Employee “misconduct” under U.I. Act not just cause for dismissal, Appeal Court rules

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Is a finding by an administrative tribunal under the Unemployment Insurance Act (or the Employment Insurance Act) that an employee lost his or her job due to misconduct tantamount to a ruling that there was just cause for dismissal under the common law? The Ontario Court of Appeal has considered this question and ruled that the answer is no. The Court’s judgment in Minott v. O’Shanter Development Co. (January 7, 1999) is also noteworthy for what it has to say about the proper method for determining a reasonable notice period.

Minott had worked for 11 years in O’Shanter’s maintenance department, doing repairs mostly involving masonry and plastering. Until his termination at the age of 43, he had given his employer no reason to complain. However, in November 1990, he failed to report to work for two days following a minor dispute with his employer. Minott’s supervisor responded by suspending him for two days. When Minott did not report for work on the day following the suspension, he was fired. At trial, there was a dispute between Minott and the employer as to which days he had been suspended.

BOARD FINDS MISCONDUCT; TRIAL JUDGE RULES JUST CAUSE NOT MADE OUT

Minott applied for U.I. benefits and was told he was disqualified for six weeks because he had lost his job due to misconduct. He appealed this decision to a Board of Referees, which upheld the finding of misconduct, but reduced the disqualification period to three weeks.

When Minott sued for wrongful dismissal, O’Shanter moved that his action be dismissed on the basis that the Board of Referees’ decision was conclusive and provided a complete defence to the claim of wrongful dismissal. The Board had dealt with the same issue that was before the Court, O’Shanter argued, and Minott should be prevented from relitigating it.

The employer’s motion invoked the legal doctrine of issue estoppel, which prevents a party from relitigating an issue that has already been decided in an earlier proceeding. Courts have held that three requirements must be met to give rise to issue estoppel: 1) the question being decided must be the same in both proceedings; 2) the decision of the court or administrative tribunal that creates the estoppel (in this case, the decision of the Board of Referees) was final and judicial; and 3) the parties in the two proceedings are the same, or at least identical in interest.

The trial judge dismissed the employer’s motion, holding that none of the three requirements was met. She went on to conclude that Minott had been dismissed without just cause, after having found that he had been genuinely confused as to when his two-day suspension started.

In calculating the reasonable notice period, the trial judge started with what she referred to as the “rule of thumb” used by employment law specialists – that one month be allowed for each year of service. She then increased this in Minott’s case to 13 months in total, taking into consideration his age and the unlikely availability of similar employment in his field.

O’Shanter appealed on three grounds, the first being that the trial judge had erred in concluding that Minott had been wrongfully dismissed. The Court of Appeal rejected this, holding that there was evidence to support the conclusion that Minott was confused about his suspension and that, even if he was intentionally absent for one day, this did not amount to just cause.

ISSUE ESTOPPEL NOT APPLIED

The second ground of appeal was that Minott’s claim should have been dismissed on the basis of issue estoppel. The Court again sided with the trial judge. On the issue of whether the U.I. proceeding and the wrongful dismissal action raised the same question, the Court observed that, while some employee misconduct may qualify both as misconduct under the Act and just cause for dismissal, the two are not equivalent:

“Just cause for dismissal … demands a broader inquiry than the search for misconduct under the Act. To decide whether an employer had just cause for dismissal, a court may have to take into account a host of considerations: the seriousness of the employee’s misconduct; whether the misconduct was an isolated incident; whether the employee received warnings; the employee’s length of service; how other employees were disciplined for similar incidents; and any mitigating considerations. Misconduct under the Act seems to focus more narrowly on the employee’s actions that led to the dismissal.”

The Court also held that the third element of the test, that the parties in both proceedings be the same, was not met. The Court observed that the case law suggests that whether one is considered a party for the purposes of issue estoppel depends on the degree of one’s active participation in the prior proceeding. O’Shanter had not participated in the U.I. process, apart from having filed one written statement with the Unemployment Commission in response to Minott’s benefits claim.

Having rejected the claim of issue estoppel on the basis of the first and third requirements, the Court then pointedly observed that issue estoppel is discretionary, and that it would have exercised its discretion to refuse to apply the estoppel to prevent unfairness to Minott. In the case of decisions under the U.I. Act, the Court noted, there are several policy reasons for not applying issue estoppel even when its formal preconditions are met. Among these are the risk of creating an incentive to overlitigate in a process that is designed to be quick and efficient; the unfairness in using the result of a U.I. proceeding to foreclose a claimant’s other legal remedies; the difference in the financial stakes between the two proceedings; and the significant procedural differences between the U.I. proceeding and a civil action. (For more recent developments, see “Ontario Court of Appeal considers whether finding of misconduct under E.I. Act bars an action for wrongful dismissal – again” on our Publications page; see also “Employment standards and maximum hours of work” on our Publications page.)

‘RULE OF THUMB’ APPROACH WRONG

The third ground of appeal was that the award of 13 months’ notice was excessive and had been arrived at through the application of improper principles. One of these improper principles was the ‘rule of thumb’ that one month’s notice should be allowed for each year of service. The Court agreed with O’Shanter that this was an error, because it overemphasized one of the four factors generally used by judges to determine reasonable notice, that of length of service, at the expense of the other three: the employee’s age, the character of his or her employment and the availability of similar employment.

The virtue of the four-fold approach is that it permits great flexibility in determining reasonable notice which, the Court noted, is an art, not a science. According to the Court, the ‘rule of thumb’ approach risks undermining this flexibility by giving priority to one factor. To the extent predictability is a desirable goal in employment law, it is better achieved by carefully weighing the four factors to set reasonable ranges for similar cases and, where appropriate, establishing upper limits for certain classes of cases.

The Court noted also that a study of 1600 wrongful dismissal cases showed that the ‘rule of thumb’ approach had only limited validity as a predictor of reasonable notice awards. However, it declined to overturn the award, noting that, while 13 months was at “the very high end of an acceptable range”, it was not unreasonable, and that reducing it would amount to unwarranted tinkering.

In Our View

It should be noted that the Court also rejected the employer’s argument that a previous Court of Appeal decision had effectively imposed a cap of 12 months on notice periods awarded to non-supervisory employees. Such a cap, the Court stated, detracted from the flexibility needed by courts to deal with the factors relevant to each case.

While employees may benefit from this aspect of the Court’s decision and the limited applicability of a finding of misconduct under the U.I. system to wrongful dismissal actions, the Court’s rejection of the ‘rule of thumb’ approach, and the resulting loss of predictability may generally tend to favour employers. (See also “”Seeds of injustice”: Supreme Court of Canada allows employee who lost ESA claim to sue in court” on our Publications page.)

For further information, please contact André Champagne at (613) 563-7660, Extension 229 or Steven Williams at (613) 563-7660, Extension 242.