A Cautionary Tale: Employers Must Take Care to Determine Whether to Terminate With Cause or Without Cause
In the recent decision of Ayalew v The Council for the Advancement of African Canadians in Alberta, 2023 ABKB 113, the Court considered the issue of whether an employer can terminate an employee on a without cause basis and then later argue that it had just cause for dismissal.
The Court held that once an employer has terminated an employee without cause, it cannot later change course if it was aware of the allegations it claims supported just cause at the time the termination took place.
Mr. Ayalew was the Executive Director of The Council for the Advancement of African Canadians in Alberta (the “Employer”) for approximately 10 years. Prior to his termination, a number of employees raised concerns about Mr. Ayalew, alleging that he was bullying, harassing, sexually harassing, discriminating against, or otherwise mistreating subordinate employees.
The Employer placed Mr. Ayalew on administrative leave and initiated an investigation. After reviewing the particulars of the allegations, as well as the Investigator’s interim report (which indicated that Mr. Ayalew did not engage in the misconduct attributed to him), the Employer decided to terminate his employment “without cause”.
In accordance with the Alberta Employment Standards Code (the “Code”), the Employer paid Mr. Ayalew eight weeks’ termination pay. The Employer also offered Mr. Ayalew an additional gratuitous payment conditional on signing a release. Mr. Ayalew did not accept the offer and sued for wrongful dismissal.
The Employer defended on the basis that there was just cause for the termination, claiming that it:
- mistakenly terminated Mr. Ayalew without just cause; and
- had newly discovered information regarding Mr. Ayalew’s pre-termination conduct that supported a “with-cause” dismissal.
The Employer further claimed that it had never agreed with the findings of the investigation report, and did not rely upon it when terminating Mr. Ayalew’s employment.
The key question before the Court was whether the Employer, having expressly dismissed Mr. Ayalew without cause despite being aware of the allegations made against him, could later assert it had just cause to terminate him.
The Court’s answer was “no”. It held that, in the circumstances, once the Employer decided to terminate Mr. Ayalew without cause, it could not later “change horses” and assert just cause.
The Court concluded that the evidence clearly demonstrated the Employer’s intent to terminate Mr. Ayalew without cause. Specifically, the Court found that:
- Mr. Ayalew was provided with a termination letter that specified his termination was “without cause”;
- At no time prior to or during the termination did the Employer inform him that there was any cause for dismissal or any actual or perceived shortcomings in his performance;
- The Employer paid Mr. Ayalew termination pay in accordance with the Code, which requires employers to provide termination when an employee is terminated without cause; and
- There was no evidence that the Employer had “mistakenly” relied on the investigator’s report, or that the Employer came into possession of after acquired information that justified termination for cause.
The Employer attempted to rely on two cases to justify the reversal of its initial termination decision. However, the Court found that these cases did not apply because neither involved a situation where the employer had initially made a specific “without cause” termination, and later sought to recharacterize the termination as with cause on the basis of “known-before-dismissal information”.
The Court commented, at paragraph 94, that the absence of supporting case law,
"… is not surprising, given the principle of condonation or waiver, which would appear to engage where an employer, with full knowledge of the circumstances, decides to terminate without cause and pays severance in accordance with that decision and otherwise shows an intention to dismiss without cause, which are the circumstances here … [emphasis added]"
This case is instructive. Employers must take care to carefully and thoroughly consider a decision to terminate an employee “without cause”, in circumstances where a “with cause” dismissal may be merited. If an employer decides to terminate without cause despite the existence of facts justifying a just cause dismissal, it will not later be able to argue that just cause existed. In situations where an employer consciously chooses to terminate without cause but may want to later rely on just cause (which it may decide to do for a number of reasons), it should be clear in the termination letter that the without cause termination is without prejudice to its position that just cause for the termination exists.
Please reach out to any member of the Labour & Employment practice group for assistance with crafting your termination letter or any other labour or employment matter which may arise.