Avoiding pitfalls—and potential liability—in investigations

In recent years, we have observed a significant increase in the number of employee harassment, discrimination, conflict of interest and other whistleblower complaints requiring investigation by employers. We expect this trend will continue into 2024 and beyond, given the increasing emphasis on speak-up culture in organizations (and more broadly in our society). As a result, there is a heightened focus on ensuring a defensible investigation process.

Recent case law has thrown a spotlight on a number of important issues in investigations, including investigator independence and the scope of employers’ and investigators’ potential liability. The cases serve as a reminder of the importance of good investigation practices to mitigate an employer’s liability in connection with an internal investigation. In this article, we aim to provide guidance to mitigate against liability in the context of internal investigations, using recent case law to illustrate some of the potential pitfalls for employers.

The duty to investigate

To mitigate against liability, it is critical for an organization to understand when it has a positive duty to investigate. Failure to investigate where there is a positive obligation to do so may result in claims by employees, regulatory penalties and other damages. The duty to investigate may arise from legislation, common law or an organization’s policies and contractual documents.

Legislative obligations

All jurisdictions in Canada have occupational health and safety legislation which, to varying degrees, impose an obligation on employers to investigate claims of workplace harassment or violence. Outside of the federal jurisdiction (which imposes stringent requirements for workplace harassment investigations), the legislation is not prescriptive as to the manner of investigation and contains few procedural requirements.

Liability for failing to comply with an employer’s obligations under occupational health and safety legislation may include regulatory fines and civil claims for damages. Non-compliance with occupational health and safety legislation may also trigger criminal liability under the Criminal Code (although this does not occur as often).

Common law

Obligations to investigate also arise under the common law. For example, while human rights legislation does not include an explicit requirement to investigate discrimination complaints, human rights tribunals and courts have interpreted the obligation to provide equal treatment in employment as including an investigation in response to claims of discrimination. Failing to investigate a complaint of discrimination may itself be a form of discrimination.

By contrast, while employers often assume they have a legal duty to investigate misconduct prior to terminating an employee for just cause, case law has confirmed that this is not the case. There is “no free-standing, actionable duty” to investigate misconduct prior to termination for just cause (as confirmed by the Manitoba Court of Appeal in McCallum v Saputo¹). However, if an employer does not conduct an investigation prior to termination, they may be unable to justify the termination for just cause which could, in turn, result in a punitive damages award.

Contracts

An organization’s employment policies may also trigger a duty to investigate. For example, many employers have codes of conduct that state an investigation will be conducted into any alleged breaches of the policy. Organizations should ensure they conduct investigations where their policies impose an obligation to do so, and that such investigations comply with any procedural requirements set out in the relevant policy.

In light of this, it is important for organizations to draft codes of conduct, whistleblower policies and other employee policies with a view to the potential legal obligations they create. To provide flexibility to the employer, it is generally advisable to avoid drafting such policies in a manner that strictly circumscribes the procedural elements of an investigation. Similarly, it may be advisable to include a mechanism for screening or reviewing complaints prior to investigation, so that only those complaints that are made in good faith and assert a clear violation of policy are actually investigated.

Investigator duty of care

With internal investigations on the rise, we have seen increased attempts by employees to hold employers and external investigators liable for poorly conducted investigations. To date, these efforts have been unsuccessful:

• Ontario’s Court of Appeal held in Correia v. Canac Kitchens² that employers cannot be held liable for negligent investigation, which is a tort that has historically been applied to police and other government institutions. The court in Correia cited public policy concerns for refusing to expand the tort to employers, noting that doing so would undermine an employer’s ability and duty to investigate employee misconduct.
• The reasoning in Correia was more recently confirmed in Salina v. Investors Group Financial Services Inc., in which an Ontario court declined to find an employer liable in tort for negligent investigation. The court held the law was clear that, for public policy reasons, there is no liability in tort for an employer when conducting an internal investigation into an employee’s conduct.
• Similarly, in Mezikhovych v Kokosis, the court summarily dismissed an employee’s claim against an external investigator which alleged that the investigator’s poor investigation had resulted in her termination. The claim was dismissed on the basis that the external investigator owed no duty of care to the employee (who was not her client).

While, to date, courts have been consistent in finding that there is no liability in tort for negligent investigation by an internal or external investigator, the court in Salina left open the possibility that there may be additional considerations where there is malicious intent in an investigation.

We also note, as did the court in Mezikhovych, that there may be exceptional circumstances in which a duty of care could arise as between a lawyer and a non-client third party, where the third party is reasonably reliant on the advice of the lawyer. Since lawyers often act as external investigators, it is important to ensure such lawyers are not providing advice to employees in the course of an investigation, so that the exceptional circumstances in which a lawyer can be held to owe a duty of care to a third party are not triggered.

Investigator liability for defamation

We have also recently seen an unsuccessful attempt to hold an external investigator liable for defamation as a result of a workplace investigation report.

In Safavi-Nani v Rubin Thomlinson LLP an employee sued an external law firm for defamation as a result of statements in the firm’s investigation report and executive summary. The employee made a workplace harassment complaint to her employer. In accordance with its occupational health and safety obligations, the employer retained an external law firm to conduct an investigation into the complaint. The investigator concluded that there was no merit to the allegations and made findings that the employee was not a credible or reliable witness. These findings were documented in an investigation report and associated executive summaries. While the report and executive summaries were not publicly disseminated, either or both of the documents were provided to the respondents to the complaint and to the employer’s lawyer. They were also filed with the Human Rights Tribunal of Ontario in connection with one of the respondent’s defence to the employee’s related application to the Tribunal.

Ultimately, both the lower court and the Ontario Court of Appeal rejected the defamation claim. They held that qualified privilege – which is a complete defence to defamation – applies to statements made by an investigator in a legally mandated workplace investigation.

We note that the investigation in Safavi-Nani arose in connection with a harassment investigation under occupational health and safety legislation. While a strong argument can be made that qualified privilege would extend to all good-faith internal investigations, it is technically an open question as to whether courts will extend this privilege to other investigations not specifically required by statute.

Conduct of the investigation

Although there is no liability in tort for negligent investigation, courts have demonstrated that they are willing to award damages when the conduct of an investigation is unfair. Therefore, it is nonetheless important that investigations be conducted fairly, impartially and in accordance with due process. Employers should keep in mind the following practical tips to mitigate against liability in connection with an internal investigation.

The importance of independence

Independence is a key issue in internal investigations. While some investigations call for an investigator who is entirely independent of and external to the organization, others may be conducted internally without inviting censure.

Employers should consider at the outset of an investigation how much independence is required of the investigator and plan their investigation accordingly. In considering the relative importance of independence, an employer should consider, among other things, the nature and seriousness of the allegations, the position of the individual against whom the allegations are made (and whether there is anyone internally who could conduct the investigation in a neutral manner) and the likelihood of litigation or regulatory action.

As it relates to investigator independence, the recent case of Rutledge v Markhaven Inc. provides employers with a cautionary tale. In that case, the employer received a number of complaints alleging a conflict of interest. The employer commenced an investigation into the allegations and, at the outset of the investigation, advised the employee that was the subject of the investigation that the investigation would be conducted by an independent third party. However, at trial, the court found that the investigator retained by the employer had an “apparent link” to the employer’s law firm (the same firm that defended the employer in the employee’s resulting wrongful dismissal action). This lack of independence contributed to a $50,000 award for bad faith damages, though the court took issue with a number of other features of the investigation, including that the investigation was not kept confidential, the scope of the investigation was expanded to irrelevant matters, and the employee was subject to mistreatment in connection with the investigation, resulting in significant mental stress.

As noted above, not every complaint may require a fully independent investigation. However, considering cases like Rutledge will help employers think through worst case scenarios. At a minimum, organizations should not hold out an investigation as being independent if there is a risk that it is not truly independent.

Designing an internal investigation

To ensure an investigation is conducted fairly, impartially and in accordance with due process, an employer should consider the following issues:

• Timeliness. It is important for an employer to respond to a complaint in a timely manner. There is a risk that evidence will be lost or that memories may fade with the passage of time. Timeliness is also important to limit any reputational damage associated with a complaint and to limit the stress associated with an investigation on all participants. We note that failing to conduct an investigation in a sufficiently timely manner can itself be considered a violation of Ontario’s Human Rights Code where an allegation involves discrimination.
• Respondent rights. Investigations must be fair to all parties, including the subject of the complaint. The respondent to an investigation should be given notice of the complaint as well as the details of the allegation and the evidence against them. In addition to the right to know the particulars, respondents should be given the opportunity to respond to the complaint, including the right to provide witnesses and additional information.
• Confidentiality. It is important for investigations to be conducted in a confidential manner to protect the integrity of the investigation and reputations of all parties. Information should only be shared on a “need to know” basis by the organization, and witnesses participating in an investigation should be cautioned about the obligation to keep matters relating to the investigation (including the fact of the investigation) strictly confidential.
• Thoroughness. An investigation needs to be sufficiently thorough for the investigator to draw conclusions with respect to the allegations. The correct level of thoroughness in any given investigation will depend on the allegations under investigation and evidence obtained over the course of the investigation. The need to conduct a thorough investigation always needs to be balanced against the need to conduct a timely investigation.
• Reporting. At a minimum, the results of an investigation should be reported to the complainant and the respondent. In some cases, legislation may require additional reporting. Employers should also consider whether it would be appropriate to “close the loop” with witnesses and other parties involved in an investigation – for example, to preserve the reputation of the respondent where allegations are ultimately unsubstantiated.

We note that the Canada Labour Code imposes strict requirements with respect to some of the issues above (including as it relates to timelines, respondent rights and reporting). It is critical for organizations to comply with any applicable statutory investigation requirements.