Abrams v. RTO Asset Management, 2020 NBCA 57
Last Fall, the Court of Appeal of New Brunswick released a key decision on the extent to which an employer can belatedly rely on just cause to justify its termination of an employee whom it had originally terminated without alleging cause. Only a few months, ago, in March 2021, the Supreme Court of Canada refused to hear the case, thereby making the Court of Appeal’s decision final and binding.
In this case, the employer, RTO Asset Management, had terminated the employment of one of its employees on a ‘without cause’ basis after 29.5 years of employment. When the employee claimed additional notice, the employer belatedly raised the defence of just cause. In court, it argued that since it could have terminated the employee for cause, it ought not to have to pay him any notice at all.
The employee argued that the employer was precluded from now raising just cause as a defence to his claim for enhanced pay-in-lieu of notice, because it had originally terminated him on a without cause basis.
The Court of Appeal accepted the employee’s argument. It ruled that even though the employer had valid grounds to dismiss the employee for just cause, its failure to initially do so at the time of termination, estopped it from subsequently doing so. In ruling thus, the Court ordered the employer to pay the employee 24 months of pay-in-lieu of notice, notwithstanding that it originally had the legal right to dismiss him for just cause, without paying him any notice at all.
This decision of the Court of Appeal sends employers a clear warning that they cannot subsequently rely upon allegations of cause that they previously knew about prior to termination, and yet failed to assert at the time of termination.
In order for employers to be able to raise the defence of just cause after failing to rely upon it at the time of termination, they must prove that their failure to do so was through no fault of their own, in that they were unaware of the employee’s misconduct at the time of termination, and only discovered it at a subsequent date.
The lesson for employers is that if they wish to preserve their right to possibly raise just cause as a potential defence to an employee’s lawsuit, they must go on record, at the time that they terminate the employee, that the termination is for cause, but that they are nonetheless offering the employee a termination package, despite having no obligation to do so. Failure to do so will usually lead to their losing the right to assert just cause.