Taking Time to Discipline Is Not (Always) Condonation

Update by Louis Claman, Lawyer

When an employer discovers serious employee misconduct that may amount to just cause, it is generally expected to act promptly to end the employment relationship. However, courts recognize that taking the necessary steps to properly and effectively terminate employment - such as investigating the allegations, assessing the full scope of the misconduct, and arranging operational continuity - may require time. Importantly, this period of investigation or transition does not, on its own, amount to condonation of the employee’s behaviour.

The decision in Vassilakaki v Vassilaki & Sons Investments Ltd. (Last Call Liquor Mart), 2026 BCSC 474 illustrates this principle: even though the employer took several months to complete its investigation and secure a replacement manager, the Court held that these steps were reasonable and did not undermine the employer’s ability to rely on the misconduct as just cause for dismissal.

‍Background

‍The plaintiff, John Vassilakaki, was a long‑time director, officer and manager of his family’s liquor store business in Penticton, BC. He was dismissed for just cause after the employer uncovered extensive financial misconduct, including misappropriation of company funds, unauthorized payments to himself and family members, falsification of payroll records and a pattern of neglecting his managerial responsibilities as well as a prior incident of battery against another director.

Mr. Vassilakaki brought a wrongful dismissal claim. While Mr. Vassilakaki admitted to much of the misconduct, he contended that VSI had condoned his actions, thereby precluding termination for cause. VSI counterclaimed for damages related to the substantial funds he had allegedly misappropriated. ‍

Decision

In this decision, the Court examined whether the employer’s response to the misconduct amounted to condonation, thereby preventing it from relying on those actions as grounds for dismissal for just cause.

Condonation

The Court found that VSI did not condone the plaintiff’s misconduct. A finding of condonation requires the employer to have full knowledge of the misconduct, and evidence of intention to allow the employment relationship to continue despite it. Here, the Court found no evidence of intention and refused to make an inference of intention based on delay.

Misconduct and Just Cause

The Court concluded that VSI had just cause for dismissing Mr. Vassilakaki. The admitted misconduct, which included misappropriation of funds, excessive and unearned wages paid to family members, and concealment of these actions from other directors, was deemed egregious. Applying a contextual analysis, the Court determined that this conduct was incompatible with the continuation of the employment relationship and had led to an irretrievable breakdown of trust.

Damages

The Court accepted expert evidence quantifying the excessive payments made by Mr. Vassilakaki. The plaintiff offered no credible defense or contest regarding the calculation of these damages.

Conclusion

Ultimately, the Court dismissed Mr. Vassilakaki's claim for wrongful dismissal. The defendant's counterclaim was allowed, and Mr. Vassilakaki was ordered to pay VSI damages totaling $814,681.99. Issues concerning punitive damages and costs were adjourned for further written submissions.

Key Take Away for Employees

Employees, particularly those in positions of trust such as directors or managers, must understand that significant misconduct, including financial misappropriation, unauthorized payments, and neglect of duties, can constitute just cause for dismissal. Condonation is not automatic where an employer takes its time to dismiss an employee who has engaged in misconduct, particularly where the full extent of the wrongdoing was not immediately apparent or where the employer acts promptly upon discovery by initiating steps to replace the employee.

Key Take Away for Employers

While a judge may allow an employer some time to implement a termination for cause, acting promptly once the full extent of misconduct is known is prudent to avoid any argument of condonation. Documenting all findings and actions taken can strengthen a just cause defense and support counterclaims for damages resulting from employee misconduct.‍ ‍

Employers should conduct thorough investigations into allegations of employee misconduct to ascertain the full scope of any wrongdoing. Consideration should be given to retaining a workplace investigator. A well-conducted investigation produces high quality contemporaneous documentation that may allow a court to assess credibility issues on the written record, reducing the need for costly viva voce evidence. A workplace investigation also demonstrates to the Court that the employer took reasonable steps to determine whether just cause existed and provided the employee with a fair opportunity to respond to the allegations before any termination decision was made.