Just Cause in Non Profit Organizations – Reason for Employers to be More Optimistic in Proving Their Case

Author: Mike Weiler, KSW Lawyers Employment & Labour Group

 

As readers of our blogs will know employers face an enormous challenge in proving just cause for summary termination of an employee especially long service employees as a result of the Supreme Court of Canada’s decision in McKinley 2001 SCC 38 (CanLII) | McKinley v. BC Tel | CanLII .  In that decision the SCC raised the bar by declaring that even dishonesty won’t always be just cause for termination. Courts were directed to take a “contextual view” and consider among other things if a lessor sanction would be more appropriate and proportional to the misconduct.

As a result employers often settle cases even where there is serious misconduct.  Unfortunately the courts have also stated that there is no such thing as “near cause” – either you have just cause or you don’t.  This all or nothing approach coupled with the high onus on employers makes employee counsel often feel emboldened in pursuing their cases knowing that proof of just cause is unlikely. 

But two recent cases give hope to employers in the just cause debate that should cause employee counsel to be more reasonable in their positions on settlement.  The courts also provide insights into the operation of nonprofit organizations.

1.  Goruk v Greater Barrie Chamber of Commerce, 2021 ONSC 5005

2021 ONSC 5005 (CanLII) | Goruk v. Greater Barrie Chamber of Commerce | CanLII

Sybil Goruk at 75 years old was employed by the Barrie Chamber for 17 years as the executive director the most senior staff position.  She earned a salary of $65,500 per year plus benefits.  The Chamber terminated her employment for cause on April 29th 2014 following an investigation.  She sued for wrongful dismissal claiming damages based on 24 months’ notice, aggravated damages of $200,000 and punitive damages of $500,000—a total damage claim of $838,200.

The court found that her conduct was incompatible with the fundamental terms of her employment, that she was dismissed for cause and dismissed her wrongful dismissal suit.  It stated in conclusion:

For the foregoing reasons, I am satisfied the Chamber has established, on a balance of probabilities that  it had just cause to terminate Ms. Goruk.  A combination of misfeasance and bad judgement created  a situation where the board could  no longer trust her. Trust was an integral part of her position.  The loss of trust, arising from her misconduct, undermined the fundamental terms of the employment relationship.  Termination was an unfortunate, but proportionate, response.” [para 282]

The case is of particular importance to non-profit organizations as the court sets the standard of conduct on senior management at a high level.

Ms. Goruk was considered a “terrific employee” over her tenure.  But in 2014 she was placed on a paid administrative leave pending investigation of concerns that included altering a bank document, taking unauthorized vacation pay, granting herself an unauthorized pay raise, granting unauthorized employment to her sons without disclosure to the auditors, suppressing a letter from the auditors regarding concerns over financial statements and finally reimbursing herself for unauthorized charges.

After a thorough review of the evidence the court determined that most of the allegations themselves –even the dishonest act of altering a bank document–were insufficient in and of themselves to constitute cause.  However the cumulative effect of same amounted to cause.  Because the incidents came to a head at around the same time no warnings were necessary to establish cause. The court took note of the particular nature of non-profit organizations that impacted on the heightened duty of the executive director:

1.3              Findings

[66]           I accept that Ms. Goruk stood in the position of a fiduciary to the Chamber and, as such, owed them duties of loyalty, honesty, good faith and a strict avoidance of conflicts of interest.

[67]           I find that there was an implied undertaking given by Ms. Goruk to act in the best interests of the Chamber.  The undertaking arose from the nature of the relationship itself.

[68]           The Chamber is a volunteer-based, non-profit organization.  It is governed by a constantly changing board of directors.  The board has, historically, as one might expect, been responsible for governance, rather than hands-on management.  The board relies entirely on the executive director for day-to-day management.

[69]           Ms. Goruk understood what was involved in the executive director position when she took it on.  She knew the weight that would fall upon her shoulders.  In taking the role on, I find that she implicitly undertook to act in the best interests of the Chamber.

[70]           I also find that the Chamber was particularly vulnerable to the exercise of Ms. Goruk’s discretion.  Until Ms. Millis took on the role, it would appear that the treasurer was a largely hands-off position.  Ms. Goruk, by and large, had free rein to manage the day-to-day business of the Chamber with relatively modest oversight.

[71]           The reality is that the very existence of the Chamber was in Ms. Goruk’s hands.  She oversaw all aspects of its operations: memberships, fundraising, events, banking and promotion.  She was its public face; it’s one consistent feature in an ever-changing landscape of governance.

[72]           There is no question that the board of directors relied on Ms. Goruk to keep the operation afloat, to keep them informed of its well-being on a month-to-month basis and to generally ensure its viability and stature in the local business community.

The Court’s reference to the non-profit nature of the employer is particularly important and instructive:

[246]      As I noted, the Chamber is a not-for-profit community-based organization.  It had, and continues to have, a high profile in the community.  It serves the interests of hundreds of members, who pay annual fees to be a part of the organization.   Its reputation for integrity and honesty is important.

[249]      Ms. Goruk, as the executive director, was the public face of the Chamber.  She ran its day-to-day operations. The board of directors were volunteers.  They could engage in only modest oversight of her activities.  They relied implicitly on her integrity and trustworthiness.

[250]      Robert Brown was the Chamber president in 2009-10.  He testified that trust in the executive director was integral to the role.  Brendon Saxton was president in 2005-06.  He testified that he trusted Ms. Goruk and that trust was absolutely integral to her role.  Debbie DeCaire was the president in 2013-14.  She testified that the board simply lost faith and trust in Ms. Goruk and, in the result, voted unanimously to terminate her for cause.

[251]      I accept the evidence offered by the Chamber that the termination was a result of a loss of faith and trust in Ms. Goruk to carry out the role of executive director.  That loss was informed by an accumulation of factors.  A volunteer board is simply unable to watch over the executive director’s every move.  If her honesty was not patent, if they could not trust her implicitly, she was not fit for the role.

[252]      Any one of the incidents of malfeasance or the exercise of poor judgment would not, in my view, be sufficient to support a termination for cause.  But taken together they do.

[253]      Honesty, faith and trust were integral components of Ms. Goruk’s employment.  I find that the board was justified in reaching the conclusion that Ms. Goruk had not acted with complete honesty in the discharge of her duties as executive director.  That absence of integrity and the demonstrated exercise of poor judgment on significant issues justified her immediate termination.

[254]      In other words, her conduct was incompatible with the fundamental terms of the employment relationship.  The Chamber has, in the result, satisfied me, on a balance of probabilities that just cause existed for her termination.

Takeaways

This is an eye opener for all non-profit organizations.   Most would be shocked to know that their organization could be liable as claimed here for $800,000 in termination damages.  Even being successful as here the legal costs of defending a 13 day trial would be in the 6 digit figures.  Complete trust in the executive and other senior managers is absolutely imperative and necessary to run your organization.  But non-profit Boards must be vigilant in following proper oversight and corporate governance best practices to avoid the problems encountered by the Barrie Chamber.

In my view every director would be well served to read the entire transcript of the court’s reasoning to understand how these problems can arise.

2. Golob v Fort St. John (City), 2021 BCSC 2192 

2021 BCSC 2192 Golob v. Fort St. John (City) (bccourts.ca)

Daniel Golob was terminated by the City on June 22, 2020 for just cause.  The City alleged that through a pattern of misconduct he had breached his employment contract and there was just cause for summary termination.  While not traditionally thought of as a non-profit organization, the principles that apply to non-profit organizations apply equally to municipalities. After an eight day trial the court held that the City had established just cause.

Mr. Golob was 53 years at the time of his termination.  Based on concerns expressed in an email, the City conducted an internal investigation headed by the Director of Human Resources and the acting Chief Human Resources officer who interviewed 12 members of the City’s firefighting department.  Remarkably they did not interview the Plaintiff.  The City decided to terminate Mr. Golob for cause without any written warnings.

The claim against Mr. Golob was that he was insubordinate and insolent in respect of his statements and attitude towards his boss the Fire Chief.

The court found that the Investigation was fundamentally flawed and that if the matter had ended there, there would not have been just cause for termination.  In fact the court noted that the Director of Human Resources intentionally did not follow the City’s own policies for investigating the complaint in large part because operating under the Code of Conduct Policy meant the City was not obligated to let Mr. Golob respond.  The court also found that “there was a prevailing element of reverse-engineering by [Director of Human Resources] during the investigation” and that following the first interview “…the die was case for the termination of Mr. Golob.”  After the first interview the Director compiled a list “…intended to cover those who would support the desired decision to fire Mr. Golob.”

Unfortunately for Mr. Golob the court’s strong views that the investigation was deeply flawed were irrelevant to the issue of whether there was just cause. The court noted that there is no duty of procedural fairness owed by an employer to an employee where the employment relationship is governed by a contract even where the employer is a public body.  [NOTE—I think that proposition may well be challenged at some point based on the duty of honesty and fair dealing as described by our Supreme Court of Canada in Bhasin v Hrynew 2014 SCC 71]

The turning point in the case was the discovery of “After Acquired Evidence” that supported the original decision to terminate Mr. Golob.  This was not a case of after acquired cause but rather after acquired evidence in support of what the City had describe in its termination letter as “insubordination”.

The evidence was found in text messages that showed the Plaintiff making disparaging comments about the Chief.  This amounted to “insolence “not “insubordination”.  “Insolence captures conduct that amounts to derisive or contemptuous language towards a superior” (para 64).

In finding just cause the court stated:

83]         The evidence is clear that Mr. Golob aspired to succeed Fred Burrows as Chief of the Department. Mr. Golob testified that when there was no internal hiring competition, but rather the job was given to Mr. Blades, he accepted the decision and was content in his role as Deputy Chief of Operations. However, Mr. Golob’s actions speak far more loudly and cogently than his words. Mr. Golob often referred to Mr. Blades, both before and after Mr. Blades’ promotion to Chief, in derogatory terms and openly questioned his education and qualifications. The words and actions of Mr. Golob had the inevitable effect of undermining Chief Blades’ leadership and authority. In the context of an organization such as a fire department, a breakdown in the chain of command cannot be permitted.

[84]         In addition, the overall conduct of Mr. Golob, and in particular, the gross breach of his duty of loyalty to the City evinced by the text messages to Captain D’Agostino, constituted a fundamental breach of the employment agreement.

Takeaways

While municipalities are much more structured than other non-profit organizations it is important to note that they are just as susceptible to wrongful dismissal actions.  And in these tough economic times it is the taxpayer who foots the bill.  So when a municipality utterly fails to follow its own policies for fair and unbiased investigations it should be a concern to Council.  Here the City got lucky with the after acquired evidence.  Failing that discovery the dismissal would not have  been upheld and there would have likely been a huge damage award.  Even so the City incurred significant legal fees.

But the fact remains that due diligence in an investigation should include consideration of text and emails that may be important in deciding if the misconduct alleged amounts to just cause.  Certainly all employers are wise to check computers and phones following the termination of any employee.

Our Employment & Labour Group has been working with businesses to educate, develop and draft the right policies and contracts for their workplace and are here to help! Get in touch today.

Note to Readers: This is not legal advice. If you are looking for legal advice in relation to a particular matter please contact Mike Weiler or Chris Drinovz.

Mike Weiler is senior counsel with the Employment & Labour Group at KSW Lawyers (Kane Shannon Weiler LLP). Mike works closely with Chris and specializes in labour law and helping unionized employers with Labour Relations and Union Advice. Mike has more than 44 years of experience practicing employment, labour and human rights law, and related areas, including governance and shareholders rights (and corporate defences to same). He represents employers, management, executives and other senior employees.
You can reach Mike by email at mweiler@ksw.bc.ca.

Chris Drinovz is an experienced employment and labour lawyer in Abbotsford, Langley, Surrey & South Surrey, a Partner at KSW and Head of the Employment & Labour Group at KSW Lawyers (Kane Shannon Weiler LLP). Chris has been assisting local businesses with workplace issues since 2010. His expertise covers all facets of the workplace including wrongful dismissal, employment contracts, workplace policies, and WorkSafeBC matters, including occupational health & safety. Chris is on the Executive of the Employment Law Section of the Canadian Bar Association BC, the Vice President of Greater Langley Chamber of Commerce and a Director for Surrey Cares. Chris can be reached at cdd@ksw.bc.ca.

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