With-cause dismissal of long-term fiduciary employee justified

by Rhonda B. Levy and Barry Kuretzky of Littler

In Goruk v. Greater Barrie Chamber of Commerce, 2021 ONSC 5005, the Ontario Superior Court found that the Chamber of Commerce (COC) was justified in dismissing with cause a 75-year-old, long-term employee with no prior disciplinary record on account of her dishonesty, poor judgment, and other acts of misconduct. For most of her 17-year tenure with the COC, the employee served as its executive director, and thus in a fiduciary capacity. The court therefore found her actions, taken together, justified her with-cause job termination, and found it unnecessary for the employer to issue prior warnings or implement progressive discipline. This decision indicates that fiduciary employees may be terminated immediately for cause if they conduct themselves dishonestly and/or exercise poor judgment on significant issues, as such behavior will cumulatively amount to repudiation of the employment contract.

Background

In 2012, the COC elected a new treasurer who made substantial efforts to more rigorously engage in financial oversight. According to the complaint, the employee at issue disclosed little or no financial information when asked repeatedly for such information. The treasurer expressed concerns about the COC’s books and records, and beginning in 2013, the board refused to approve the COC’s monthly financial statements pending an investigation into several outstanding issues.  The employee, whose employment record to this point was unblemished, was then placed on paid suspension during a forensic audit of financial irregularities. 

The COC’s president sent a letter to the employee asking her to answer 41 questions.  In early 2014, after the employee provided answers to the questions, her job was terminated without notice or compensation when the COC alleged it had just cause to do so.  The COC’s position was that since the employee occupied a position of trust within its organization, she had a duty to act in its best interests at all times, and breached that duty by altering a document sent to the COC’s bank; taking unauthorized vacation pay; granting herself an unauthorized pay raise; awarding contracts to her sons without following the COC’s established protocol and without disclosing those transactions to the COC’s auditor; suppressing a letter from the COC’s auditor that expressed a number of concerns regarding their financial statements; and reimbursing herself for charges on her personal American Express credit card without supplying proper supporting documentation.  At the time of her dismissal, the employee was earning $65,500 per year, had a $300 monthly car allowance, and a discretionary expense account of $4,000 per year. 

The employee commenced a wrongful dismissal action in which she argued that the COC’s position was disingenuous and, in fact, a post-facto rationalization of its termination of her over an email broadcast that criticized the COC’s board of directors, which she authorized one of its members to e-broadcast to all of its other members.  She sought a total of $837,200, which included:

• Damages equal to 24 months’ salary and car allowance ($137,200); 
• Aggravated damages of $200,000 to compensate her for the allegedly unfair and unduly insensitive manner of her dismissal; and
• Punitive damages of $500,000, arguing that the COC’s conduct was malicious, oppressive and high-handed. 

Decision

Was the employee a fiduciary?

The court accepted that the employee stood in the position of a fiduciary to the COC and, as such, owed it duties of loyalty, honesty, good faith, and a strict avoidance of conflicts of interest.  The court also found that the employee had given an implied promise to act in the best interests of the COC, which arose from the nature of the relationship itself: the COC is a volunteer-based, non-profit organization governed by a constantly changing board of directors that is responsible for governance, rather than hands-on management, and the board relies entirely on its executive director for day-to-day management.  The COC was particularly vulnerable to the employee’s exercise of discretion and its board relied on her to keep the operation afloat, to keep them informed monthly of its well-being, and to ensure generally its stature in the local business community.

Did the COC have grounds to terminate the employee for cause?

In conducting its analysis of whether the employee’s with-cause dismissal was warranted, the court focused on the following six areas of alleged misconduct.

1. Alteration of a bank document

When it was discovered a directive to a bank to transfer funds from the COC’s account to a segregated account was too high, instead of preparing a new directive, the employee—with the COC’s bookkeeper—altered the original direction, scanned it, and sent it to the bank without advising the COC’s executive or board.

The court found the employee’s participation in this activity was “perilously close to forgery,” and at the very least, dishonest, and a particularly significant form of misconduct worthy of discipline. Taking other factors into consideration, however, the court did not conclude that it justified the employee’s termination. Specifically, the court considered the absence of anything else in the employee’s COC history suggesting her dishonesty ; evidence from past presidents that the employee always served and represented the COC in an exemplary manner; that the purpose of the alteration was to protect the COC’s interests; that the reaction to the altered document was disproportionate and influenced by a predisposition to remove the employee from her position because of the e-broadcast; and the fact that the bookkeeper who was also involved in the alteration was not disciplined or terminated.

2. Unauthorized Vacation Pay

The employee was entitled to six weeks’ paid vacation annually. Beginning in April 2013, she instructed the bookkeeper to provide her with a cash payout in lieu of unused holiday time without advising anyone on the board.  The court viewed this as a misunderstanding on the employee’s part, exacerbated by the exercise of poor judgment in taking out the vacation pay at a time when the COC could not afford it. The court did not, however, believe these actions should be characterized as misconduct in all circumstances, or that it was conduct that, on its own, justified immediate termination for cause.  

3. Unauthorized Raise

In the fall of 2013, the board of directors authorized a 3% raise for all staff members, excluding the employee.  The bookkeeper gave the employee the raise, which she continued to receive after her suspension.  The court concluded that the raise was a result of the bookkeeper’s error and the employee did not instruct the bookkeeper to give her the raise.  The court was not satisfied, however, that the employee instructed the bookkeeper to correct the error, and it took the position that allowing the raise to continue was, in effect, a misappropriation of the COC’s funds and a significant concern, given that the employee was its fiduciary.  The court was not satisfied that this issue alone was sufficient to establish the employee’s immediate termination for just cause given that she served the COC for 17 years faithfully and well, was highly regarded by past executive members and in the community at large, and there was a real element of mistake associated with the pay raise. 

4. Related-Party Contracts

The COC had a policy that required a Request for Proposal (RFP) to be sent to all COC members for contracts over $3,000, with each proposal evaluated by its executive committee, and its decisions ratified by the board. As executive director, the employee had authority to enter into contracts of less than $3,000 without going through the RFP process; however, contracts with a value over $1,000 required approval from the executive committee.

One of the employee’s sons had a property maintenance company, and the other had a catering truck.  In 2003, the employee hired her son’s maintenance company initially through an RFP process, but his contract was renewed annually without adhering to the RFP process, and without executive committee approval. The employee subsequently hired her other son’s catering company at the suggestion of a board member without utilizing the RFP process and without obtaining express executive committee approval for its services.  In 2013, the COC’s auditor presented the employee with a client representation letter that included a confirmation that all related-party transactions had been disclosed to him.  The employee signed the letter but did not disclose to the auditor that the COC had contracts with her sons.

The court did not view the related-party contracts as significant.  It noted that none of the purchases from the son’s catering company exceeded $1,000, much less the $3,000 threshold that required an RFP, and that he was hired at the request of a board member.  Accordingly, the business given to him neither breached the COC’s policy nor the employee’s fiduciary duties.  The court found that at least some of the maintenance company’s contract renewals required an RFP, and, at the very least, required executive committee approval.  It was persuaded, however, that the COC condoned the renewal of its contract with the maintenance company and could not now object to any failure on the employee’s part to follow protocol.  Finally, the court was not significantly troubled by the employee’s failure to tell the auditor about the contracts with her sons before she signed the client representation letter, because the employee was under the impression that everyone, including the auditor, knew about them, and because it was not surprising if something got missed since the employee was not generally responsible for signing off on the client representation letter.

5. Suppressed Auditor’s Letter

At the employee’s meeting with the auditor, the auditor provided the employee with a working draft of a letter that identified certain weaknesses in the COC’s financial statements.  The court concluded that the employee’s failure to bring the letter to the board’s attention was mitigated by the following factors: it was the first time the employee had sole responsibility for an audit meeting (the president or treasurer had always attended in the past), therefore it was not surprising she did not get everything just right; the employee was provided only a draft of the auditor’s letter and she could be forgiven if she thought, as she said she did, that he was going to send it to the board; and the weaknesses identified in the letter were minor.  The court was not prepared to find that the employee intentionally attempted to suppress information from the board, which, in its view, would have been more significant than her mere failure to pass on the auditor’s draft letter.

6. American Express Card

The employee had two credit cards that she used for COC purposes (a TD card issued to the COC and an American Express card issued to the employee).  The employee claimed she wanted a card that accumulated air miles so points could be used to help pay for annual flights to a conference she and members of the board attended.  According to the employee, she had the Amex card issued in her name because the company would not issue a card to a not-for-profit organization; its annual fee of approximately $5,000 was paid by the COC. 

The COC had the following concerns relating to Amex card: did the employee use some of the points for herself; was it really for the employee’s personal use (in which case the COC ought not to have been paying the annual fee); and was the employee as careful as she ought to have been in distinguishing personal from business expenses and providing sufficient supporting documentation?

In the court’s view, the Amex card was a non-issue for a number of reasons, including: the lengthy documented history of its use for COC expenses and the fact that the employee’s explanation for why it was issued in her name made sense; although the employee should not have used the Amex card for personal expenditures, a proportionate response was not to fire her, but to tell her to stop; the annual fee was a trivial item and if the board had an issue with it, someone could have taken it up with the employee and resolved it; the employee provided the same detail regarding expenses covered by the card without complaint for years without complaint, and when the board decided to follow more rigorous practices, the reasonable approach would have been to advise the employee of the new requirement and give her a chance to comply with them; and as there was no compelling evidence that the employee was using the Amex for personal expenses and charging them to the COC, thereby misappropriating COC funds, there was no breach of a fiduciary duty, only less-than-ideal accounting practices.

Two additional issues

The court considered the six issues listed above in the context of two additional concerns raised by the COC, namely the difficulties the new treasurer allegedly had in gaining access to the COC’s books and records, and the e-broadcast.  The court concluded the employee’s unwillingness to be transparent and provide access to the COC’s books and records was a concern that demonstrated poor judgment on her part.  It also concluded that the employee demonstrated poor judgment with respect to the e-broadcast, breaching her duty of loyalty to the board in favour of a past president whose views it suspected she may have shared.

Court’s conclusions

Ultimately, the court concluded that the employee’s immediate termination for just cause was justified by the employee’s dishonesty and exercise of poor judgment on significant issues, and it dismissed the employee’s claim.  In summarizing its conclusions, the court emphasized that it found significant dishonesty in that the employee impeded the new treasurer’s efforts to engage in financial oversight; participated in the alteration of the banking direction; and allowed the unauthorized raise, a bookkeeping error, to continue.  Furthermore, the court noted that in the last 18 months of her tenure, the employee exercised poor judgment in her decision to take out vacation pay in cash without proper approval from the board and at a time when the COC was experiencing financial issues, and in her authorization of the e-broadcast.  Finally, the court emphasized that because the issues that led to the employee’s termination came to a head at or around the same time period, they cumulatively amounted to a repudiation of the employment contract and, under these circumstances, it was unnecessary for the COC to provide warnings or to implement escalating forms of discipline.

Bottom Line for Employers

The Goruk decision will be welcomed by employers, especially those that employ fiduciaries.  The decision indicates that such employees may be terminated for cause immediately if they conduct themselves dishonestly and/or exercise poor judgment on significant issues, as such behavior will cumulatively amount to a repudiation of the employment contract.  Notably, the employee’s actions need not each justify termination for cause on their own; however, a number of such incidents at or around the same time period may justify with-cause dismissal when taken as a whole.  Furthermore, Goruk indicates that in circumstances where there are multiple incidents involving the employee’s dishonesty and/or poor judgment, the employer will not be required to provide warnings or engage in progressive discipline before the employee’s job termination, even when the employee is a long-term employee whose employment record has been otherwise perfect.