The dangers of alleging and exaggerating employee misconduct

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In my experience, the No. 1 error when terminating an employee is asserting misconduct where there is none. This approach, and the advice of lawyers or human resources professionals who propose it, fails to appreciate the implications. Employers who exaggerate or even conjure up minor mistakes or transgressions to use as a bargaining chip in future severance negotiations are making a risky move. As three recent court decisions illustrate, when employers don't play by the rules, strategic allegations of misconduct can lead to enhanced damage awards, increased legal fees and negative media exposure.

Tom Morrison, a near 60-year-old regional sales manager for Ergo-Industrial Seating Systems was fired after Ergo accused him of mismanaging a client account and not co-operating with his boss. Although Morrison was initially offered some severance, he was threatened by Ergo that it would treat his termination as "for cause", if he pursued the matter further.

At his recent wrongful dismissal trial, Ergo's allegations of misconduct collapsed and its strategy quickly backfired. A judge found that Morrison was a top performer and rather than engaging in any misconduct, he was simply not a good fit with his new boss. Ergo's allegations of misconduct were unconvincing and worse, its contention that there was cause for dismissal was not one that it reasonably believed. Ergo knew that Morrison was in a poor financial state and instead of terminating him with fair severance, it accused him of misconduct as a deliberate negotiating strategy in order to try to reduce his payout.

Ergo's hardball tactics caught the ire of the judge. Morrison was awarded one year's severance and his legal costs. But it was the Judge's decision to also award him punitive damages, typically reserved only for the most serious misconduct deserving of sanction, which makes his case remarkable. Morrison was awarded an additional $50,000 in order to set a clear example of how employers ought not to behave towards ex-employees.

Accusing an employee of misconduct that is not proven at trial does not automatically lead to punitive damage awards. However, where those allegations are contrived, judges usually feel inclined to intervene. In another recent case, an employee was awarded $100,000 in punitive damages following a long trial where the employer put together a process to justify termination for misconduct, which included unfounded allegations and trumped up complaints. In chastising the employer, the court wrote "the conduct of the Defendant corporation is outrageous because it was mean and cheap in trying to get rid of an employee." Here, terminating this employee was a means to avoid paying him more severance, so the Court found that the decision to accuse him of misconduct was contrived.

Even if it's not through an award of punitive damages, courts will still find ways to penalize employers who do not act reasonably when asserting misconduct at the time of termination, or afterwards, often through increasing the amount of legal fees recovered. In one of my own recent cases where a banking expert was jettisoned following a failed business venture, his employer argued that the termination was for cause – even though, in the words of the judge, "there was not stitch of evidence to support it." Although, the employer abandoned this unfounded attack before trial, this behaviour was still not lost on the judge, who found that the employer's allegation was "nothing more than a cynical tactic deployed to discourage the lawsuit." In awarding my client increased legal costs, the judge wrote that the employer's tactic was both aggressive and abusive.

In Canadian dismissal law, there is misconduct and then there is serious misconduct, such as theft, dishonesty or fraud. Only the latter justifies cause for dismissal without severance and it must be proven by an employer, not simply perceived. This is why even just alleging misconduct can become a costly gamble for employers if the evidence to back it up is shady or, in some cases, absent altogether.

In light of these recent precedents, employers who deploy a cavalier approach to dismissal may quickly wish to reconsider. Once an employee is accused of misconduct, he or she is invariably compelled to fight back. But instead of simply pursuing more severance, claims of bad faith behaviour are almost always included. Not only will this increase an employer's exposure to enhanced damage awards but escalate its own defence costs as well. If the goal is to save money, often the opposite occurs.

Daniel A. Lublin is a partner with Whitten & Lublin Employment Lawyers. He can be reached at Dan@canadaemploymentlawyer.com