Salina v. Investors Group Financial Services: Safe harbors to avoid liability for internal investigations

Internal investigations are usually triggered by evidence of employee wrongdoing. The investigatory findings can have negative implications for a business and its employees, which can include regulatory proceedings and civil litigation. The process of an investigation can be a point of contention, and even a potential source of liability.

Over the course of an internal investigation, a corporation will usually establish an investigation plan and process. That investigation plan needs to take into account and balance various rights and obligations including, for example, employee privacy rights and a right to be treated fairly.

In this context, it is not surprising that employees who are negatively impacted by internal investigatory findings and whose employment is terminated may complain and even sue their ex-employer for, among other issues, negligent investigation and/or negligent reporting to a regulator. In the recent decision of Salina v. Investors Group Financial Services Inc., the Supreme Court of British Columbia provides a blueprint for avoiding exposure and liability in relation to such claims¹.

What you need to know

• The Court followed and affirmed appellate precedent that “there is no liability in tort for employers conducting internal investigations of their employees’ conduct”. However, liability may attach to an individual decision-maker who commits an independent tort during or as a result of the investigation.
• The Court found that absolute privilege protects communications and information flow made for the purposes of compliance with a regulated entity’s obligations to its regulator. However, information provided to a regulator with malicious intent may be a relevant pleading in a wrongful dismissal claim.

Salina v. Investors Group Financial Services Inc.

The plaintiff worked with the defendant as an investment advisor, and both were registrants under the Securities Act and regulated by the Mutual Fund Dealers Association of Canada (MFDA). The MFDA investigated certain potential regulatory issues pertaining to the plaintiff and the defendant’s related supervision of the plaintiff. At the same time, the defendant undertook an internal investigation of the plaintiff’s conduct. The upshot of the investigations was that each of the plaintiff and defendant entered into settlements with the MFDA and the defendant terminated the plaintiff’s employment for cause. The plaintiff then commenced a civil claim against the defendant for wrongful dismissal.

In support of the plaintiff’s wrongful dismissal claim, the plaintiff also pleaded that the defendant committed a negligent investigation of him and negligently provided incomplete information to the MFDA as part of the regulator’s investigation. The Court summarized the plaintiff’s pleading in this regard as a breach of “the duty of care…to conduct its investigation and report to the MFDA with reasonable competence, thoroughness, and objectivity”. The defendant brought a motion to strike those pleadings and succeeded.

Negligent investigation

Relying on decisions from the Ontario and B.C. Courts of Appeal, the Court held that “the law is clear that, for public policy reasons, there is no liability in tort for an employer conducting a negligent internal investigation into an employee’s conduct”².

The decision turned on the issue of whether the defendant owed the plaintiff a duty of care regarding an internal investigation of that person. The Court not only relied upon appellate authority but also applied the Anns test to the facts of the case. While it was reasonably foreseeable that a plaintiff could face negative consequences as a result of a negligent investigation, there were policy reasons to negate the potential duty’s existence³. The policy reasons include encouraging the reporting and detection of wrongdoing.

The Court alluded to other authorities which support possible causes of action in tort against a professional investigator and against an employee decision-maker who has personally engaged in misconduct⁴.

Negligent provision of information to a regulator

The plaintiff pleaded that the defendant’s compliance department, in response to the MFDA’s own investigation and arising from the defendant’s investigation, reported inaccurate information about the plaintiff to the MFDA.

The Court relied on appellate precedent that the provision of evidence to a court or an adjudicative tribunal, and communications made in respect of regulatory proceedings by self-regulatory bodies, cannot form the basis of a cause of action because such flows of information are protected by “absolute privilege”. The Court found that the information flow and communications from the defendant to the MFDA fell within this absolute privilege protection and struck the pertinent provisions from the plaintiff’s claim.

Takeaways

• Employers should be encouraged to conduct internal investigations whenever they deem it appropriate, provided that the investigation is initiated and conducted in good faith⁵. A well-designed investigation plan which provides any targeted employees a reasonable opportunity to respond to any allegations will further insulate an internal investigation from claims of unfairness or negligence.
• Employers, and especially registrants, should be able to avoid civil liability for providing information to regulators, especially where there is a regulatory requirement to do so. Any such information flow should be motivated by the goal of good faith compliance as opposed to any malicious or other improper or collateral intent.