High-ranking DaimlerChrysler executive fired

An employer can fire an employee for cause if the employee is dishonest. But the dishonesty can't be superficial and has to go to the heart of the employment relationship
By Todd Humber
|hrreporter.com|Last Updated: 11/22/2005

An employer can fire an employee for cause if the employee is dishonest. But the dishonesty can’t be superficial, and has to go to the heart of the employment relationship. In 2001, the Supreme Court of Canada rejected an absolute rule entitling an employer to dismiss an employee for every act of dishonesty no matter how minor. Instead, the court said it’s more appropriate to strike a balance between the severity of the misconduct and the sanction imposed.

A recent case out of Windsor, Ont., involving a senior executive at DaimlerChrysler is an example of misconduct that rises to the level of warranting dismissal. It also raised an interesting question regarding how employers treat workers at the time of dismissal when they have just cause.

A high-ranking DaimlerChrysler executive in Windsor, Ont., was fired for cause after he hid information from the automotive giant during an investigation into improper billings by one of its suppliers.

Justice Abbey of the Ontario Superior Court of Justice said DaimlerChrysler was justified in firing William Paterson, the general manager of Canadian retail strategies. Paterson repeatedly lied about his attendance at a Toronto-area strip club, withheld information that would have been useful in the investigation of the supplier and was deceitful about an improper $50,000 loan a subordinate had obtained from a dealership.

Since the company had cause to fire Paterson, he was not entitled to any notice. However, Justice Abbey — as many judges do — delved into the realm of “what if” and looked at how much notice Paterson would have been entitled to if DaimlerChrysler did not have just cause fire him.

Paterson was a high-ranking executive and had been with the company for more than 30 years, so it’s not surprising the court said he would have been entitled to a notice period on the high end of the scale — in this case 24 months. But the court also said if DaimlerChrysler did not have cause, it would have granted

Wallace

damages — an increase in the notice period for the way the termination was handled — to the tune of four months.

Case raised an interesting question

That raised an interesting question: If an employer has just cause, can it handle the termination in any way it wants? Does it no longer have a duty to treat the employee in a good-faith manner?

Stuart Rudner, an employment lawyer with Miller Thomson LLP in Toronto, said the way

Wallace

damages are constructed, an employee will not be able to claim them if the employer has just cause to terminate the employment relationship.

Wallace

is pretty clear where the employer acts in bad faith or has some sort of unfair dealing that causes the employee to be embarrassed, it might be worthy of additional compensation,” said Rudner. “But it is not a separate head of damages. It’s just an extension of the notice period.”

But that doesn’t mean employers have a blank cheque to mistreat employees they have cause to fire. If the conduct is egregious and amounts to an independent actionable wrong, the employee could seek punitive or aggravated damages.

“If a judge is faced with that type of situation, they’re going to find a way to penalize the employer,” said Rudner.

What Paterson did

At the time of dismissal, Paterson was one of only about a half dozen or so executives who reported directly to the president of DaimlerChrysler Canada.

Paterson started working for the company in 1968 as a part-time summer student. He began full-time employment in 1971. In 2000 he was promoted to general manager of Canadian retail strategies. He had an unblemished record at the company and there were never any issues related to deficiency in his work performance. His performance reviews from 1995 to 2001 twice ranked him in the highest category as a “role model” and twice in the penultimate category as a “significant contributor.”

Pentamark was a significant supplier to DaimlerChrysler. It specialized in the areas of advertising and dealer training, and did about $150 million to $200 million in business with DaimlerChrysler each year.

Paterson’s group had significant dealings with Pentamark, especially around a dealer incentive program, to the tune of $25 million or more annually.

In May 2000, and again in May 2001, Paterson went, with others from DaimlerChrysler, Pentamark and API, one of Pentamark’s suppliers, to the Airport Club, an adult entertainment club in Toronto.

Paterson never contributed to the bill during his visits to the club. During a visit in May 2001 he offered to pay and was told the bill had been taken care of. That bill, in excess of $7,000, was paid by API. API billed that amount to Pentamark. Pentamark then concealed that amount in its billings to DaimlerChrysler.

Corporate policy required that DaimlerChrysler employees keep an entertainment log documenting occasions when entertainment expenses were paid by a supplier. Paterson kept such a log which, at the end of each quarter, he provided to the president. The entertainment expense for the May 2001 visit was not included in the log.

Not long after April 2000, when Paterson assumed his position as head of retail strategies, it came to the attention of senior management that certain employees had been given Palm Pilots by Pentamark. The cost of the electronic devices had, in turn, been billed by Pentamark to DaimlerChrysler and charged against particular projects.

At the end of the 1999 calendar year, DaimlerChrysler found that the billings of Pentamark had exceeded budget by about $1 million. In 2000, the billings exceeded budget by about $3 million.

The Palm Pilot issue and the budget overruns prompted an investigation. The investigation was handled by the general auditor’s office of the Chrysler group of companies, located in Michigan. The focus of the audit was to examine the processes in place between DaimlerChrysler and Pentamark. Paterson’s department was one of the ones subject to the audit’s scrutiny.

By November 2001 the audit had uncovered a number of areas of non-compliance, including inappropriate reporting of business expenses, excessive and inappropriate entertainment expenses and apparent violations of the company’s integrity code.

On Nov. 9, 2001, a confidential preliminary audit presentation was made to certain management personnel, including Paterson who participated by conference call. One of the significant items identified involved entertainment expenses and particularly those connected with adult entertainment. About $35,000 had apparently been spent by Pentamark on entertainment at the Airport Club and then hidden in billings by Pentamark to DaimlerChrysler.

The investigation was then handed over to DaimlerChrysler’s business practices group, also known as the “corporate police.” The group, a component of the U.S. corporation, was responsible for ensuring compliance with corporate policies, particularly the integrity code.

Following the Nov. 9, 2001, meeting, a draft audit report was produced. The president of DaimlerChrysler Canada was shocked when he read the draft report, the court said.

“The issues which had been identified reflected upon himself as the president and upon the entire Canadian operation,” the court said. “He was determined that the matters which had been uncovered would be thoroughly investigated.”

The court said that by the November 2001 meeting, Paterson understood he had information that would have assisted the investigation regarding the expenses involving the Airport Club. But he didn’t come forward.

Throughout the course of the audit, from the fall of 2001 until the final audit report in April 2002, the auditors unsuccessfully sought to discover whether DaimlerChrysler personnel had been a party to the questionable expenses, including the Airport Club expenses.

“(Paterson) made a conscious decision to withhold from the process auditors information pertaining to the Airport Club expenses,” said Justice Abbey.

The “corporate police” released a report in February 2002. Again, Paterson made a conscious decision not to disclose to this audit the information he had pertaining to the Airport Club, the court said.

Throughout the audits, Paterson remained silent, withholding information the auditors were looking for. The auditors placed reliance on what they were told and not told by Paterson, the court said. And other DaimlerChrysler employees, who were also at the Airport Club, did not come forward either.

“I believe that (Paterson’s) decision to withhold information from the business practices auditors was made with the knowledge that others (including a close friend and subordinate) were also deceiving the auditors,” said Justice Abbey.

“(Paterson’s) decision not to come forward with what he knew was therefore made with the knowledge that he had become a party to an agreement to deceive the investigation.”

Paterson also failed to deal with a subordinate and close friend who inappropriately borrowed $50,000 from a Toronto area dealership in a manner consistent with his responsibilities as a senior executive of DaimlerChrysler, the court said.

“He failed to document and report the serious violation of the integrity code and, for over 20 months, he kept the evidence of the loan arrangement concealed in his desk,” said Justice Abbey. “Once again, he chose to withhold significant information from his employer.”

On Oct. 30, 2002, the court said Paterson was given a clear opportunity to come clean about his attendance at the Airport Club when he was asked directly if he had been there.

Taking all this into account, the court said DaimlerChrysler had established deception and dishonesty on Paterson’s part.

For more information see:

Paterson v. DaimlerChrysler Canada Inc.

, 2005 CarswellOnt 4338 (Ont. S.C.J.)


Dismissing an employee for dishonesty: What the courts have said

In

McKinley v. BC Tel

, the Supreme Court of Canada rejected an absolute rule entitling an employer to dismiss an employee for every act of dishonesty, no matter how minor and regardless of context. Instead, the court said the act must be put in context and there should be a balance between the severity of the misconduct and the sanction.

“The test is whether the employee’s dishonesty gave rise to a breakdown in the employment relationship,” the court said in

McKinley

. “This test can be expressed in different ways. One could say, for example, that just cause for dismissal exists where the dishonesty violates an essential condition of the employment contract, breaches the faith inherent to the work relationship or is fundamentally or directly inconsistent with the employee’s obligations to his or her employer.”

In the more recent decision of

Dowling v. Ontario (Workplace Safety and Insurance Board)

, the Ontario Court of Appeal said applying the McKinley standard consists of:

•determining the nature and extent of the misconduct;

•considering the surrounding circumstances; and

•deciding whether dismissal is warranted.

Paterson, at the time he was fired, had devoted all of his working life to DaimlerChrysler. For 32 years, his record was unblemished. His performance reviews were glowing and he was approaching retirement.

But Justice Abbey said it would be an “oversimplification” to say that impunity from the consequences of dishonesty can simply be purchased by an exemplary work record. The president of DaimlerChrysler was of the opinion the bond of trust between (Paterson) and DaimlerChrysler had been irreparably severed.

Paterson was an obstacle in the audit investigation. Not only did he decide to withhold information, but when he was confronted directly about his attendance at the Airport Club, he lied.

When faced with the knowledge that a subordinate and close friend had inappropriately borrowed money from a dealership, he concealed it and was an obstacle to a timely application of the company’s integrity code.

“The fact is that on each occasion when (Paterson’s) bond of trust and loyalty to DaimlerChrylser was tested, (he) opted to conceal information and ultimately to lie in order to protect himself or … his friend and subordinate,” the court said. “In my opinion, (Paterson’s) misconduct was irreconcilable with a continuation of the employment relationship as being fundamentally at odds with his obligations to his employer. Termination, I believe, was a proportional response and the only response.”

It dismissed his claim for damages arising from wrongful termination.


How Paterson’s dismissal was handled

In

Wallace v. United Grain Growers

, the Supreme Court of Canada said employers should be held to an obligation of good faith and fair dealing in the manner of dismissal.

At a minimum, employers should be candid, reasonable, honest and forthright with their employees and refrain from engaging in conduct that is unfair or in bad faith by being, for example, untruthful, misleading or unduly insensitive.

If an employer breached this duty, it would be penalized by a lengthening of the notice period. Justice Abbey said he would have awarded Paterson a four month extension of the notice period.

Paterson was led to a room to meet with a termination team including the vice-president of human resources, a senior HR manager, the chief of DaimlerChrysler security and a person required to arrange a taxi.

Paterson was informed of the decision to terminate his employment and surrendered his employee card, credit card and keys to his company vehicle. His request to retrieve his personal items from his office was refused. He was told they would be delivered to his house the following day.

Paterson was given an escort to his car and was allowed to remove personal items from the vehicle. He was then sent home in a taxi.

“The obligation of good faith and fair dealing owed by DaimlerChrysler to (Paterson) was breached,” the court said. “(Paterson) was not dealt with in a forthright manner, and the behaviour exhibited at the time was insensitive.”

Therefore, it would have extended the notice period by four months as a result of the way DaimlerChrysler handled the termination.

Justice Abbey said this was not a case that attracted aggravated damages, punitive damages or damages for intentional infliction of mental distress.

Todd Humber is editor of Canadian Employment Law Today, a sister publication to Canadian HR Reporter. For more information, visit www.employmentlawtoday.com.

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