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Relying on After-Acquired Cause to Set Aside Settlement Agreement

After an employee has been dismissed without cause, an employer can allege cause if misconduct of the employee is discovered after the dismissal – this is “after-acquired cause for dismissal”.

In Dennis v Ontario Lottery and Gaming Corporation 2014 ONSC 3882, the Court found that the after acquired evidence did not amount to just cause for dismissal. The Court refused to set aside the settlement agreement, and held that the employee was terminated without cause.

In this decision Ms. Brenda Dennis was employed by the Ontario Lottery and Gaming Corporation (OLG) for more than 13 years as a security manager, when the OLG dismissed her without cause. A severance package was offered to Ms. Dennis, which included 53 weeks’ pay, outplacement services. She was given the option of receiving severance payment in the form of a salary or as a lump sum payment.

After Ms. Dennis accepted the severance package, the OLG discovered that there were funds missing from a ticket fundraising initiative, that the OLG’s social committee had with Canada’s Wonderland. There was a shortfall of $1,024.00 and Ms. Dennis was charged criminally with theft and breach of trust. It was discovered that Ms. Dennis fell victim to an overseas fraud scam, where she had transferred $15,000.00 of her own money. She argued that she took $1,024.00 from the employer, with the intention of paying it back. The charges were eventually withdrawn by the Crown, conditional on Ms. Dennis giving an apology.

When the OLG was notified that the charges were withdrawn, it refused to pay the severance package. The OLG conducted its own internal investigation. It was concluded that Ms. Dennis did commit theft, and she was advised that her dismissal was now for cause.

The OLG argued that “there was a material and fraudulent nondisclosure of the cash shortfall by the plaintiff at the time of the severance settlement. The OLG claims in retrospect that such a disclosure would have made the termination ‘for cause’.” [para 58] Additionally, the OLG argued that Ms. Dennis readily admitted to the theft and admitted it in court. [para 60]

However, the Court found that the OLG investigation was flawed, and that the final investigation report was “superficial and inaccurate.” [para 61] The conclusions drawn in the investigations were unsupported, as they were based on the assumptions made by the police in the initial investigation. [para 61] The OLG did not review the court transcripts from when Ms. Dennis appeared in court on the charges. If they had, they would have known that the Crown withdrew the charge, and Ms. Dennis did not admit to any criminal wrong doing.

The Court held that it was disproportionate to terminate Ms. Denis for cause because:

1. Ms. Dennis continued to state that she intended to repay the money before it was due to Canada’s Wonderland;
2. The arrangement with Canada’s Wonderland was not part of Ms. Dennis’ regular employment duties at OLG;
3. OLG’s internal investigation was inadequate.

Ms. Dennis was entitled to enforcement of the termination without cause and the settlement that she was originally offered by OLG, plus interest.

What does this mean for employers?

Employers can rely on after-acquired cause, to set aside a severance agreement. However, to justify the summary dismissal of an employee, the employer must prove that the new evidence of misconduct would amount to just cause.

Employers must ensure that the employee’s misconduct, which was discovered post termination, would in fact amount to just cause if the employee had not been dismissed. Additionally, employers must ensure that their investigation of the misconduct is independent and thorough. This will assist in supporting the employer’s position in court when alleging after-acquired cause. There is a high threshold that employers have to meet in convincing the court, since settlement agreements are taken very seriously by the courts for public policy reasons. Settlement agreements are meant to be final, however the court has the discretion to refuse to enforce the settlement agreement if enforcing it would create a clear injustice.