Thursday, April 21, 2011

BC Supreme Court Dismisses Just Cause Defence (Breach of Fiduciary Duty, Insubordination, Conflict of Interest, Disobedience, Incompetence)

The Honourable Madam Justice Loo of the British Columbia Supreme Court recently dismissed a defence of just cause in a wrongful dismissal case, with a comprehensive and thoughtful analysis of recent leading cases which guide the court on subjects including just cause, fiduciary duty of employees, incompetence, conflict of interest, insubordination, condonation, conflict of interest, and quantification of damages for failiure to give reasonable notice.

This decision was handed down in October, 2010, but the discussion about issues surrounding the just cause defence in a wrongful dismissal case is worth thoughtful review.

In Kokilev v. Picquic Tool Company Inc. the court wrote:

[142] In order to establish cause for dismissal without notice, the employer must prove that the employee's conduct, when viewed in all of the circumstances, was seriously incompatible with his or her duties, and that the conduct went to the root of the employment relationship: Panton v. Everywoman's Health Centre Society (1988), 2000 BCCA 621. An employer has a heavy onus to overcome.

[143] The approach to assessing whether the employee's conduct provides cause for dismissal is objective. Mr. McKenzie's view that the conduct was sufficient to establish cause (or the employee's view that it is not) is not determinative.

[144] The approach is not only objective, it is also contextual: the Court must consider "the particular circumstances surrounding the employee's behaviour ... factors such as the nature and degree of the misconduct, and whether it violates the 'essential conditions' of the employment contract or breaches an employer's faith in an employee" (McKinley v. BC Tel, 2001 SCC 38 (CanLII), 2001 SCC 38, [2001] 2 S.C.R. 161, at para. 39). This balances the employer's right to dismiss an employee for cause with the importance of both the work and the manner of dismissal to an employee's self-worth.

[145] Mr. Justice Iacobucci in McKinley, at paras. 53-54, outlined the principle of proportionality that underlies the contextual approach:

[53] Underlying the approach I propose is the principle of proportionality. An effective balance must be struck between the severity of an employee's misconduct and the sanction imposed. The importance of this balance is better understood by considering the sense of identity and self-worth individuals frequently derive from their employment, a concept that was explored in Reference Re Public Service Employee Relations Act (Alta.), 1987 CanLII 88 (S.C.C.), [1987] 1 S.C.R. 313, where Dickson C.J. (writing in dissent) stated at p. 368:
Work is one of the most fundamental aspects in a person's life, providing the individual with a means of financial support and, as importantly, a contributory role in society. A person's employment is an essential component of his or her sense of identity, self-worth and emotional well-being.
This passage was subsequently cited with approval by this Court in Machtinger v. HOJ Industries Ltd., 1992 CanLII 102 (S.C.C.), [1992] 1 S.C.R. 986, at p. 1002, and in Wallace v. United Grain Growers Ltd., 1997 CanLII 332 (S.C.C.), [1997] 3 S.C.R. 701, at para. 95. In Wallace, the majority added to this notion by stating that not only is work itself fundamental to an individual's identity, but "the manner in which employment can be terminated is equally important".
[54] Given this recognition of the integral nature of work to the lives and identities of individuals in our society, care must be taken in fashioning rules and principles of law which would enable the employment relationship to be terminated without notice. The importance of this is underscored by the power imbalance that this Court has recognized as ingrained in most facets of the employment relationship. In Wallace, both the majority and dissenting opinions recognized that such relationships are typically characterized by unequal bargaining power, which places employees in a vulnerable position vis-à-vis their employers. It was further acknowledged that such vulnerability remains in place, and becomes especially acute, at the time of dismissal.

[146] Picquic also suggests that Mr. Kokilev was terminated on the basis of insolence and insubordination.

[147] The law relating to termination without notice on the basis of insubordination was discussed in Adams v. Fairmont Hotels & Resorts Inc., 2009 BCSC 681 (CanLII), 2009 BCSC 681, at paras. 277-279:

[277] Conduct amounting to insubordination sufficient to establish cause for dismissal was described half a century ago by Lord Evershed in the oft-cited decision of Laws v. London Chronicle (Indicator Newspapers), Ltd., [1959] 2 All E.R. 285 at 287 (Eng. C.A.):
[S]ince a contract of service is but an example of contracts in general, so that the general law of contract will be applicable, it follows that, if summary dismissal is claimed to be justifiable, the question must be whether the conduct complained of is such as to show the servant to have disregarded the essential conditions of the contract of service. It is, no doubt, therefore, generally true that wilful disobedience of an order will justify summary dismissal, since wilful disobedience of a lawful and reasonable order shows a disregard – a complete disregard – of a condition essential to the contract of service, namely, the condition that the servant must obey the proper orders of the master and that, unless he does so, the relationship is, so to speak, struck at fundamentally.
[278] As noted in Laws, insubordination will not constitute cause unless the employer establishes that the employee breached an "essential condition of the contract of service". That may occur, said the Court in of Appeal in Panton at para. 33, where the employee has wilfully defied a "clear and unequivocal" instruction or refused "to carry out a policy or procedure well known by the employee to be central to the fulfillment of the employer's objectives".

[279] The Court in Panton also cited its earlier decision in Stein v. British Columbia (Housing Management Commission) 1992 CanLII 4032 (BC C.A.), (1992), 65 B.C.L.R. (2d) 181, 41 C.C.E.L. 213 (C.A.) where, after citing Laws, Southin J.A. said the following at 4:
I begin with the proposition that an employer has a right to determine how his business shall be conducted. He may lay down any procedures he thinks advisable so long as they are neither contrary to law nor dishonest nor dangerous to the health of the employees and are within the ambit of the job for which any particular employee was hired. It is not for the employee nor for the court to consider the wisdom of the procedures. The employer is the boss and it is an essential implied term of every employment contract that, subject to the limitations I have expressed, the employee must obey the orders given to him.
[148] Picquic also relies on the preceding passage from Stein, and the one that immediately follows it:

It is not an answer for the employee to say: "I know you have laid down a rule about this, that or the other, but I did not think that it was important so I ignored it."

[149] In Stein the plaintiff was Regional Manager of the defendant on Vancouver Island. The purpose of the defendant was to provide public housing to those in need. The plaintiff was aware that housing was to be allocated on the basis of a written policy and procedure that implemented a point score system. The plaintiff knew he was to implement the point score system but failed to do so. The Court of Appeal, in dismissing his appeal from the trial judgment (dismissing his wrongful dismissal action) found that the plaintiff had fundamentally disregarded an essential condition of his contract of employment.

[150] However, Stein cannot be said to stand for the proposition that disobeying every lawful order of an employer amounts to cause for dismissal. In that case Madam Justice Southin, in dismissing the employee's appeal, quoted the following passage from Laws v. London Chronicle (Indicator Newspapers) Ltd. with approval:

I think that it is not right to say that one act of disobedience, to justify dismissal, must be of a grave and serious character. I do, however, think (following the passages which I have already cited) that one act of disobedience or misconduct can justify dismissal only if it is of a nature which goes to show (in effect) that the servant is repudiating the contract, or one of its essential conditions; and for that reason, therefore, I think, that one finds in the passages which I have read that the disobedience must at least have the quality that it is "wilful": it does (in other words) connote a deliberate flouting of the essential contractual conditions.

[151] I do not think it can be said that Mr. Kokilev ever refused to carry out the tasks that were essential conditions of his contract of employment.

[152] Picquic relies on Smith v. Peace Arch Community Services (1999), 89 A.C.W.S. (3d) 519 (B.C.S.C). However, the facts in that case are clearly distinguishable; the plaintiff employee expressly knew that his wife was prohibited from being paid from public funds because of a conflict of interest.

[153] Picquic does not suggest that any of the incidents viewed separately gives rise to just cause to terminate Mr. Kokilev's employment. Rather, it argues that the incidents viewed cumulatively afford grounds for just cause on the basis of the principles enunciated in Atkinson v. Boyd, Phillips & Co. 1979 CanLII 478 (BC C.A.), (1979), 9 B.C.L.R. 255 (C.A.) at paragraphs 45 and 46 where the Court agreed with the following quote from Ross v. Willards Chocolates Ltd., [1927] 2 D.L.R. 461 at 469-470 (Man. K.B.):

It is not always easy for an employer who finds an employee thoroughly unsatisfactory and deficient in obedience or competence to point to a single instance which would justify his summary dismissal. But I do not think it is necessary to rely upon such a single instance where the employee's conduct shows a general laxity and disregard of instructions in a business requiring energy, accuracy of accounts, and strict adherence to instructions, such as this business required.

[154] However, the performance and misconduct of the employee in that case was much more egregious than Mr. Kokilev's. There, despite repeated warnings to improve, the plaintiff's conduct and attitude alienated the defendant's clients, caused the defendant to lose business and other employees to quit. The plaintiff also refused to carry out the defendants specific instructions.

[155] Picquic also relies on Lowery v. Calgary (City), 2002 ABCA 237 (CanLII), 2002 ABCA 237, where the Alberta Court of Appeal stated at para. 3:

[3] ... Summary dismissal for incompetence is justified by significant breach of contract on the part of an employee. Where the employer alleges cumulative cause for such dismissal, it must prove on the authority of Atkinson v. Boyd, Phillips & Co. Ltd. 1979 CanLII 478 (BC C.A.), (1979), 9 B.C.L.R. 255, with which we respectfully concur on this point, that:

1. The employee was given express and clear warnings about his performance.

2. The employee was given a reasonable opportunity to improve his performance after the warning was issued.

3. Notwithstanding the foregoing, the employee failed to improve his performance.

4. The cumulative failings "would prejudice the proper conduct of the employer's business".

[156] In the case at bar, Mr. Kokilev was given a warning after the David Bonner incident on November 5, 2002 and his performance improved and his salary was increased.

[157] Mr. McKenzie concedes that he did not give Mr. Kokilev a written warning after the flood incident to communicate that he considered Mr. Kokilev's conduct had "undermined" his plans. There is no evidence that the flood incident in November 2003 was ever raised with Mr. Kokilev until this litigation was commenced, and even then the flood incident is not referred to in the statement of defence or in the further and better particulars delivered in February 2010.

[158] Mr. McKenzie agrees that after the flood Mr. Kokilev worked long hours and provided the necessary financial details and documents required by the insurance adjusters in order to substantiate the company's loss. He agreed that at that time they "had a reconciliation" and he was glad that Mr. Kokilev was employed by the company because he did a professional job and supported the company with the challenges that it faced after the flood.

[159] Mr. McKenzie also agreed that from that time forward until May 4, 2007 their relationship improved, and it was a reasonably good relationship. There were several instances of minor disagreements, but "none that caused me to want to fire you".

[160] Mr. Kokilev argues that it is too late to rely on the David Bonner incident or the flood incident on the basis of condonation. I agree.

[161] The principle of condonation is explained in the frequently cited passage from McIntyre v. Hockin, [1889] O.J. No. 36, 16 O.A.R. 498 (Ont. C.A.), at para. 13:

[13] It may be proper, however, to add a few words on the subject of condonation. When an employee becomes aware of misconduct on the part of his servant, sufficient to justify dismissal, he may adopt either of two courses. He may dismiss, or he may overlook the fault. But he cannot retain the servant in his employment, and afterwards at any distance of time turn him away. It would be most unjust if he could do that, for one of the consequences of dismissal for good cause is, that the servant can recover nothing for his servant's services beyond the last payday, whether his engagement be by the year or otherwise: Smith's Law of Master and Servant, 4th ed., p. 220; Boston Deep Sea Fishing Co. v. Ansell, 39 Ch. D. 339. If he retains the servant in his employment for any considerable time after discovering his fault, that is condonation and he cannot afterwards dismiss for that fault without anything new. No doubt the employer ought to have a reasonable time to determine what to do, to consider whether he will dismiss or not, or to look for another servant. So, also, he must have full knowledge of the nature and extent of the fault for which he cannot forgive or condone matters of which he is not fully informed. Further, condonation is subject to an implied condition of future conduct, and whenever any new misconduct occurs, the old offences may be invoked and may be put in the scale against the offender as cause for dismissal.

[162] Mr. McKenzie may not have liked Mr. Kokilev's response to his assigned tasks at the meeting of May 4, 2007 but I do not agree that he was insubordinate or insolent. He may have made some negative comments, from Mr. McKenzie's point of view, but there is no evidence that he failed to carry out his assigned task.

[163] At the meeting of October 25, 2007 Mr. Kokilev may not have explained why the bonus plan was in a deficit position, but again, at worst, Mr. Kokilev may have exercised poor judgment or made inappropriate comments (from Mr. McKenzie's point of view). But he cannot be said to have repudiated an essential condition of the contract of employment. Mr. McKenzie said that he asked for "input". He received input, and cannot now complain that Mr. Kokilev was disobedient or insolent.

[164] The meeting of January 30, 2009 was unfortunate because Mr. Kokilev was left in the dark before the meeting. Without being told the purpose of the meeting, he was put on the spot and asked for his views when Mr. McKenzie knew that he thought it was not financially prudent for the company to change carriers. While Mr. Kokilev may not have provided the comments that Mr. McKenzie wanted to hear, his response was not surprising.

[165] I conclude that none of the incidents, relied on either separately or cumulatively, establish just cause.

[166] I find that Mr. Kokilev genuinely believed that changing carriers was not in the best interest of the company. Simply because Mr. Kokilev may have been upset at the meeting and said things that were not to Mr. McKenzie's liking, does not amount to a conflict of interest or breach of fiduciary duty. Nor can it be said that Mr. Kokilev "undermined" Mr. McKenzie or Picquic.

[167] The word "undermine" is defined in the 9th edition of The Concise Oxford Dictionary as to "injure (a person, reputation, influence, etc.) by secret or insidious means" (Oxford: Clarendon Press, 1995, at 1522).

[168] The Gage Canadian Dictionary defines "undermine" as to "injure or damage by secret or unfair means: The editorial was obviously intended to undermine her influence in the community" (Toronto: Gage Educational Publishing Company, 1983, at 1598).

[169] Picquic suggests that Mr. Kokilev was acting in a conflict of interest because he wanted Mrs. Kokilev to remain the broker. Mr. Kokilev admitted in cross-examination that he was aware that his wife received a commission (it was approximately $2,000) that formed a part of their household income. Mr. Kokilev was never asked the question, but no doubt he would have preferred that his wife remain the broker, but again, that does not create a conflict of interest.

[170] Black's law Dictionary, 9th ed. (St. Paul, MN: West, 2009) contains the following definition:

conflict of interest. (1843) 1. A real or seeming incompatibility between one's private interests and one's public or fiduciary duties. 2. A real or seeming incompatibility between the interests of two of a lawyer's clients, such that the lawyer is disqualified from representing both clients if the duel representation adversely affects either client or if the clients do not consent [at 341].

[171] In Pirie v. Armstrong, 2004 BCSC 1346 (CanLII), 2004 BCSC 1346, Bouck J. stated at para. 14: "An allegation of conflict of interest appears to be more in the nature of a political term than it is a legal one. A better legal term seems to be a breach of a fiduciary duty."

[172] The Canadian Oxford Dictionary defines "conflict of interest" as "the situation of a politician, corporate officer, etc., whose private interests might benefit from his or her public actions or influence" (Toronto: Oxford University Press, 1998, at 297).

[173] I have already concluded that Mr. Kokilev was not a fiduciary, and even if he was, Picquic has not established any breach of fiduciary duty.

[174] I conclude that Picquic has failed to establish that it had just cause to terminate Mr. Kokilev's employment. The next issue is therefore the appropriate period of notice or salary in lieu of notice.


Once again, the courts of British Columbia have taken a contextual approach to just cause, with a focus on proportionality in the scope of permissible discipline, and a long term employee who did not conduct himself entirely appropriately has yet not been found liable to dismissal without any notice. For summary dismissal to be possible, the defendant employer must be able to produce very clear evidence that the employment relationship has been repudiated by some conduct on the part of the plaintiff employee.

This will not be an easy onus to discharge.

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