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Suing Former Employees

Just about any employment lawyer will tell employers that, in most cases, it’s really not worth suing former employees. Generally speaking, the costs of recovering debts for minor theft, repayment of unearned relocation and training allowances, etc. will outweigh what the employer could hope to recover.
 
That isn’t always the case. Now and then an employer with a really large bone to pick chases down a former employee via the courts. One such case recently played out in B.C.’s Supreme Court.
 
McNeil was hired by Procon Mining and Tunnelling Ltd. in the 1990s to manage their equipment division. His terms of employment included an option to purchase a 5% equity interest in the company.
 
Soon after joining the company, McNeil began receiving secret commissions from Procon’s suppliers and clients. These clandestine payments eventually amounted to over $800,000.
 
McNeil recruited other of Procon’s employees into the payment scheme and also set up a company to receive the payments. His wrongdoing was not revealed until after his resignation in 2005.
 
In the seven years prior to his resignation, Procon had paid McNeil over $550,000 in bonuses (in addition to his salary). At the time of his resignation, McNeil negotiated a buyout of his 5% equity option for $1,250,000.
 
After McNeil’s departure, Procon discovered the bribery/commissions scheme and sued to recover the commissions, the bonuses, the amount paid to buy out his equity option, and for punitive damages.
 
B.C.’s Supreme Court addressed the topic of fiduciary status, emphasizing that one does not have to be an officer or director of a company to be saddled with the stringent duties of a fiduciary. A senior manager with a meaningful degree of autonomy in supervising and carrying out the operations of the company may also be deemed a fiduciary.
 
Even employees in administrative positions may, if they have discretionary access to the employer’s funds, be deemed a fiduciary. Even a junior-level employee will be subject to fiduciary obligations if he or she joins with another employee in the breach of that employee’s fiduciary duties.
 
In this instance, having regard to his management functions, the fact that he was one of a small core of management, and his unique position in managing Procon’s equipment centre, McNeil was considered to be a fiduciary.
 
In addition to amounts on account of McNeil’s receipt of the secret commissions, the Court found that the bonuses and the payment for his equity option had been improperly received. McNeil had a duty to fully disclose to his employer all of the material circumstances which might have operated on Procon’s judgment in relation to these payments.
 
In effect, the Court stated that, had McNeil fully disclosed the situation to Procon, they never would have paid him the bonuses or the amount in exchange for his equity option. That being the case, those funds all had to be repaid.
 
An interesting aspect of this case was the 50/50 apportionment of liability for the secret commissions between McNeil and one of Procon’s suppliers (which had offered the bribe to Mcneil). In this regard, the Court applied the principle that a briber and a recipient of a bribe are jointly and severally for the amount of the bribe.
 
The damages ordered payable by McNeil to Procon added up to $2,292,719 including $20,000 in punitive damages. That’s a payback that was definitely worth suing over!
 
Robert Smithson is a lawyer in Kelowna practicing exclusively in the area of labour and employment law. For more information about his practice, or to view past “Legal Ease” columns, log onto www.pushormitchell.com