Dishonesty Not Always Grounds for Dismissal: A Comment on McKinley v. B.C. Tel

January 1, 2002
Author: Sean C. Doyle
OBA Labour Relations Newsletter

The Supreme Court of Canada has determined that a single act of dishonesty within the employment relationship may not necessarily constitute cause for summary dismissal. Rather, a two-fold assessment of the alleged misconduct is necessary: (1) the employer must prove, on a balance of probabilities, that the employee was deceitful; and (2) that in the particular circumstances the dishonesty was sufficient to warrant summary dismissal.

Background

The plaintiff suffered from high blood pressure as a result of hypertension, and had commenced a health-related leave of absence. He subsequently advised his employer of his desire to return to work, but in a position of lesser responsibility. No alternate employment was ever offered to the plaintiff, and he was ultimately dismissed and offered a severance package in lieu of notice, which was rejected. At the time of his dismissal, the plaintiff was 48 years of age and had been employed with BC Tel for almost 17 years.

The plaintiff brought an action for wrongful dismissal. The employer argued, among other things, that the plaintiff’s illness had frustrated the employment relationship and therefore the termination was justified. However, three days into the trial the employer amended its pleadings and abandoned the defence of frustration. Instead, the employer argued that the plaintiff had been dishonest about his medical condition, and consequently just cause existed for his dismissal. Specifically, it was alleged that the plaintiff had deliberately withheld a medical opinion regarding a treatment option which may have enabled him to have returned to his former position without incurring any health risks.

Supreme Court of British Columbia

The trial judge instructed the jury that in order for just cause to exist, the impugned conduct must "undermine or seriously impair the trust and confidence the employer is entitled to place in the employee in the circumstances of their particular relationship". Paris J. further stated that to justify summary dismissal, the jury would have to be satisfied that the plaintiff was not only deceitful, "but that the dishonesty was of a degree that was incompatible with the employment relationship." The jury found in favour of the plaintiff, and awarded $108,793 in general damages, $1,233 in special damages, $100,000 in aggravated damages, and $6,901 in pension contributions, plus pre-judgment interest and costs.

British Columbia Court of Appeal

The Court of Appeal allowed the appeal and ordered a new trial. The Court concluded that the trial judge committed a reversible error by inviting the jury to consider the extent of the dishonesty alleged, and to determine whether it was of such a degree that it was incompatible with the employment relationship. According to the Court, dishonesty within the employment contract is always cause, and such cause is not dependent upon the ‘degree’ of the dishonesty. Relying upon McPhillips v.British Columbia Ferry Corp.,1 Hollinrake J.A. concluded that the only issue for the jury was whether there was dishonesty on the part of the plaintiff, and if so, the jury was lawfully bound to conclude that there was cause for dismissal.

Supreme Court of Canada

The Supreme Court set aside the judgment of the Court of Appeal and restored the trial decision.2 Iacobucci J. explicitly rejected the ‘absolute, unqualified rule’ that an employer is entitled to dismiss an employee for a single act of dishonesty, however minor. Such an approach would result in the consequences of dishonesty remaining the same, irrespective of the severity of the dishonesty, and this could foster results that are both unreasonable and unjust. In addition, the Court recognized that termination on a ground ‘as morally disreputable as dishonesty’ may have overly harsh and far-reaching implications for employees, and for this reason an analysis of the circumstances surrounding the alleged dishonesty is necessary.

The Court cited its prior decision in Lake Ontario Portland Cement Co. v. Groner 3 as authority for the proposition that where theft, misappropriation or serious misconduct exists, or where the employee has acted ‘fraudulently’ with respect to the employer, then cause for dismissal has been established. However, Iacobucci J. cautioned that even where such serious misconduct is alleged, an examination of the circumstances and nature of the conduct is still necessary in order to determine whether the dishonesty was sufficiently fraudulent to justify summary dismissal.

In preference to the narrow and restrictive approach to dishonesty in the workplace, Iacobucci J. advocated a contextual analysis, which requires an ‘assessment of the context of the alleged misconduct’, when determining whether alleged dishonesty constitutes just cause. As he states at paragraph 48:

…[T]he test is whether the employee’s dishonesty gave rise to a breakdown in the employment relationship. This test can be expressed in different ways. One could say, for example, that just cause for dismissal exists where the dishonesty violates an essential condition of the employment contract, breaches the faith inherent to the work relationship, or is fundamentally or directly inconsistent with the employee’s obligations to his or her employer.

In order to comply with this test, the Court endorsed a two-fold analysis. The employer must first prove, on a balance of probabilities, that the conduct of the employee was deceitful. Once deceitful conduct has been established, the employer must demonstrate that the nature and degree of the dishonesty warranted dismissal. Iacobucci J. noted that the second branch of this test does not blend questions of fact and law. Rather, the assessment of the seriousness of the dishonesty requires the judge or jury to carefully consider and balance the facts which were established at trial in determining whether the dishonesty gave rise to a breakdown in the employment relationship.

Applying the foregoing considerations to the jury instructions of the trial judge, Iacobucci J. concluded that the charge to the jury properly identified the test for dishonesty as that ‘of a degree incompatible with the employment relationship’. Further, the jurors were advised to consider the circumstances surrounding the alleged dishonesty with a view to appreciating whether the alleged dishonesty undermined the plaintiff’s employment obligations. As a result, there was no basis upon which the jury verdict should be set aside.

Conclusion

The reasoning of the Supreme Court of Canada underscores the necessity for a contextual approach to dishonesty in the employment relationship. Even where theft or fraud is alleged, an employer is still required to demonstrate that summary dismissal is appropriate. Interestingly, Iacobucci J. also stated in orbiter that an employer may impose ‘lesser sanctions for less serious types of misconduct’. Consequently McKinley, along with the decision of the Ontario Court of Appeal inHaldane v. Shelbar Enterprises Ltd.,4 could ultimately signal a greater judicial acceptance of disciplinary sanctions short of termination, such as unpaid suspensions, in the non-union workplace.

* (2001), 200 D.L.R. (4th) 385 (S.C.C.); 2001 SCC 38.

(1994), 94 B.C.L.R. (2d) 1 (C.A.).
With the exception of the award for aggravated damages, which was struck on the basis that there was insufficient evidence to put the issue to the jury.
[1961] S.C.R. 553.
(1999), 46 O.R. (3d) 206 (C.A.).

View Other Articles

Proposed National Instrument 51-103 What Venture Issuers Need to Know (Nov 2011)
November 17, 2011

Developments in the Law of Negligent Misrepresentation
April 25, 2011

Advising the Board of Directors - The Canadian Coalition for Good Governance sets out its “Best Practices” for Director Disclosure
December 13, 2010

Minimizing and Defending Against Negligent Building Inspection Claims
December 3, 2010

Municipal and Planning Law Newsletter
March 1, 2010

Municipal and Planning Law Newsletter
April 1, 2009

Is there a Private Law Duty to Enforce Municipal By-Laws?
November 1, 2008

Municipal and Planning Law Newsletter
April 1, 2008

Municipal and Planning Law Newsletter
March 1, 2008

Regulatory Negligence
February 1, 2008

Win Win Litigation Strategies
February 1, 2007