After-Acquired Cause: Can Employers Recover Severance?

After-acquired cause can create serious uncertainty for employers and employees after a termination appears to be resolved. In some cases, an employer may later discover serious misconduct that occurred before termination but was unknown at the time the employee was dismissed.

Imagine this. You terminate a long-serving employee without cause. After careful consideration, you negotiate a generous severance package. A full and final release is signed. Everyone shakes hands and moves on.

The matter appears closed. Then, several months later, your finance team uncovers irregular expense claims. An internal review reveals that company records may have been falsified. A forensic audit raises concerns that a senior employee may have misappropriated company funds.

Suddenly, what appeared to be a routine without-cause termination becomes something far more complicated.

The questions begin immediately:

• Can we stop the remaining severance payments?
• Can we recover severance that has already been paid?
• Can we now characterize the dismissal as one for cause?
• Have we permanently lost the ability to act because the employee has already left?

For employers, these situations create significant legal and financial uncertainty. If your organization is dealing with a termination issue, learn more about our Employment Law services.

What Is After-Acquired Cause?

After-acquired cause, sometimes called after-discovered misconduct, arises when an employer discovers evidence after termination that would have justified dismissal for cause if it had been known earlier.

Canadian courts generally allow employers to rely on after-acquired cause where:

• The misconduct occurred before termination
• The misconduct objectively amounted to just cause
• The employer had not condoned the behaviour
• The employer was genuinely unaware of the misconduct when employment ended

The doctrine recognizes an important reality: employers cannot act on information they do not have. However, courts are cautious. Employers cannot retroactively justify a termination based on minor misconduct or facts they already knew but chose not to rely on.

The focus remains on whether the misconduct, viewed objectively, justified dismissal for cause at the time the employment relationship ended.

After-Acquired Cause Is Not a Shortcut

Employers do not automatically get a second opportunity to terminate for cause simply because misconduct surfaces later. Courts carefully scrutinize these situations because they involve employment law, contract law, equitable principles, and public policy favouring the finality of settlements.

The distinction between defeating a wrongful dismissal claim and recovering severance already paid is especially important.

An employer may successfully argue:

“Had we known about this misconduct at the time, we would have terminated for cause.”

However, recovering severance already paid often requires much more.

Courts may ask:

• Was the misconduct serious enough to justify dismissal for cause?
• Did the misconduct occur before termination?
• Did the employer already know about the conduct but choose not to rely on it?
• Was the conduct effectively condoned?
• Was the severance agreement induced by fraud or material misrepresentation?
• Does the agreement contain representations, warranties, or clawback provisions?
• Would equitable considerations make repayment unfair?

For employers, understanding these distinctions is critical. The law may permit an employer to rely on after-acquired cause. Recovering money already paid is often a much steeper uphill battle.

After-Acquired Cause and the McKinley Framework

The starting point for every after-acquired cause analysis is the Supreme Court of Canada’s decision in McKinley v. BC Tel, 2001 SCC 38.

In McKinley, the Court rejected the idea that every act of dishonesty automatically constitutes just cause. Instead, the Court adopted a contextual approach.

The question is whether the nature and degree of the misconduct fundamentally undermined the trust necessary to sustain the employment relationship.

The Court explained that just cause may exist where the misconduct:

• Violates an essential condition of the employment contract
• Breaches the faith inherent to the employment relationship
• Is fundamentally inconsistent with the employee’s obligations

Dismissal for cause has often been described as the employment law equivalent of capital punishment. Therefore, it should be reserved for serious misconduct.

The practical question remains: did the conduct strike at the heart of the employment relationship?

Many Canadian employment law decisions are publicly available through CanLII.

After-Acquired Cause and Wrongful Dismissal Claims

Canadian courts have repeatedly confirmed that employers may rely on serious pre-termination misconduct discovered after dismissal.

In Nagy v. William L. Rutherford (B.C.) Ltd., 2021 BCCA 62, the employer initially terminated the employee without relying on cause. During later proceedings, the employer discovered an email sent through the corporate email system containing crude and insulting comments directed at management and colleagues.

The British Columbia Court of Appeal found that, given the employee’s managerial role and obligation to foster harmonious workplace relationships, the misconduct was sufficiently serious to amount to after-acquired cause and defeat the employee’s claim for wrongful dismissal damages.

Similarly, in Golob v. Fort St. John (City), 2021 BCSC 2192, the Court reaffirmed that employers may rely on after-acquired evidence of misconduct existing at the time of dismissal, even if discovered later, to support a just cause defence.

More recently, in Shalagin v. Mercer Celgar Limited Partnership, 2022 BCSC 112, affirmed 2023 BCCA 373, the Court considered extensive surreptitious workplace recordings made by an employee.

The Court concluded that the clandestine recordings fundamentally undermined trust and justified dismissal for cause. This decision is especially relevant because this type of misconduct may come to light only after the employment relationship has ended.

Together, these decisions show that after-acquired cause can be a powerful doctrine where serious pre-termination misconduct is uncovered after dismissal.

You may also be interested in our guide on Wrongful Dismissal.

After-Acquired Cause in Alberta

Alberta courts continue to recognize after-acquired cause as a valid defence.

In Sobolewski v. Advanced Completions Technology Services Ltd., [2026] A.J. No. 10, the Alberta Court of King’s Bench upheld a dismissal for cause based entirely on misconduct discovered after termination.

The employee, who occupied a senior leadership role, had falsified documentation relating to a project bid. The Court concluded that a single deliberate act of dishonesty by an employee in a position of trust fundamentally undermined the employment relationship and justified dismissal for cause.

The decision reinforces two important principles. First, dismissal for cause remains the capital punishment of employment law and should be reserved for serious misconduct. Second, Alberta employers may rely on serious pre-termination misconduct discovered after dismissal to establish cause.

However, employers should not view after-acquired cause as litigation insurance.

In Kuipers v. NEP Ltd. GP Inc., 2025 ABKB 278, the Alberta Court of King’s Bench reinforced the importance of employer knowledge and timing.

The decision serves as a reminder that employers generally cannot rely on misconduct they knew about before termination but chose not to invoke as cause. Where an employer proceeds with a without-cause termination despite knowledge of alleged misconduct, a court may conclude that the conduct was condoned.

Taken together, these Alberta decisions illustrate both sides of the doctrine. Sobolewski demonstrates when after-acquired cause may succeed. Kuipers demonstrates why employers must investigate thoroughly and make deliberate decisions at the time of termination.

For more information about Alberta workplace legislation, visit the Government of Alberta Employment Standards website.

Can After-Acquired Cause Recover Severance Already Paid?

This is where the analysis becomes more complex. Using after-acquired cause to defend a wrongful dismissal claim is one thing. Recovering severance already paid is another.

Once severance agreements are executed, courts generally treat them as binding contracts and are reluctant to disturb negotiated settlements.

The leading Canadian authority is York University v. Markicevic, 2018 ONCA 893.

York University terminated a senior executive without cause and negotiated a severance agreement providing approximately $700,000 in compensation and mutual releases. Later investigations revealed extensive fraudulent misconduct involving the misuse of university resources and funds.

Importantly, the employee had denied wrongdoing during both the investigation and the severance negotiations.

The Court permitted York University to rescind the severance agreement and recover severance amounts already paid. The decision turned on fraudulent misrepresentation and material non-disclosure.

The employee had induced York to enter into an agreement it otherwise would never have accepted.

The distinction is critical.

After-acquired cause asks:

Would this employee have been terminated for cause had the misconduct been known?

Severance clawback asks:

Would the employer have entered into the severance agreement at all had it known the truth?

The second question involves employment law, contract law, equitable remedies, rescission, and restitution.

Why Employers Often Lose After-Acquired Cause Cases

Despite the availability of after-acquired cause, employers often face several obstacles.

1. Condonation: Employers generally cannot rely on misconduct they knew about before termination but chose not to address.
2. Insufficient misconduct: Not every policy violation rises to the level of just cause under McKinley.
3. Finality of settlements: Courts strongly favour the finality of negotiated agreements and releases.
4. Equitable defences: Employees may raise defences such as estoppel or change of position where severance has already been spent or relied upon.
5. Evidentiary challenges: The longer the delay between termination and discovery, the harder it may be to establish the facts needed to support cause.

What Employers Should Do After Discovering Misconduct

When serious misconduct is discovered after termination, employers should avoid making immediate decisions about severance payments or repayment demands.

Instead, employers should take the following steps:

1. Preserve evidence: Secure emails, electronic records, expense reports, access logs, and relevant communications.
2. Build a timeline: Identify when the misconduct occurred, when it was discovered, and who knew what and when.
3. Assess whether cause truly exists: Consider whether the misconduct satisfies the McKinley threshold.
4. Review severance agreements carefully: Look for representations, warranties, clawback provisions, and the structure of severance payments.
5. Obtain legal advice early: Prematurely stopping payments or demanding repayment may create additional liability if the cause position cannot be sustained.

The actions taken immediately after discovery often determine whether an employer preserves or loses its legal options.

If you are dealing with a termination dispute, book a consultation with Kedge Anchor Law.

Key Takeaways for Employers

• After-acquired cause remains a powerful defence in Canada.
• Not every act of dishonesty constitutes just cause.
• Recovering severance already paid is harder than establishing cause.
• Employers should investigate thoroughly before terminating where possible.
• Severance agreements should be drafted carefully and may benefit from representations, warranties, and clawback provisions.
• Early legal advice can reduce exposure and preserve available remedies.

Key Takeaways for Employees

• A without-cause termination does not necessarily prevent an employer from later relying on serious pre-termination misconduct.
• Courts continue to apply the high just cause threshold established in McKinley.
• Material misrepresentations during severance negotiations may jeopardize severance entitlements and releases.
• Employees facing allegations of after-acquired cause should seek legal advice promptly.

Final Thoughts on After-Acquired Cause

After-acquired cause represents one of the more complex areas of employment law because it sits at the intersection of workplace investigations, wrongful dismissal law, contract law, and equitable principles.

For employers, the doctrine can provide an important defence where serious misconduct is discovered after termination. However, it is not a mechanism for revisiting every termination decision.

Recovering severance already paid remains exceptional and often depends on fraudulent misrepresentation, material non-disclosure, or carefully drafted contractual provisions.

The difference between a successful defence and an expensive litigation outcome often depends on the decisions made immediately after the misconduct is discovered.

If your organization has uncovered serious employee misconduct following termination, obtaining legal advice early can help preserve your legal options and minimize exposure.

Speak With Kedge Anchor Law

At Kedge Anchor Law, we advise employers and employees on workplace investigations, terminations for cause, severance disputes, and complex employment litigation throughout Alberta.

If you are navigating a difficult termination issue or have recently discovered serious employee misconduct, book a consultation to discuss your options before taking further action.