Alberta court decision 'a win for employers': lawyer
In a lesson to employers and high-level employees alike, an Alberta CEO who tried to sue his former employer for wrongful dismissal has been ordered to pay just under $530,000 in a counter claim.
In its decision, the Court of King’s Bench of Alberta agreed with the defendants’ counter claim that the executive, President and CEO of Foremost Industries Ltd.’s Foremost Income Fund (FIL), had “knowingly and wilfully” breached his duties as an employee, director, and fiduciary.
The decision is “a win for employers”, said employment lawyer Walter Pavlic of MLT Aikins in Calgary, as all employees have duties of loyalty and good conduct, however high-level employees have a “higher calling” of duty.
This case and the ultimate decision demonstrate those duties will be upheld by courts if breached.
“Every employee has a duty of loyalty to their employer. They're supposed to make their best efforts and do their best possible job, but that standard is not one of perfection,” Pavlic told HRD. “In addition to that, senior employees have a fiduciary obligation, and that obligation is a higher calling, that they're not going to do anything to cause harm to the organization.”
CEO misappropriated funds, awarded himself significant bonuses
Breen worked for FIL from 2000 to 2014 in director roles, ultimately as President and CEO. Throughout his employment from 2010 to 2014, Breen was under contract to seek approval from a Fund Board for activity outside his authority, including spending limits, which he repeatedly and significantly violated – in one particular instance, he spent $800,000 without approval with a spending budget of $25,000.
He was also found guilty of receiving gifts through “embezzlement, misappropriation, or defalcation while he was acting in a fiduciary capacity”.
FIL sought punitive damages from Breen of $50,000, which the court awarded, however it also stated that it would have awarded a “much higher amount” had they asked for it, based on Breen’s conduct. In addition to the $50,000, he was ordered to pay back the various damages he incurred, some in US dollars.
What is a fiduciary?
In the case of executive-level mismanagement, courts have to establish if the employee is a fiduciary or not, which is not cut-and-dry, Pavlic explained.
“Whether or not someone's a fiduciary is always a gray area, it's always difficult to say exactly where that line is to be drawn,” he said.
In one widely-accepted definition from a 1987 case, a fiduciary role was described as having three general characteristics:
- “The fiduciary has scope for the exercise of some discretion or power.
- The fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary’s legal or practical interests.
- The beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power.”
In his wrongful dismissal claim, Breen alleged that he was not sufficiently reprimanded by his superiors, who were “shocked” at that testimony, the court documents stated. The court sided with the defendants, ultimately concluding that Breen’s “shameful” breach of duty “offend this Court’s sense of decency.”
HR and executive misconduct
“The standard for an employee is not perfection – employees are entitled to make mistakes,” said Daly.
“But if they're negligent and if there's evidence that they were engaged in in inappropriate behaviour, intentionally or recklessly, then the courts are going to find them liable, and that's what they did here. The principles apply to all employees. This case, because it was an executive, has a fiduciary component.”
While addressing executive-level misconduct may be intimidating for an HR professional to navigate, Pavlic has recommendations around how to encourage employees to speak up rather than keep quiet out of a sense of fear of reprimand.
“At the end of the day, people tend to follow the rule of self-preservation. So they're not going to be inclined to say what they think or believe might be some risk to them,” he said.
Conducting 360-degree reviews can be an effective tactic, wherein employees are invited to provide feedback on all colleagues they directly interact with.
“Often organizations make those confidential; the idea there is to get truly down into the heart of what's going on in an organization, so if a particular executive is really nasty to their assistant all the time, the organization probably wants to know about that, and this is the opportunity for it to come out,” said Daly.
“But it all relies on people being inclined to say something, and a lot of people aren't — they don't want to get involved or they fear that it might come back to harm them in some way.”
