Whether someone is terminated with or without just cause can have significant financial implications. Where an employer correctly terminates an employee for just cause, it is not required to provide the employee with any notice of termination or payment in lieu thereof, unlike where the dismissal is without cause. However, the employer does not necessarily have to get it right at the time that the dismissal is communicated to the employee.
After-acquired cause refers to just cause for termination that is discovered after an employee has already been dismissed. Although it gives employers some room for error at the time of termination, after-acquired cause can be difficult to establish, and its effects depend on the circumstances. This post will provide a basic overview of the law on after-acquired cause.
Establishing After-Acquired Cause
The New Brunswick Court of Appeal set out the framework for establishing after-acquired cause in Doucet v. Spielo Manufacturing Inc., 2011 NBCA 44. The two main elements are: (1) the employer must not have known of the misconduct at the time of dismissal; and (2) the misconduct, had it been known, would have warranted summary dismissal.
The first element has several implications. First, post-termination conduct cannot constitute after-acquired cause. The misconduct had to occur while the employee was still employed. Second, the Court in Doucet clarified that after-acquired cause will not only fail to be established where the misconduct was known to the employer prior to the termination, but where the employer ought to have known. This is because employers cannot condone their employees’ misconduct by turning a blind eye or by failing to terminate the employee for such conduct initially.
The second element simply requires that the misconduct be sufficiently severe and of the correct nature to constitute just cause.
Effects of After-Acquired Cause
The effects of establishing after-acquired cause vary depending on the situation.
If an employer initially terminated an employee for just cause but had insufficient grounds to do so at the time, knowledge of misconduct that the employer discovers post-termination can be used to bolster its allegation of cause. Therefore, in such circumstances, after-acquired cause can be used to save and/or strengthen the justification for an employer’s initial decision.
Where an employee was initially terminated without cause, after-acquired cause can be used to set aside a severance agreement in certain circumstances. In York University v Markicevic, 2018 ONCA 893, the Court of Appeal for Ontario applied basic contract law principles in holding that a severance agreement could be rescinded on the basis of after-acquired cause. Specifically, in that case, the employer had relied on the employee’s representations that he had not misconducted himself when it decided to terminate him without cause and negotiate a severance agreement. The Court found that this constituted fraudulent misrepresentation, and the employer was entitled to rescission of the agreement.
After-acquired cause can also be used to cut a notice period short where notice of termination has been given, or where severance payments are ongoing. Further, an employee’s misconduct that occurs during the notice period where reasonable notice has been given can constitute just cause, as the employer has not repudiated the employment agreement through wrongful termination in such circumstances. Therefore, the conduct occurs while the employment relationship is still intact (Aasgaard v Harlequin Enterprises Ltd., 1997 CanLII 1262).
The recognition of after-acquired cause by Canadian courts should not be taken by employers to mean that they can terminate employees for cause in the hopes that they dig something up in the future. If an employer alleges cause without basis, it may be required to pay additional damages to the employee for bad faith conduct in the manner of dismissal. In addition, employers cannot ignore their employees’ misconduct under the assumption that they can investigate later. Finally, just cause is difficult to establish, and that applies to after-acquired cause as well. Employers should make sure they have a sufficient basis for alleging after-acquired cause before they do so.