. Correia was completely innocent. Through a series of mistakes, he was confused with another, much younger, employee with a similar name. Following his arrest, Mr. Correia spent three hours in jail and the Crown only dropped the charges against him four months later, once Mr. Correia’s lawyer was able to demonstrate that a mistake had been made. Canac then offered to reinstate Mr. Correia but he was too devastated to return to work and had been diagnosed with major depression.

After the charges were dropped against him, Mr. Correia and his family commenced a lawsuit against Canac, Kohler, Canac’s head of Human Resources, Aston and York Regional Police. Mr. Correia listed a variety of causes of action in his lawsuit but as against Canac, Kohler and Canac’s head of Human Resources (collectively, the "Employer Defendants"), Mr. Correia alleged the following: wrongful dismissal; negligent investigation; intentional interference with economic relations; inducing breach of contract; intentional infliction of mental distress; malicious prosecution; false arrest and false imprisonment.

The Employer Defendants brought a motion to strike the majority of these claims (save for the wrongful dismissal claim) and were successful in persuading a motions judge to strike the claims for intentional interference with economic relations, inducing breach of contract, malicious prosecution, false arrest and false imprisonment. However, Mr. Correia and the Employer Defendants continued to dispute which of the remaining claims should be allowed to proceed to trial so both parties appealed the motions judge’s decision to the Ontario Court of Appeal.

The good news for employers is that the Court of Appeal upheld the motions judge’s decision to dismiss the claim for negligent investigation as against the Employer Defendants and held that it would be inappropriate to hold employers and their personnel liable for this tort. The Court of Appeal stated that whether the investigation was proper or negligent would simply be a factor to consider in a traditional wrongful dismissal analysis. Furthermore, given that the Supreme Court of Canada had held in Wallace v. United Grain Growers[2] that there was no tort of bad faith discharge, a recognition that Canac could be liable for the tort of negligent investigation would be inconsistent with Wallace in that it would indirectly accomplish what the Supreme Court had explicitly rejected in that case. Finally, the Court of Appeal commented that if employers could be held liable for reporting what they honestly (although mistakenly) believed was criminal activity, the result would be a chilling effect on other employers’ willingness to report potential criminal activity.

The bad news for employers is that the Court of Appeal refused to dismiss Mr. Correia’s claim for intentional infliction of mental distress as against the Employer Defendants – including as against Canac’s Head of Human Resources personally. As it turned out, it was Canac’s Head of Human Resources who had mistakenly written down Mr. Correia’s name on the list of employees involved in the theft and drug dealing at the Canac plant, such that it was her mistake which had led to Mr. Correia being improperly identified. Therefore the claim for intentional infliction of mental distress will proceed to trial as against the Employer Defendants, giving Mr. Correia the chance to obtain damages for any mental distress he suffered as a result of the negligent investigation – despite the fact that he was denied the right to claim damages against the Employer Defendants for the flaws in the investigation itself.

This case is significant in that clearly demonstrates that employers and their internal human resources professionals must be extremely careful when conducting and acting on the results of a workplace investigation that has the potential to lead to criminal charges. Of particular note is that the Court of Appeal has made it clear that it is possible, in appropriate circumstances, for human resource professionals to bear personal liability for their actions in the course of workplace investigations.