In Kaminsky v Janston Financial Group, 2020 ONSC 5320, Ontario’s Superior Court reminds employers they will not be entitled to plead cause in response to a wrongful dismissal claim if at the time of dismissal, the employer was aware it had grounds to terminate for cause, but chose not to do so. Accordingly, an employer that has a for-cause basis to dismiss should consider terminating on that basis if it wishes to avoid liability for reasonable notice.¹ 

Kaminsky puts employers on notice that if they terminate without cause and then include in a statement of defence allegations of performance concerns that would support termination for cause without reasonable notice, the court may strike out such portions of the pleading on the ground that they are irrelevant or scandalous.

Background

The employee was employed for 18 years. The employer terminated the employee’s employment without cause, and paid 20 weeks’ salary as severance, which was greater than her minimum statutory entitlement pursuant to the Employment Standards Act.  The employee was not required to execute a release of claims.  

The employee filed a wrongful dismissal action, claiming damages equal to 20 months’ salary, plus lost bonus. In discovery, the employer acknowledged that the employee’s employment was terminated without cause. The employee refused to answer 50 questions, most of them relating to alleged performance concerns, on the basis that the questions were irrelevant because of the admission that termination was without cause.

The parties each brought motions before the court:

• The employee’s motion was pursuant to Rule 25.11 of Ontario’s Rules of Civil Procedure for an order striking a portion of the statement of defence (“Defence”), namely with respect to performance concerns that would arguably support termination for cause without reasonable notice (“Pleadings Motion”). 
• The employer’s motion for an order requiring the employee to answer the 50 refusals relating to alleged performance concerns (“Refusals Motion”).

The parties agreed that argument on the Refusals Motion should await the outcome of the Pleadings Motion, and the Refusals Motion was adjourned.  

Decision

The court acknowledged that the employee’s Pleadings Motion was brought pursuant to Rule 25.11:

…which allows the court to strike out or expunge all, or part, of a pleading with, or without, leave to amend, on the ground that the pleading may prejudice or delay the fair trial of the action; is scandalous, frivolous or vexatious; or is a an abuse of process. (para. 32)

The court also noted that it is established law that:

• A payment to an employee at termination would not preclude an employer from subsequently asserting termination for cause; and  

• After-acquired cause for termination may be asserted when the employer discovers facts after the dismissal of which it was unaware at the time of dismissal.

The court did not accept, however, that these legal principles applied to the Defence because the employer was unequivocal that the employee was terminated without cause, and that although it believed it was entitled to terminate for cause, it did not do so. The court also emphasized that the employer’s evidence on discovery was entirely consistent with the Defence, “and a reasonable interpretation of [the employer’s] pleading and position that [the employer] did not terminate [the employee] for cause.” (para. 38).  Finally, the court noted that although the employer’s counsel asserted the employer could amend its pleading, the employer neither did so, nor provided the court with a draft amended Defence. Accordingly, the court concluded that the portions of the Defence that were in question were irrelevant and it struck them without prejudice to the employer’s right to seek to amend its Defence.

Bottom Line for Employers

If an employer unequivocally terminates an employee without cause despite its awareness that it had grounds for cause, the employer should not include in its wrongful dismissal defence any allegations relating to the employee’s conduct that would support termination for cause; the court may strike such allegations from the pleading.

An employer may not plead cause in response to a wrongful dismissal claim if at the time of the dismissal it was aware that it had grounds to terminate for cause, but chose not do so.  Accordingly, an employer that has a for-cause basis to dismiss an employee should consider terminating on that basis if it wishes to avoid liability for reasonable notice. This is particularly important when an employee’s entitlement to reasonable notice is significant because of long-term service, advanced age, and salary and benefits high in value.  An employer that terminates with cause should ensure that the termination letter and any other documentation establishing reasons for dismissal (e.g., the Record of Employment) unambiguously and unequivocally indicate dismissal with cause. 

If an employer discovers facts about an employee’s conduct during employment that were unknown to the employer at the time of dismissal and these facts would support termination for cause, the employer may assert after-acquired cause for termination. An employer will not be precluded from making such an assertion if a payment was made to the employee upon termination. If an employer becomes aware after filing its statement of defence that facts exist that would support termination for cause, the employer may amend its pleading to include allegations of such conduct and to assert that the dismissal was with cause.