When Past Misconduct Surfaces After Termination: After-Acquired Cause
When an employer terminates an employee without cause and puts a compensation package on the table, the offer tends to feel final. The offered package itself appears to settle the question of cause. It is natural to assume that if grounds for termination existed, surely the employer would have invoked them.
However, the doctrine of ‘after-acquired cause’ complicates that picture. Where an employer later uncovers misconduct that predated the termination, it can withdraw the original offer and limit the employee’s entitlements to the statutory minimums, as set out by the Employment Standards Act, 2000 (the “ESA”).[i]
The recent Ontario decision of Birnbaum v. Dr. Chan[ii] illustrates how powerful this doctrine can be. In Birnbaum, an employee who served for 19 years, and was initially offered 12 months’ salary continuation for a without-cause termination, walked away with a fraction of that instead.
In this article, the employment litigation lawyers at Walker Law examine the doctrine of after-acquired cause, walked through the three-step legal test, and use Birnbaum to illustrate how Ontario courts apply the test in practice.
The Doctrine of After-Acquired Cause
After-acquired cause permits an employer to rely on misconduct discovered after a termination, provided the misconduct itself occurred before the termination took effect. The Ontario Court of Appeal confirmed this in Dowling v. Ontario (Workplace Safety and Insurance Board).[iii]
The practical consequence is significant. An employer who initially terminated without cause and offered a generous compensation package can, on discovering serious misconduct, withdraw that offer and limit the employee to ESA minimums.
The doctrine reflects the basic principle that termination decisions are tested against the actual facts, not just the facts the employer happened to know on the day notice was given.
The Three-Part Test for After-Acquired Cause
Whether after-acquired misconduct justifies, dismissal is determined using the framework set out in Dowling, which builds on the Supreme Court of Canada’s decision in McKinley v. BC Tel.[iv] The court asks three questions:
- A party settles with the plaintiffs and exits;
- They pay only their share of the damages;
- The lawsuit continues against the non-settling defendants.[1]
What Happened in Birnbaum v. Dr. Chan
The plaintiff in Birnbaum was a medical secretary who had worked for a small respirology and sleep disorders clinic for approximately 19 years. In April 2020, near the start of the COVID-19 pandemic, the clinic terminated her employment without cause, due to a significant downturn in business, and offered her 12 months of salary continuation.
In response, the plaintiff sued for wrongful dismissal, claiming that she was entitled to 24 months of pay in lieu of notice, among other damages, such injury to dignity, feelings, and self-respect.
After the plaintiff sued, the clinic conducted a detailed audit of its electronic medical records system. That audit revealed that the plaintiff had, over a period of years, created an unauthorized patient chart for herself within the clinic’s database, created a separate chart for her daughter, and misrepresented the clinic’s physician as her own treating doctor in order to have records transmitted from outside hospitals into the clinic’s system.
Critically, the audit also showed that the plaintiff had been warned in 2014 to stop the practice and had subsequently received repeated training on patient privacy and confidentiality. She continued anyway. On discovering the audit results, the clinic withdrew its 12-month salary continuation offer (valued at approximately $18,200) and paid only the ESA statutory minimum: an amount of $2,877.39.
Applying the Three-Part Test for After Acquired Cause
Based on the plaintiff’s conduct, the Court decided that the clinic had a valid reason to terminate the plaintiff and upheld the clinic’s decision to limit the plaintiff to statutory minimums. Each step of the Dowling test pointed in the same direction:
- First, on the nature of the misconduct, the Court decided that the plaintiff’s repeated and unauthorized use of the clinic’s confidential database breached patient privacy law and the clinic’s own policies. The conduct was serious enough that the physician was required to self-report to the College of Physicians and Surgeons of Ontario.[viii]
- Second, on the surrounding circumstances, the Court emphasized the role of trust in a medical setting, observing that the “degree of trust between a medical doctor and her medical assistant and their respective staff is critical in maintaining the medical doctor’s professional and ethical standards with their regulators.”[ix]
- Third, on proportionality, the Court concluded that confidentiality and the proper use of the clinic’s computer systems were fundamental requirements of the role, and that the plaintiff’s misconduct “strikes at the heart of the employment relationship.”[x] The 2014 warning and ongoing privacy training weighed against her. The plaintiff knew, or ought to have known, that her conduct was prohibited, and she continued anyway.[xi]
What This Doctrine Means for Employees and Employers
For employees, Birnbaum is a reminder that an initial termination offer is not necessarily the final word. Conduct from earlier in the employment relationship that surfaces during a post-termination audit can impact the employee’s entitlements.
For employers, the case shows that a careful post-termination review of records, audit logs, and communications can sometimes reveal grounds to limit liability. However, the proportionality requirement matters as the misconduct must strike at the heart of the employment relationship.
How the Employment Lawyers at Walker Law Can Help
Disputes over after-acquired cause can sometimes arise in wrongful dismissal litigation, and the analysis is rarely straightforward.
The employment litigation lawyers at Walker Law advise both employees and employers on wrongful dismissal claims, including disputes over the application of after-acquired cause. Contact Walker Law today if you are involved in a termination dispute that may turn on misconduct discovered after termination.
Tags: Employment Litigation Law, Civil Litigation Law
[i] Employment Standards Act, 2000, S.O. 2000, c. 41.
[ii] Birnbaum v. Dr. Chan., 2026 ONSC 2009 (CanLII) [Birnbaum].
[iii] Dowling v. Ontario (Workplace Safety and Insurance Board), 2004 CanLII 43692 (ON CA) [Dowling].
[iv] McKinley v. BC Tel, 2001 SCC 38 (CanLII) [McKinley].
[viii] Birnbaum at paras. 43-52.