An Obligation to Investigate ?
Absent a statutory mandate, it is evident that a prior investigation, particularly to support a termination for cause, is the much preferred course of conduct for a multitude of reasons, apart from the self-serving defence to avoid incremental damage claims.
The question emerges as to whether there is an obligation to do so.
No Obligation
At one time, the general view was that the employer had no obligation to conduct an investigation. To this issue the Supreme Court of British Columbia spoke in van Woerkens v Marriott Hotels:
At common law, where the relationship between the parties is governed by a contract of employment, the employer is under no legal duty to provide a fair hearing to an employee before terminating the employment contract...
To the same import is the Alberta Queen’s Bench decision in Elgert referencing Leach v Canadian Blood Services. The Elgert case related to the proposed introduction of an expert’s report dealing with the manner of investigation of a workplace dispute.
The quoted reference from Leach was as follows:
The Defendants also argue that the case law referenced in the Report is not described in sufficient detail or put in context so that it can be properly understood. For example in Leach v. Canadian Blood Services, [2001] A.J. No. 119 at paragraphs 142 - 144 the plaintiff employee was terminated on the grounds that he had sexually harassed other employees. One of the plaintiffs arguments during the trial in Leach for wrongful dismissal was that the employer did not conduct a fair and proper investigation. The Court acknowledged that many cases have made note of the importance of fair process or an opportunity to respond. That being said, the law is still clear that the requirements of fair process and natural justice do not apply in ordinary employment situations:–
142 Currently, there are divergent views in the jurisprudence whether there ought to be a duty to provide a fair hearing in the common law employment context. Yet, while “inroads” have been made respecting a right to a fair hearing in administrative law, the same obligations or rights do not apply to common law master‑ servant relationships.....
To the same import was the decision of Whitten J. in the 2003 decision of the Ontario Superior Court in Fleming v Ricoh:
Justice Cummings in TSE v. Trow Consulting Engineers Ltd. (Ibid., at para. 59) described how there are divergent views as to the extent of an employer’s obligation to an employee as to the nature of the process to be followed in cases of summary dismissal. An argument can be made for giving the employee the opportunity to respond to the alleged misconduct. Justice Cummings based his belief in this regard on the decision of Keith J. in Reilly v. Steelcase Canada Ltd. (1979) 1979 CanLII 1751 (ON SC), 26 O.R. (2d) 725 (H.C) in which it was stated at p.735, “it is perilous… to make a decision affecting the property or reputation or indeed the liberty of another, without that other being heard,” and the words of Dickson J. (as he then was) in Kane v. University of British Columbia (Board of Governors), 1980 CanLII 10 (SCC), [1980] 1 S.C.R. 1105 at 1103, 110 D.L.R. (3d) 311 ; “(a) high standard of justice is required when the right to continue in one’s profession or employment is at stake.”
[16] What appears at odds with this procedural obligation is that, as previously stated, the grounds for dismissal do not have to be stated at the time of dismissal, but must be established at trial.
[17] This dichotomy may be a reflection of the time held view of the employment relationship as that of master/servant; a relationship in which the master employer has the ultimate say, as a consequence of being the owner or proprietor of the employment opportunity.
[18] It is difficult to see how a procedural breach could vitiate the misconduct of the employee. This is not a relationship of the stature of the individual versus the state in which the rights of the individual are enshrined in The Canadian Charter of Rights and Freedoms. It is still a “private” relationship between parties in the marketplace. If the just cause is not established and if the lack of procedural fairness is particularly egregious, the employee has the right to evoke the principles of Wallace v. United Grain Growers (Ibid.), which could lead to an enhanced severance period.
Serious Allegations of Misconduct
These statements are not, however, complete. As discussed below, the failure to conduct an investigation in circumstances calling out for this, such as a termination for serious misconduct, will expose the employer to dramatic liability over and above traditional severance claims, apart from the misery created to the terminated employee and other observers in the same workforce.
The Superior Court of Justice in Ontario in Baughn v Offierski involved an allegation by the employer that the plaintiff had been stealing cash deposits. In this context, the court found that there was an obligation to conduct an investigation. Matheson J. stated:
Certainly after ten full years of having the Plaintiff work for him, he had a duty to investigate further before acting. He did in fact rush to judgment in a situation that called for restraint.
This issue was addressed in the recent decision of the Supreme Court of British Columbia in Ogden v Canadian Imperial Bank of Commerce, delivered by Wong J. in February of 2014.
The plaintiff was a licensed financial advisor, employed for seven years, when she was terminated for cause. Her portfolio of clients, mostly Chinese immigrants, was significant. Her book of business was $233 million.
The event which was the precipitating cause for dismissal was her decision to accept two wire transfers from third parties in China into her personal accounts and then have these funds directed to the account of one of her clients.
The Bank was aware that the termination for cause notice which it submitted to the plaintiff’s licensing body severely impacted her ability to find employment in the financial services industry.
In this context the trial judge found that the duty of good faith on termination mandated a proper and fair investigation:
At a minimum, the obligation of good faith and fair dealing requires the employer to ensure it has complete and accurate information before proceeding with a decision to terminate for cause.
[391] As SVP Mike Stevenson confirmed in his discovery, “it’s our practice to try to gather all the relevant facts and make sure we are not missing anything and come to the best decision”.
[392] The consequences in this case were so devastating to Ms. Ogden – and CIBC knew they would be – that the bank had a higher level of responsibility to get it right before making a decision that would have such a severe financial, professional, and emotional impact to Ms. Ogden.
It would be an overstatement to suggest that this case, given the career ending consequences facing the employee, may stand for the universal proposition that an investigation is mandatory to terminate for cause.
It does reflect the concept that the more serious the allegations, the higher is the need for a firm basis for the termination decision.
This decision was set aside on appeal as the Court of Appeal found that there was just cause for termination. The trial judge's remarks on the need to investigate was not reversed.
That factor was apparently also influential in the Alberta Queen’s Bench decision in Paulich v Westfair Foods. The plaintiff had been accused of a criminal offence, which the trial judge stated, mandated an investigation to terminate for this reason:
In the case at bar, Westfair Foods has alleged that Mr. Paulich committed a criminal act. They indicate that there was a loss of trust. That claim must be reasonable in all the circumstances. There is an onus on an employer to conduct a full investigation before reaching conclusions and, in doing so, they must give the employee a chance to answer those allegations. In the absence of a reasonable investigation, it cannot be said that the employer had a reasonable suspicion to warrant dismissal for cause.
The latter cases do stand, however, for the proposition that a proper and fair investigation can be the best process for the finding of the facts and allow the employer to take whatever discipline it deems necessary in good faith for the benefit of all concerned and with minimum exposure.
When serious allegations of misconduct have arisen, the employer's position will be protected by conducting a fair and unbiased investigation.
This being said, the Manitoba Court of Appeal in a 2021 decision concluded that there was no duty to investigate allegations prior to termination, yet continued to state that the failure to do so may lead to awards of punitive damages at trial: 1
For the reasons that follow, I would dismiss the appeal. The trial judge made no reversible errors of fact or law. It remains the case in Manitoba that, at common law, an employer has no duty to investigate prior to dismissing an employee. That is not to say that such a course of conduct is without risk to an employer because, if it cannot establish just cause at trial, it will be liable for damages for breach of contract, as well as potentially for punitive damages for the manner of dismissal.
This statement represents a fair synthesis of the current law. It should be supplemented, however, by the observation that aggravated damages may also flow from such conduct.
Investigation Not Required to Prove Cause
This appears to be a distinction without a difference. There is no duty to investigate, yet liability may follow where there is not one conducted, in certain circumstances.
The Manitoba Court of Appeal decision must be read to mean that the employer is certainly not precluded from arguing just cause for termination, even where no investigation has been undertaken. This is not a remarkable conclusion. This view was also endorsed by the Ontario Court of Appeal in its April 2022 decision. 2
In order to meet its onus on this question, the respondent does not have to prove that it went through the process of applying the three-part test prior to terminating the employee, although that would certainly be the best practice in order to satisfy its onus in court. The Manitoba Court of Appeal reached a similar conclusion regarding whether an employer has a procedural duty to investigate allegations of theft before terminating an employee’s employment on that basis in McCallum v. Saputo, 2021 MBCA 62.
Subsequent cases have awarded terminated employees significant sums for aggravated and punitive damages when dismissal has occurred based on unsuccessful allegations of serious improprieties. The employer will have the right to be wrong in such instances, but only when the termination decision has been preceded by a fair and neutral investigation.