The Latest on Termination of Employment for Insubordination

The recent case of Smith v. Diversity Technologies Corporation provides some interesting insights into several employment law issues and principally that of termination for insubordination.

Mr. Smith was a sales manager for the defendant Diversity Technologies Corporation (“Diversity”). He had a record of being an exemplary employee. He had been employed by a company called Drillwell for 16 years before it was sold to Diversity and he worked at Diversity another four years until he was fired on October 14, 2011.

Diversity alleged that Smith had been terminated for just cause for insubordination. Smith had been the primary contact for a particular client which, by September 2011, owed Diversity about $100,000. At that point, Smith’s immediate superior instructed him to make sales to that customer in future only if they were paid for immediately by cash or credit card. Subsequently, his superior told him that no sales should be made to that customer at all because Diversity was going to be suing the customer to recover the debt.

Nevertheless, Mr. Smith did take an order from the customer of just over $1,000 without telling his superior. He accepted a cheque from the customer to pay for the order.

When this behavior was discovered by Diversity, Smith was fired.

Smith had entered into an employment contract providing for termination by the employer upon payment of one year’s salary which in this case was $100,000. In fact, Smith obtained comparable employment within a matter of weeks and the Court found that he had suffered no loss.

Not surprisingly, Smith put forward a different version of events relating to his instructions concerning that customer. He denied that he had willfully disobeyed his employer or that he had been insubordinate in any way.

Smith made a claim for the $100,000 severance payment and moved for summary judgment. Diversity insisted that Smith had been fired for cause and at worst, it was entitled to a trial to decide the case.

The motions judge had no difficulty dealing with the matter without requiring a trial. The judge considered that even though the versions of the story told by both sides were different, he was in an excellent position to rule on the matter even accepting Diversity’s version of the events, given the law relating to termination for insubordination.

On the facts of cases in which insubordination was held to constitute just cause for immediate termination, the Court noted that employers have the right to determine how business is to be conducted and employees are obliged to follow those instructions. Where an employee fails to follow lawful orders of his employer, he will be found to have disregarded an essential condition of his employment and this constitutes cause for immediate termination.

However, as this case demonstrates, the issue is not necessarily quite so clear cut. In this case, the Court considered that prior to the incident in question, Smith’s conduct as an employee had been beyond reproach. The amount in issue was trifling, particularly in comparison to the amount of the customer’s outstanding account. Because it was paid for immediately, the additional order did not increase the debt. Given Smith’s length of service and impeccable record, Diversity should have met with Smith, pointed out that his actions were in violation of the new company policy relating to this customer, and provided him with a properly-documented written warning. In proper context, his actions could not be considered as amounting to willful disobedience or insubordination.

The Court concluded by indicating that even if Smith’s conduct could be described as insubordinate, “it was not of a magnitude sufficient to justify termination.” Had Smith continued this behavior, Diversity would have had grounds for termination but in this case, its actions in terminating Smith’s employment were not justified.

On the question of damages, it was clear that Smith had mitigated his damages completely. However, given the terms of his employment agreement, Diversity was ordered to pay Smith $100,000 representing the amount payable under the employment contract.

This case demonstrates that before an employer terminates an employee without notice for insubordination, the employer must consider the context of the insubordinate act. An employer cannot simply seize on one instance of an act which might be considered insubordinate in some technical way to justify terminating the employment of an employee of long standing who has an otherwise unblemished record.

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