A recent decision out of Alberta held not only that an employer had cause to terminate the employment of its President and CEO, thus fully defeating his claim for wrongful dismissal, but also that the executive was personally liable for approximately $480,000.00 in damages and $50,000.00 in punitive damages.
Breen v Foremost Industries Ltd
In 2001, Mr. Breen was appointed President and CEO of Universal Industries (Foremost) Corp. (“Universal”).
In 2003, he was appointed President of the Foremost Income Fund (“FIF”) responsible for overseeing the operations of Foremost Industries Ltd. (“FIL”), Universal and other businesses within the Foremost group of companies (the “Foremost Group”).
In 2011, Mr. Breen signed an employment agreement with FIL, which required him to comply with all the Foremost Group’s policies, practices, and procedures and to avoid and disclose any and all potential conflicts of interest. Although FIL was identified as his employer, Mr. Breen acted as President and Chief Executive Officer on behalf of the entirety of FIF, including all its related entities. He reported directly to FIF’s board of directors and was required to consult with the board and obtain approval on all matters beyond his authority, including:
- any expenditure that exceeded his spend authorization limit;
- any contract that contained “red flag” terms;
- any matter that was material and unusual or out of the ordinary; and
- compensation matters.
These requirements were frequently communicated to Mr. Breen by the board. Despite this, Mr. Breen engaged in several of these activities without board consultation or approval, including failing to obtain approval to exceed his spending limits by significant margins, entering into unauthorized agreements with third parties, failing to bring forward “out of the ordinary” events, and other misconduct. In addition, Mr. Breen knowingly accepted “gifts” and other misappropriated funds into his numbered company.
In 2014, Mr. Breen’s employment was ultimately terminated for cause.
Mr. Breen commenced an action against FIL, and several individuals in their capacities as trustees of a wholly owned subsidiary of FIF, for wrongful dismissal.
FIF and the trustees counterclaimed against Mr. Breen, alleging that while acting in his capacity as President and Chief Executive Officer of FIF and the Foremost Group, he knowingly and willfully breached a number of duties, including his fiduciary duty, a duty of care and skill, a duty to safeguard the Foremost Group’s property, a duty to avoid conflicts of interest, and his duties of loyalty, honesty, and good faith, resulting in losses to the Foremost Group. They also alleged that Mr. Breen converted monies from the Foremost Group for his own benefit.
Findings of the Court
The Court had no hesitation in finding that FIL “was completely justified” in summarily dismissing Mr. Breen for cause. It noted that the various incidents of misconduct combined with his repeated dishonesty effectively shattered the board’s trust in him. Despite the fact that Mr. Breen clearly understood his responsibilities as a fiduciary and key employee, he knowingly breached those responsibilities. His conduct was “incompatible to the employment relationship”. Furthermore, the Court identified that the Foremost Group was entitled to have high expectations regarding the trustworthiness of its most senior officer, and that Mr. Breen had breached his duties of honesty and good faith with a view to the Foremost Group’s best interests, allowing his own self-interest to prevail.
In regard to the counterclaim, the Court found that Mr. Breen had used his position as President and CEO to collect misappropriated funds for his own benefit and that the Foremost Group was entitled to judgment against him for these amounts. However, the Court found that this was not sufficient to express it’s “disapprobation for the breaches of Mr. Breen’s statutory, contractual and fiduciary duties” and that an award of punitive damages was necessary to meet the goals of general and specific deterrence and to denounce Mr. Breen’s shameful conduct. In fact, the Court went on to note that in the circumstances, it may have been inclined to award a much higher amount for punitive damages had the employer asked for it.
As Stuart discusses in his book You’re Fired! Just Cause for Dismissal in Canada, and we explain in our FAQs and several other blog posts, just cause is a very high standard for employers to meet; however, he usually adds that “just cause is not a lost cause”. As this case demonstrates, it is not impossible to establish. Courts will look at all relevant factors when assessing whether cause has been met, including the level of trust and responsibility the employee has within the organization and their response when confronted.
In that regard, the decision in Breen v Foremost Industries Ltd demonstrates the seriousness with which courts view an employee’s breach of their fiduciary obligations. Beyond relieving an employer of what are often substantial obligations to an executive employee on dismissal, this case suggests that a breach of trust of this magnitude may even entitle an employer to substantial damage awards beyond simply provable losses stemming from the breach.
If you are an employer who believes you may have cause to terminate an employee’s employment, we encourage you to get in touch with us before you take further action so we can help you ensure your interests are protected. And if you have been dismissed with cause (or without), contact us so we can ensure that you get what you are entitled to.