The Challenge of Terminating for Cause: Stock v. Oak Bay Marina Ltd.

What’s the difference between a termination with cause and without? Most people seem to have a good idea, and recognize that a termination with cause is rooted in employee misconduct. If it has been discovered that an employee has been stealing, lying or committing other forms of misconduct, the employer may be able to argue that the employee has fundamentally breached the employment agreement and that the employer is therefore entitled to put an end to the arrangement without any compensation or severance pay.

Or so the thinking goes… What many workers and employers may not recognize is that terminating someone for “just cause” can be remarkably challenging, as one company recently discovered in the recent BC Supreme Court decision Stock v. Oak Bay Marina Ltd., 2017 BCSC 359.

Terminated

Ms. Stock was a very long term employee of Oak Bay, a company which owned and operated resorts and fishing lodges on Vancouver Island. For most of her career of 20 years with the company, Ms. Stock sold accommodations and guest activities. Ms. Stock was compensated with a mix of salary and commissions, consistently ranked as one of Oak Bay’s best marketers and was particularly skilled at upselling guests.

In order to track sales and commissions, Oak Bay developed sales policies for use by its marketers. One of these policies prohibited ‘marking’ a guest reservation, where a sales agent would claim credit for booking a guest activity when the sales agent had not had any contact with the guest. The concern with marking was that it would inflate a sales agent’s reported sales, potentially resulting in the agent being paid unearned commissions.

When Oak Bay introduced a new reservation software allowing for more detailed internal reports, it noted that Ms. Stock would come into the office prior to regular office hours and that within minutes she would record client interactions on a number of reservations. When the company confronted Ms. Stock about this, she responded that she would put her initials on accounts that she intended to call that day for upselling, whether the client was contacted or not and whether any additional services were sold. She admitted that this was a common practice of hers.

On reviewing Ms. Stock’s conduct, it was clear that she was marking accounts. It was less clear however that she was aware that she was improperly marking accounts or if she received any additional compensation as a result. In conducting their investigation, the company felt that Ms. Stock was minimizing her conduct and elected to terminate for cause.

The Test for Just Cause

Ms. Stock filed a wrongful dismissal claim against her former employer, alleging that there were insufficient grounds to terminate her without providing any severance or notice of the termination. Ultimately, the question as to whether Oak Bay had just cause to terminate was central to the litigation.

In rendering its decision, the Court identified the two-part test for just cause laid out by the Supreme Court of Canada in McKinley v. BC Tel, 2001 SCC 38 (CanLII). In assessing the evidence, the court must determine:  (i) whether the evidence establishes the employee’s deceitful (dishonest) conduct on a balance of probabilities; and (ii) if so, whether the nature and degree of the dishonesty warrant the employee’s dismissal. In assessing the second of these points, the court stressed that context must be fully assessed, including the nature and seriousness of the misconduct, the surrounding circumstances in which the conduct occurred, the nature of the particular employment contract, and the position of the employee. Essentially, the ultimate question is whether the employee’s misconduct “was such that the employment relationship could no longer viably subsist”.

Applying the facts to this legal test, the court found that Ms. Stock’s explanations for marking clients were weak, and accepted that her ultimate intention was to claim credit for the guest bookings she accessed.  The court agreed that “her conduct was wrongful, and that Oak Bay has established the first part of the two-part test described in McKinley.” Ms. Stock engaged in misconduct that was serious from Oak Bay’s point of view and undermined the trust that an employer is entitled to have in an employee in Ms. Stock’s position.

However, in considering context, the court recognized that Ms. Stock had worked for Oak Bay for 20 years, that she had an excellent employment record and no disciplinary history at all.  Year after year, she was one of the top sales agents. Ms. Stock was not given any warning that her continued employment was in immediate jeopardy.

Ultimately, the court found that while strong discipline was justified, immediate termination was not. The appropriate sanction in the circumstances was to give Ms. Stock a strong and final warning, and that any further misconduct would result in her immediate dismissal.

Having failed to satisfy the court that Ms. Stock was terminated for cause, Oak Bay was liable for her wrongful dismissal. Ms. Stock was awarded compensation and benefits for 13 months, the amount of time it took her to find comparable employment.

Takeaways

Ultimately, Stock v. Oak Bay confirms what employment lawyers have long known: successfully arguing terminations with cause can be very challenging. In this case, the court accepted that the Plaintiff was improperly taking credit for sales, with the possible outcome of padding her commissions, and yet the court was still not satisfied that Ms. Stock had fundamentally ruptured the employment relationship.

For employers, this case highlights the importance of proper policy development, enforcement, and progressive discipline. Like we have seen time and time again, our courts will look for some form of progressive discipline in all but the most serious of cases. In noting that the misconduct deserved a “strong and final warning” the court confirmed that employees are almost always entitled the opportunity to correct problem behaviour.

For employees, recognize that many employers who claim just cause termination may not be able to support their position in litigation. As this case highlights, even when misconduct (and even serious misconduct) is presented, the employer will be tasked with the difficult challenge of proving that the employment relationship can no longer viably subsist. This is a tall order and their failure to do so can result in thousands of dollars in damages.

At Kent Employment Law, we promote sustainable employment relationships. We believe that these relationships are mutually beneficial to employers and employees alike, and are founded on a relationship of trust and respect. If you have questions concerning terminations and just cause, please contact one of our offices.

David M. Brown
Kent Employment Law
236-420-1946
david@kentemploymentlaw.com
LinkedIn: https://ca.linkedin.com/in/davidmjbrown
Twitter: @davidmjbrown

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