The Ontario Court Of Appeal Thinks That Fraud Still Constitutes Just Cause

Reversing a lower court decision, in Fernandes v. Peel Educational & Tutorial Services Limited (“Fernandes”), the Ontario Court of Appeal ruled that a school had just cause to fire a teacher who had “committed acts of misconduct, including the creation of false marks and inaccurate grades and then lying to cover up the improprieties”.

This case confirms what many employment lawyers (including the authors) already thought: that serious and wilful misconduct fundamentally and directly inconsistent with an employee’s obligation to his or her employer ought to constitute just cause, especially when (a) it causes the employer harm, and (b) the employee was dishonest when confronted with the allegations.

The decision is also a good reminder that in many cases fraud will constitute just cause. It also provides some sound lessons to Alberta employers who often forget the following:

  • Fraud, or similar type allegations like theft, will usually need to be proven to a high standard.  Therefore, the standard of proof will be higher than the usual balance of probabilities but likely lower than the criminal standard of beyond a reasonable doubt;
  • These types of allegations are in many cases very difficult to investigate and prove because they involve complicated allegations beyond the understanding of the average person. Allegations of financial fraud may require an employer to engage outside and neutral experts, such as accountants;
  • Allegations of misconduct, fraud or otherwise, generally require an employer to conduct an investigation prior to executing a termination. Fulsome investigations require (a) the employee suspected of misconduct to be interviewed (sometimes several times) and confronted with the allegations, (b) witnesses to be interviewed, and (c) evidence, such as emails and video surveillance, to be reviewed and assessed;
  • While it is often prudent to have an investigation done internally by a Manager or Human Resource Professional, in many cases an outside investigator is a much better option.  Examples of when an external investigator might be preferred include when the allegations are complicated, when an employer’s reputation is at risk, or when the internal investigator could be seen to be biased. Remember that the investigator may ultimately be required to testify at trial about the investigation, so consideration should be given to whether the internal investigator would make a good witness.
  • If an investigator does conclude that serious and wilful fraud has occurred, an employer will usually terminate the employee for just cause. However, there is still no guarantee that a trial judge will agree.  In Fernandes, the Court sided with the employee and awarded severance, and it took a costly appeal for the Employer to finally be vindicated.  If a sound investigation is conducted, the court might disagree with the cause allegation however the damages will usually be limited to a typical wrongful dismissal case as opposed to being increased to address bad faith in the investigation.

If you have any questions please contact Ben Aberant or Shana Wolch



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