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Little white lies I told my boss.

Whether an employer is justified in dismissing an employee on the grounds of dishonesty is a question that requires an assessment of the context of the alleged misconduct. More specifically, the test is whether the employee's dishonesty gave rise to a breakdown in the employment relationship ... just cause for dismissal exists where the dishonesty violates an essential condition of the employment contract, breaches the faith inherent to the work relationship, or is fundamentally or directly inconsistent with the employee's obligations to his or her employer.

-- McKinley v. BC Tel (Supreme Court of Canada, 2001)


Many employees lie to their employer about something. Who hasn't overclaimed credit for a task completed, concealed some bad news, or feigned sickness to score a day off? Perhaps the resume got juiced or we were less than honest in an interview with a prospective employer about why we left the last job.

Imagine that your sales employee lurks near recently-vacated restaurant tables and swoops in to collect meal receipts abandoned by other customers. The employee then submits those third-party receipts as her own to claim meal expenses from the employer. She doesn't claim any more than she had spent. Since she did not get or keep receipts from all her expenditures, she needed to "borrow" the receipts of others to obtain her full reimbursement. When the employer discovers the origins of these receipts, he fires her. Is this dishonesty sufficient cause for faring? (The Alberta Court of Appeal in Hardie v. TramCanada Resources in 1976 said no.)

What about the hypertensive corporate Controller who, following his physician's advice, took an indefinite leave of absence from work. He wanted to return to a job with less responsibility, but he didn't tell his employer that his physician had confidently approved his return to the same stressful work with new medication. Actually, he misled his employer by implying his doctors recommended different work in a new environment. Was this cause for firing? (The Supreme Court of Canada in McKinley v. BC Tel in 2001 said no.)

Should dishonesty, in and of itself, constitute just cause to be fired from one's job, irrespective of the circumstances surrounding the conduct, the nature or degree of such dishonesty, or whether it breached the essential conditions of the employment relationship? In 2001, the Supreme Court of Canada unanimously said in the McKinley case that such a zero tolerance rule toward little deceptions and cover-ups would put all of us in jeopardy of losing our jobs. It would further strengthen the employers' imbalance of power over their employees.

The law in Canada asks whether the employee was proven dishonest and whether "that dishonesty was of a degree that was incompatible with the employment relationship." To dismiss for dishonesty, employers must assess the context of the dishonesty. Did the employee's dishonesty give rise to a breakdown in the employment relationship? This means that the employer must place the dishonesty in context of the whole job and forego firing the employee unless the dishonesty "violates an essential condition of the employment contract, breaches the faith inherent to the work relationship, or is fundamentally or directly inconsistent with the employee's obligations to his or her employer."

For many employers the issue will come down to the seriousness of the dishonesty, judged by the impact it has on that employee, other employees, customers and the organization. Has the employer lost all faith in the employee? One cannot enumerate and predict all possible instances of dishonesty.

When the dishonesty approaches a deliberate pattern of fraud, theft, secret commissions, sham, or misappropriation, most employers would reasonably conclude the dishonesty presents cause to fire the employee. Forging a manager's signature may be sufficient cause (Jewitt v. Prism, BCCA, 1981). In McPhillips, an employee billed unauthorized personal items ordered from one of his employer's suppliers to his employer. Upon discovering this, the employer terminated the employee for just cause and the British Columbia Court of Appeal upheld the firing.

There is more leeway for lying and failing to disclose the whole truth that merely offends the employer or violates company policy. An employee's unauthorized donation of bandages and ice packs owned by his employer to a local hockey team, in breach of company procedure, was an error in judgment and not a firing offence: Hill v. Dow Chemical (Alta Q.B., 1993). Less tolerance will be in order for dishonesty that impacts third parties, significantly misappropriates from the employer, causes the employer palpable loss, or publicly embarrasses the employer in relation to others.

The trust and responsibility in the position held by the dishonest employee will also be relevant. More integrity will be expected from managerial and supervisory employees, and those occupying a special position of trust, such as accountants. In the bogus receipts case above (Hardie), the salesperson was not held to as high a standard of integrity as an accountant.

Lest one think it is acceptable to lie to the boss with impunity, sanctions short of summary dismissal, such as suspension or demotion, may be applied for less serious dishonesty that is not incompatible with the employment relationship. The employer must respond with proportionality. As the Court said, "an effective balance must be struck between the severity of an employee's misconduct and the sanction imposed."

The Court has added further uncertainty into the legality of the employer's decision to terminate an employee. Its desire to take factual context into account and avoid bright line rules about dishonesty may facilitate the litigation of many more disputes. In order to restore certainty in the aftermath of McKinley employers may attempt to spell out dishonesty as a cause for employee termination, thereby contracting out of this uncertainty.

Another alternative for employers who take a stricter view of dishonesty than the Supreme Court of Canada, is to give dishonest employees reasonable notice of termination without cause, in lieu of dismissing the employee with cause without notice. Otherwise, only dishonest conduct which ruptures the trust inherent to the employer-employee relationship provides just cause. A finding of dishonesty, in and of itself, does not create just cause for summary dismissal.

A court reviewing the dismissal will examine the employer's analysis of the surrounding circumstances of the alleged misconduct, its level of seriousness, and the extent to which it impacted upon the employment relationship. The Court will redress dismissal that appears overly harsh and far-reaching when employee dishonesty is in issue.

Peter Bowal is a Professor of Law at the Haskayne School of Business at the University of Calgary in Calgary, Alberta and Thomas D. Brierton is an Associate Professor at the Eberhardt School of Business at University of the Pacific in Stockton, California.
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Title Annotation:Employment Law
Author:Bowal, Peter; Brierton, Thomas D.
Date:Feb 25, 2010
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