Bank exposed to 'very substantial defamation claim, because of the way they did the investigation,' says employment lawyer
A recent decision by the Federal Court of Canada has put the Bank of Nova Scotia (BNS) back in hot water for a constructive dismissal claim over 10 years old.
A 2019 decision by the Canadian Human Rights Commission was overturned by a federal judge, and the CHRC has been ordered to go back and re-investigate the allegation, which includes a defamation charge.
“Scotia Bank has exposed themselves to a very substantial defamation claim, because the way they did the investigation, the way the complainant described it, it seemed very circumspect,” says Lisa Teryl of Teryl Scott Lawyers in Halifax, explaining that a poorly conducted investigation can lead directly to defamation claims if the process appears biased.
“As this litigation goes through, I think they're going to go down hard on this point, because I think he was correct,” Teryl adds. “He had a correct cause of action for defamation.”
The case involves an employee, a Black man who worked at BNS from 1991 until 1997, then again from 2000 until 2012 as a mortgage development manager. In the last year of his employment, he was investigated by the bank for fraudulent practices.
He resigned and then claimed constructive dismissal, saying he was discriminated against because of his race – after initial inquiries from BNS about some suspicious documents the employee had used, he was ordered to a meeting with an employee relations manager as well as two security staff.
He was placed on suspension with pay (although his income was 100 per cent commission-based), while the “continuing” investigation into his conduct was completed.
After his employment ended, the bank filed his information with the Bank Crime Prevention and Investigation Office (BCPIO). In his complaint, the employee alleged that the action resulted in job offers with other banks being rescinded, and rendered him ineligible for employment for a period of seven years: “[These] discriminatory actions have severely limited my ability to function as an independent broker. I have had several job offers rescinded, due to bad reference from Scotiabank.”
When a “do not hire” list is based on an incomplete investigation, the employee may later demonstrate that their reputation was unjustly harmed. The resulting litigation, as the decision shows, can be both lengthy and costly, Teryl explains, which is why an employer must be very sure of the cause when naming employees.
“If they're going to do a do not hire list, they should be very sure on a balance of probability … if it were me and I was risk-managing the file, it would be like 80 per cent sure that this guy was a fraud risk,” says Teryl.
“Just the way the facts read to me, he's going to be able to show that he can't make the money he used to, and it's because ‘You guys threw a log in my jam here, you jammed my spokes here, big time.’ So because of that, that's a classic example of defamation.”
The risk of defamation escalates when an investigation is incomplete, Teryl explains, leaving room for the employee to later prove their reputation was tarnished by an unsupported or erroneous conclusion.
In this case, the employee’s argument was based on the fact that the bank failed to inform him when they were investigating him; effectively he was not aware of any coming discipline, or even that he was under suspicion, until the meeting in which he was presented with the suspension.
This could be a significant mistake when the reinvestigation is under way, Teryl says.
“I find the biggest problem that employers have, that they really struggle with, is transparency,” she says.
“From an investigation perspective, if he'd had access to all the written documents … they could have gotten away with it, and that investigation still could have been completed, if he'd still been able to reply to everything, at least that was in writing, that would have been enough procedural safeguard.”
Later in the litigation, which stretched until the 2019 decision by the CHRC, it was found that a second investigation by the CHRC included an invitation sent to the employee to be interviewed. He claimed he never received that letter, and he was never interviewed.
This "gap in communication" may punch another hole in BNS’s case, says Teryl.
As Teryl explains, the latest decision in this case illustrates that when an investigation is deficient, even if only in certain core aspects, it may ultimately lead to a finding that procedural fairness was breached. These deficiencies can become the basis for lengthy litigation.
When adverse employment decisions can have long-term consequences, Teryl advises HR professionals to leave no stone unturned – every relevant witness should be interviewed and all evidence carefully examined.
Allegations on “do not hire” lists demand an inquiry that is both detailed and rigorous; as Teryl states, “The more serious the allegation, the more rigorous the employer must be in terms of making sure they talk to all the relevant people.”
A rigorous investigation not only supports a fair outcome but also ensures that the organization has a well-documented defense if challenged. With a “clean set of facts,” employers can be confident that their investigatory process stands up to scrutiny both internally and in civil court.
“The greater the impact on the person, the higher the procedural safeguards need to be. Therefore, the more detailed the investigation needs to be,” says Teryl.
“You can't have it both ways. In the HR department, you have to actually make a finding of fact. Pretend you're a judge, make a finding of fact and back it up with evidence or no evidence, but do not leave people in limbo-land, one way or the other, and you need to be more transparent.”
