THE EMPLOYERS' EDGE
After-Acquired Cause: An Employer’s Permission To Go Back In Time
Starting with some employment law basics; employers in Ontario “can” terminate an employee’s employment with or without cause. I say “can”, because there are some exceptions to this rule, such as the termination cannot be for discriminatory reasons. The two major differences between terminations with cause and without cause are:
- Employees terminated with cause lose their entitlement to termination payments that they would otherwise be owed at termination, if they were terminated without cause; and
- Employees can only be terminated with cause under very specific circumstances, typically involving employee misconduct. On the other hand, employees can be terminated without cause for reasons that are not related to misconduct, as long as the employer pays the employee any entitlement they are owed at termination and as mentioned above, the termination is not for a discriminatory or otherwise prohibited reason.
Now that these basic elements are established, where does after-acquired cause fit in the equation?
After-acquired cause concerns misconduct that took place during the employment but that is only discovered by the employer after the dismissal of the employee.
The law on after-acquired cause was set out by the Supreme Court in Lake Ontario Portland Cement Co. Ltd. v. Groner, where the Court provided:
The fact that the appellant did not know of the respondent’s dishonest conduct at the time when he was dismissed, and that it was first pleaded by way of an amendment to its defence at the trial does not, in my opinion, detract from its validity as a ground for dispensing with his services. The law in this regard is accurately summarized in Halsbury’s Laws of England, 2nd ed., vol. 22, p. 155, where it is said:
It is not necessary that the master, dismissing a servant for good cause, should state the ground for such dismissal; and, provided good ground existed in fact, it is immaterial whether or not it was known to the employer at the time of the dismissal. Justification of dismissal can accordingly be shown by proof of facts ascertained subsequently to the dismissal, or on grounds differing from those alleged at the time.
In the 60+ years since the Supreme Court’s decision in Lake Ontario Portland Cement Co. Ltd. v. Groner, the law on after-acquired cause has evolved significantly and has been reaffirmed countless times by all levels of court.
As it stands, an employer seeking to rely on after-acquired cause will have the burden of demonstrating that they:
- Were not aware of the employee’s misconduct at the time of dismissal; and
- Did not condone the employee’s misconduct.
More recently, the Superior Court in Ratz-Cheung v. BMO Nesbitt Burns Inc., 2024 ONSC 161 provided even further guidance on the use of after-acquired cause. In this case, the employer became aware for the first time during the litigation process (more than a year and half after the employee’s dismissal), that the employee, prior to her dismissal, had copied thousands of e-mails containing sensitive information onto a USB key. The employer, who had previously dismissed the employee without cause, then proceeded to amended their Statement of Defence to allege after-acquired cause.
Although the Court ultimately found that the employee’s misconduct did not amount to just cause, this case provides support for the notion that an employer may be able to raise after-acquired cause even years after dismissing an employee, provided that the employer is learning about the alleged conduct for the first time. Further, the Court, quoting the decision in Sankreacha v. Cameron J. and Beach Sales Ltd., 2018 ONSC 7216, reaffirmed that a pleading of after-acquired cause cannot give rise to bad faith damages.
Lesson for employers: where used genuinely, after-acquired cause can be an effective tool. If you are an employer looking for advice or representation on a termination issue, reach out to our team at CCP!
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