Kathleen Nash

In a recent decision, McCallum v Saputo,¹ the Manitoba Court of Appeal confirmed that an employer does not have a “free-standing, actionable duty” to investigate an employee’s conduct prior to dismissal.² The Court of Appeal held that an employer’s right to terminate for just cause is not necessarily compromised by a failure to investigate prior to dismissal; however, without conducting a thorough investigation, employers may struggle to justify termination for just cause and may attract an award of punitive damages for the manner of dismissal.

Background

The Plaintiff worked as a sales representative for Saputo Dairy Products. One of his tasks was to visit stores that sold Saputo cheese, identify what was unsaleable, determine whether the store would get a credit (depending on the reason it was unsaleable), document his findings and have them approved by a designated store employee. Once completed, the unsaleable cheese would be disposed of by store employees.

On August 21, 2015, Mr. McCallum visited a Superstore in Winnipeg, owned by Loblaws, and removed 14 packages of cheese that he claimed were unsaleable. Mr. McCallum then removed the cheese from the store and claimed that he would dispose of it himself due to complications with the store compactor. At his car, Mr. McCallum was stopped by store employees for removing product from the store without purchasing it.

On September 1, 2015, Saputo terminated Mr. McCallum’s employment for cause, in writing, without knowing the full details of his misconduct. At trial, it was determined that no effort was made by Saputo to interview Mr. McCallum or to get a statement from any of the Superstore employees present at the time of the incident prior to terminating him. Instead, Mr. McCallum was presented with a termination letter and was informed that Loblaws had provided a letter to Saputo banning him from all of their stores.
The trial judge upheld the dismissal, concluding that the circumstances known by Saputo on September 1, 2015 gave rise to a fundamental breakdown in the employment relationship and entitled Saputo to terminate Mr. McCallum’s employment without further investigation. The trial judge found that Saputo had a duty to treat the Plaintiff fairly and honestly based on the information that it had, but it did not owe him a duty to investigate.

The Court of Appeal’s decision

On appeal, Mr. McCallum argued that the case law established a duty to investigate before terminating an employee for dishonest conduct, relying on the Manitoba Court of Appeal’s previous decision in Middelkoop v Canada Safeway Limited.³

The Court of Appeal disagreed with Mr. McCallum’s interpretation of Middelkoop and confirmed that there is no duty on private sector employers to accord procedural fairness in deciding to terminate an employee nor a duty to entertain a request for reconsideration.⁴ Like most legal principles, this is subject to exceptions, including the terms of an employment contract or the relevant statutory framework.

The Court of Appeal continued by stating that where courts have commented on an obligation to investigate prior to dismissing an employee, “it is in a practical, cautionary sense rather than as a free-standing legal duty.”⁵ While flawed or inadequate investigations are sometimes the reason why an employer is unable to muster sufficient credible evidence to prove just cause at trial, this is a risk that employers are allowed to take.

Mr. McCallum further argued that Saputo’s reliance on information obtained after the termination, including that some of the cheese he removed from the store was from a competitor brand and that some was saleable, “set a dangerous precedent” by allowing an employer to rely on facts obtained during discovery to justify termination after the fact.⁶ The trial judge and Court of Appeal both disagreed, finding that an employer can rely on after-acquired cause to justify a dismissal, unless the employer both knew of the conduct and condoned it.⁷ The Court of Appeal upheld the trial judge’s finding that Saputo had sufficient information to justify the termination at the time of termination and that, even if the trial judge had made a finding of after-acquired cause, the Court of Appeal would not have disturbed this conclusion.

Ultimately, the Court of Appeal held that an employer can summarily terminate a “master-servant relationship” without first hearing from the employee or conducting a thorough interview regarding the incident. In this case, as none of the exceptions applied, the Court of Appeal confirmed that Saputo had the right to terminate Mr. McCallum without conducting a thorough investigation first. Mr. McCallum’s dishonest conduct, in taking cheese from the store without authorization, constituted just cause for dismissal and therefore the termination was upheld.

Key takeaways

The Court of Appeal’s decision in McCallum v Saputo clarifies that the common law does not require private sector employers to investigate an employee’s conduct if they believe they have sufficient evidence to support an employee’s termination. However, the burden remains with the employer to prove that just cause existed if the termination is challenged, so employers need to be certain that they can prove just cause existed if necessary. If an employer is unable to prove just cause based on allegations or insufficient findings, they are likely to be subject to damages for wrongful dismissal and can attract punitive damages or any other penalty the Court deems necessary.

While there is no “free-standing actionable duty to investigate” prior to termination, it is still best practice to do so for two main reasons:

• An investigation may prevent an employer from mistakenly concluding that the conduct warrants dismissal and avoid a wrongful dismissal claim. For example, the employee may have a reasonable justification for their actions and lead to the conclusion that no discipline is warranted.
• The employee’s conduct may make the employer’s case for cause even stronger. For example, if the employee is being investigated for theft or dishonesty, and they lie during the investigation, the employer may have an even stronger basis for arguing the employment relationship is irreparably harmed.

It is important to note that Mr. McCallum was not a unionized employee and therefore his employment was governed by the common law. Collective Agreements in unionized workplaces may impose stricter conditions on an employer prior to imposing discipline or discharging an employee for cause. Employers with unionized workforces need to carefully consider their applicable collective agreement to determine whether an investigation is required.

In the Atlantic provinces, as in Manitoba, there is no statutory duty to investigate an employee’s conduct prior to termination. However, this does not remove the employer’s obligation to prove just cause on a balance of probabilities in wrongful dismissal cases; if just cause cannot be proven at trial due to a lack of evidence, an employer may face significant consequences. While there is no free-standing duty to investigate misconduct, the employer has a duty to act fairly towards the employee when terminating for cause and, to avoid potential punitive damages for the manner of the dismissal, it is advisable for an employer to determine whether it has evidence of the misconduct prior to terminating the employee.

Further, in New Brunswick, employers are statutorily obligated to give reasons in writing when dismissing an employee for cause.⁸ The purpose of this provision is to ensure that employees have clear and full information regarding their termination.⁹ This statutory provision prevents an employer from relying on new grounds for dismissal after the employee has been terminated if the employer knew about the misconduct prior to termination. If the employer did not know of the prior misconduct, then this statutory obligation does not prevent the employer from relying on after-acquired cause.¹º Employers should therefore carefully draft termination letters, when the dismissal is for cause.

By contrast, there is no similar provision in Nova Scotia, Prince Edward Island, or Newfoundland and Labrador requiring the employer to set out the reasons for termination when dismissing an employee for cause. However, it is advisable to set out the reasons for termination so that the employee is aware of the reasons for his or her termination.

For federally-regulated employers, there is likewise no statutory duty to investigate prior to termination. However, the Canada Labour Code¹¹ protects federally regulated employees (excluding managers), who have completed at least 12 months of continuous employment with the same employer, from “unjust dismissal”.¹² An adjudicator under the Canada Labour Code has broad remedial powers, including the power to order reinstatement with compensation for lost wages, if an employee has been subject to an unjust dismissal. It is therefore imperative that federally-regulated employers are able to justify the dismissal of an employee or they may face significant consequences. An investigation into an employee’s conduct, even if just a basic inquiry, is therefore highly recommended for federally-regulated employers.

In short, though failing to investigate and give reasons may not be fatal to an employer during an action for wrongful dismissal, it may be far more difficult to prove that just cause existed at the time of termination. Therefore, it is best practice for employers to investigate matters, at least on a preliminary basis, prior to termination to ensure that sufficient reasons and evidence exist to justify terminating the employee for just cause. An investigation may also help an employer keep honest and valuable employees who justify their conduct or could help bolster an employer’s arguments for just cause.

This client update is provided for general information only and does not constitute legal advice. If you have any questions about the above, please contact a member of our Labour and Employment group.

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¹ McCallum v Saputo, 2021 MBCA 62. All paragraph references in this article refer to this decision unless otherwise stated.
² Para 1.
³ Middelkoop v Canada Safeway Limited, 2000 MBCA 62.
⁴ Para 17-20.
⁵ Para 22.
⁶ Para 16.
⁷ Para 35.
⁸ Employment Standards Act, SNB 1982, c E-7.2. at s. 30(2).
⁹ Crouse v Parkway Fitness Inc. (Nubody’s Fitness Centre), 2009 CanLII 47486 (NB LEB).
¹º Doucet v Spielo Manufacturing Inc, 2011 NBCA 44 at paras 85 and 88.
¹¹ Canada Labour Code, RSC 1985, c L-2.
¹² Canada Labour Code, Part III, Division XIV – Unjust Dismissal.