Employers Take Note: Costs of a Just Cause Misstep Could be Significant

July 2017

Previously printed in the LexisNexis Labour Notes Newsletter.

The Supreme Court of Canada recently denied leave to appeal of the Ontario Court of Appeal’s decision in Fernandes v. Peel Educational & Tutorial Services Ltd. c.o.b. Mississauga Private School, 2016 ONCA 468.  This case is a timely reminder for employers in relation to two issues: (1) the standard of misconduct that qualifies as “just cause”; and (2) the potentially significant liability that an employer can incur when a wrongfully dismissed employee becomes disabled during his or her reasonable notice period.

Background

Peel Educational & Tutorial Services Ltd. carried on business as Mississauga Private School (the “School”). It employed Mr. Fernandes as a teacher from January 1999 until April 2009, when his employment was terminated for just cause.  Mr. Fernandes had been fabricating students’ grades and recording marks before the students had completed their work.  He repeatedly denied the grades were inaccurate and, only after his discharge, admitted to falsifying the grades.

Immediately following his dismissal from employment, Mr. Fernandes was diagnosed with major depressive disorder along with anxiety neurosis, panic attacks and post-traumatic stress disorder.

Mr. Fernandes sued the School for wrongful dismissal. The School defended on the basis that there was just cause for dismissal.

Ontario Superior Court of Justice

The trial judge found misconduct on the part of Mr. Fernandes, including creating false and inaccurate grades and then lying to cover up the improprieties. Nonetheless, the judge found that the School had wrongfully dismissed Mr. Fernandes.  In reaching this conclusion, the trial judge was influenced by the fact that the School had sent out interim report cards containing the inaccurate grades in spite of knowing they were false.  This suggested that the infraction was not as serious as the School claimed.  The judge also considered the fact that Mr. Fernandes had been employed for more than ten years and had been a “well regarded” teacher during that time.  Ultimately, the judge concluded that the punishment of termination was not appropriate for the misconduct in question.

Given that Mr. Fernandes had been wrongfully dismissed, he was entitled to a reasonable notice period of 12 months. During that notice period, he had become disabled and could not qualify for long-term disability (“LTD”) benefits because he was not covered by the School’s disability plan.  The trial judge found that “but for” Mr. Fernandes’ wrongful dismissal, he would have qualified for and received LTD benefits.  Therefore, the School was ordered to pay damages for wrongful dismissal, miscellaneous income loss, and loss of LTD benefits (which were valued around $120,000).

Ontario Court of Appeal

The Ontario Court of Appeal allowed the School’s appeal and dismissed Mr. Fernandes’ action. The Court found that by falsifying grades, Mr. Fernandes’ conduct went far beyond mere negligence and his acts constituted serious misconduct.  The Court noted that this conduct could have led to serious harm and put the School’s accreditation in jeopardy.  Although the duration of the misconduct was short, it struck to the heart of the employment relationship and resulted in just cause for dismissal.

Since Mr. Fernandes was properly dismissed with cause before he became disabled, he was not eligible for LTD benefits.

Mr. Fernandes’ application for leave to appeal to the Supreme Court of Canada was dismissed with costs: [2016] SCCA No. 376.

Lessons for Employers

This case serves as a reminder of the substantial liability that can accrue to an employer if there is a just cause misstep and a wrongfully dismissed employee becomes disabled during his or her reasonable notice period. In the most extreme example, an employer could be liable for paying disability benefits for a dismissed employee until he or she reaches age 65.  This was the result in Brito v. Canac Kitchens, 2012 ONCA 61, where the employer was found liable for the cost of the employee’s lost disability benefits from the beginning of the disability through to age 65.

This case also reaffirms the principle that misconduct going to the heart of the employment relationship can be just cause for dismissal, and progressive discipline is not required in cases of the most serious misconduct.

While employers cannot foresee an employee becoming disabled during the notice period, there are several steps that employers can take to minimize the risk of liability for LTD and other benefits during the notice period:

  1. Ensure that employment contracts contain clear language which limits post-termination entitlement to LTD and other insurable benefits.
  2. On termination of the employee’s employment, clearly explain to him or her what will happen to disability and other benefit coverage and offer any alternatives available, including conversion to an individual plan.
  3. In high risk cases, consider the possibility of continued insurance coverage beyond the end of employment. Employers can often purchase “bridge coverage” which has the effect of extending benefits beyond a group plan for a period of time.
  4. Where possible, obtain a comprehensive release from the departing employee releasing the employer from any claims for LTD and other benefits.
  5. Ensure that any contracts, including releases, are compliant with applicable employment standards legislation.