Welcome news for employers: Former fiduciary ordered to pay $50,000 in punitive damages

In a welcome surprise to employers, the Alberta Court of King's Bench dismissed an employee's claim of wrongful dismissal. In its dismissal, the Court remarkably awarded both compensatory and punitive damages to the employer as a result of the employee's misconduct.

Amid a pro-employee legal landscape, this decision serves as a vital reminder to high-level employees of their duty to represent their employer honestly.

Background

The Plaintiff, Patrick Breen, was the former President and Chief Executive Officer (CEO) of Foremost Group's several businesses, including Foremost Industries Ltd (FIL). Mr. Breen was hired in 2002 and subsequently rose to the level of President and CEO until his employment was terminated in 2014.

Although Mr. Breen's employment responsibilities related to all of the Foremost Group's businesses, Mr. Breen and FIL eventually entered into a written employment agreement (the Agreement), which was effective from January 1, 2011 until December 31, 2014.

The Agreement governed the nature and scope of Mr. Breen's duties and obligations, including four overarching constraints on Mr. Breen's authority. Specifically, Mr. Breen was obligated to consult with and obtain approval from the Board of Trustees on:

• Any expenditure that was above his spend authorization limit.
• Any contract that contained "red flag" terms.
• Any matter that was material and unusual or out of the ordinary.
• Compensation matters.^[1]

Throughout Mr. Breen's employment with FIL, the Board became increasingly concerned with his performance and suitability for the position. Most notably, Mr. Breen collected three financial gifts from a foreign client for his own benefit, which he subsequently failed to disclose. Mr. Breen also entered into several contracts without Board approval (which were significantly above the approval authorization spending limits).

In early 2013, the Lead Trustee and Chair of the Board met with Mr. Breen outlining the Board's ongoing and significant concern regarding his performance and conduct. Despite repeated performance discussions with Mr. Breen about his employment obligations, Mr. Breen's dishonest and bad-faith conduct persisted. As a result, Mr. Breen's employment was terminated for cause.

The decision

Mr. Breen sued FIL and the Trustees (collectively, the Defendants) for wrongful dismissal and damages. The Defendants counterclaimed, alleging that while acting as President and CEO, Mr. Breen knowingly and wilfully breached his fiduciary duties, including but not limited to the duties of care and skill, good faith, loyalty, conflicts of interest and safeguard of property.

The Defendants claimed that these breaches resulted in substantial losses to FIL for which Mr. Breen was responsible, and that Mr. Breen used his position for his own financial gain.

The court found that Mr. Breen engaged in misconduct, knowing it to be wrong and in breach of his duties to FIL as a fiduciary. Specifically, the court found that Mr. Breen knowingly entered into non-arm's length transactions in breach of his duty to avoid conflicts of interest.

Mr. Breen not only attempted to conceal his inappropriate behaviour and conduct, he vigorously sought to resist any attempts by the Defendants to obtain information concerning his inappropriate transactions. Mr. Breen's transactions often greatly exceeded his level of authorization and required prior consultation and approval from the Defendants which was never obtained.

The court also considered the surrounding circumstances. In particular, the court emphasized that Mr. Breen acted as President and CEO, and in such capacity, he was the most senior officer and was individually responsible for the day-to-day management of the business. Given his position, Mr. Breen was acutely aware of his duties to the Defendants and that he was entrusted to perform in the best interests of the Defendants.

Lastly, the court considered whether the aforementioned misconduct justified for cause termination of Mr. Breen's employment with the Defendants. The court was quick to find that the Defendants were justified in summarily dismissing Mr. Breen, as any one of his actions alone would have been sufficient for dismissal. The court particularly expressed disapproval of Mr. Breen's indecent and dishonest conduct:

"Honesty and trustworthiness form the very foundation and is an essential condition of any employment relationship. This is especially so if a person holds a, if not the, most senior management role in the organization. The Foremost Group was entitled to have high expectations regarding the trustworthiness of its most senior officer. Mr. Breen breached those high expectations and his conduct was dishonest.^[2]"

Ultimately, the court found that the Defendants were justified in terminating Mr. Breen's employment on a for cause basis. The Court awarded FIL compensatory damages, $50,000 in punitive damages, and ordered repayment of $480,000 USD paid to Mr. Breen by third parties.^[3]

The court concluded by noting that it would have been inclined to award a higher damages amount had the Defendants asked for it.

Key takeaways

This case serves as an important reminder of the seriousness of the contractual, statutory and fiduciary duties of high-level executives. Senior management employees, particularly fiduciary employees, are entrusted to act in the best interests of their employers, and are held to strictly high standards should their conduct come under scrutiny by the courts.

In a legal environment where employment decisions tend to often go against employers, this is a welcome decision as the court expressly acknowledged employee misconduct and dealt with such by way of significant disciplinary damages.

If you would like to discuss the Breen decision further or have any questions, please contact the authors or a member of the Employment, Labour & Equalities Group.