'Deceptive conduct in this manner can be enough to fracture the employer's trust and confidence'
“Dishonesty is not always going to be cause for termination, but it’s likely to be for very serious acts of deception or dishonesty that really strike at the heart of the employment relationship and destroy the trust that underlies the employment relationship.”
So says Nicole Toye, an employment lawyer and partner at Harris and Company in Vancouver, after the British Columbia Supreme Court upheld the termination of a senior management employee for falsely submitting personal receipts as business expenses.
The 43-year-old worker was employed with an auto group in Alberta and wanted to go back to BC, where he was from. He applied for the position of general manager with Galaxy Motors, an auto retailer with five used-car dealerships and two recreational vehicle sales sites in BC.
On May 16, 2020, the worker met with Galaxy Motors’ owner and assistant general manager, who was the owner’s niece. They agreed to an employment contract for the general manager job based in Victoria. The contract contained a termination clause allowing the company to terminate for just cause at any time without notice.
Employee handbook
Before the worker officially began his employment, Galaxy Motors sent him an employee handbook that included a personal conduct section listing infractions that were “extremely serious and are strictly prohibited” that would be subject to immediate dismissal. The infractions included falsifying records or information and intentional disclosure of confidential company information.
“Generally speaking, it's a good idea if employers have an employee handbook that addresses how certain kinds of conduct or behavior in the workplace might impact their employment going forward, because it sets really clear expectations and rules around how everyone's expected to conduct themselves in the workplace,” says Toye.
The worker started working on June 2 with a compensation plan that allowed him the use of a company demonstration vehicle with fuel paid for by Galaxy Motors.
In October, the worker was promoted to vice-president of operations of the auto and recreational vehicle businesses. His compensation plan changed to increase his salary and add a year-end bonus.
In June 2021, the worker requested a permanent title change to either president or CEO. The owner agreed to compensation changes but not the title change, and they signed a new compensation plan.
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Reimbursement of business expenses
Throughout the worker’s tenure with Galaxy Motors, he submitted receipts of expenses for reimbursement. According to the worker, he was never advised of any policies around expenses and his receipts were never questioned.
The owner passed away on Aug. 9 and his niece and nephew inherited the company.
On June 22, 2022, the worker attended an event at a restaurant with his wife along with several Galaxy Motors managers and their spouses. The late owner’s niece who had become co-owner also attended.
According to the worker, he and the co-owner agreed that it was a team-building event that could be justified as a business expense. The worker volunteered to pay the dinner bill and later submitted it for reimbursement.
However, the co-owner said that she didn’t consider it a company event and thought that the worker was just being generous. She denied telling him to submit the receipt and declined to approve the reimbursement.
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Suspicious receipts
The owner decided to look into the worker’s expense claims and found some that stood out to her, including dinner at a restaurant on June 15 with two other employees whose names he had written on the receipt; breakfast on June 16 with another employee; and a bill for an employee event at a bar that included an excessive number of drinks.
The worker conceded that the June 15 dinner and June 16 breakfast had been with his wife, but they were expenses incurred while on a business trip to dealerships on Vancouver Island. He claimed that he told the CFO that there were other meals he had paid for that he had not expensed and he had had dealings with the employees he identified on the receipts, and the CFO told him to “keep it simple” with fewer receipts. The CFO denied that the worker told him that the dinner and breakfast had been with his wife.
On July 7, one of the company’s insurance vendors showed the co-owner an electronic transmission that the worker had sent to him that contained confidential financial information. The worker had sent the information because the insurance vendor was a “business partner” with whom Galaxy Motors had a profit-sharing program.
On July 11, the worker attended a meeting with the two owners in which they accused him of fraud. His employment was suspended and the owners sent an email to employees stating that the worker was on a temporary leave of absence. The same day, the company changed the locks to its office.
The owners didn’t speak to the CFO or the employees named on the worker’s receipts, but they felt it wasn’t necessary because of the worker’s admissions. The decided that they couldn’t trust the worker and terminated his employment on July 13 for “numerous incidents of fraudulent and improper conduct relating to expense claims.”
According to the worker, he became depressed, angry, and reclusive, and his marriage and family relationships became strained. A couple of months later he found a general manager position at an automobile dealership.
Worker fraud usually justifies dismissal, but the employer must be able to provide convincing evidence, according to employment lawyers.
Wrongful dismissal and bad faith: worker
The worker sued Galaxy Motors for wrongful dismissal with aggravated and punitive damages for the manner of dismissal.
The court found that the worker was mostly truthful in his account of events, except for his discussion with the CFO about his receipts and what happened at the July 11 meeting - he was “vague, equivocal… uneasy and defensive.” In this regard, the worker was “struggling to find a way around his having been caught in a deception of his employer,” the court said.
The court also found that the evidence of the owners and the CFO was straightforward and credible.
Given the evidence, the court had little doubt that the worker submitted the June 15 and 16 restaurant receipts “under the guise of having been business-related when he knew that they were personal.” The worker tried to pass them off as business expenses by writing the names of other employees on the receipts and then repeated his dishonesty when the owners asked him about the receipts, the court said.
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Gather information
Toye notes that it would have been good for Galaxy Motors to interview others involved, such as the employees named on the receipts and the CFO, in the name of a comprehensive investigation, but in this case it didn’t hurt the company.
“There may be some additional information that could have been gathered, but in the end even the court was satisfied that, at the point that they made their decision, they had enough information to know that their trust was fundamentally fractured and this was not going to be an employment relationship that could continue,” says Toye.
“It’s a good idea to do an investigation anytime there's a concern about misconduct by an employee and to take some steps to gather information before making decisions about the appropriate disciplinary response,” Toye adds. “Once you get to the point where you've gathered enough information to make your decision, that's great - but it’s important to take that step before jumping to conclusions based on a receipt or anything like that.”
The court noted that dishonesty did not always provide just cause for dismissal and the amount of the dinner and breakfast receipts was relatively small, but it found that the worker’s dishonesty “went to the very root” of the employment relationship with Galaxy Motors. He was in a senior management position that involved a high level of authority, responsibility and trust, and his initial dishonesty compounded by his failure to be forthright when given an opportunity justified the company’s loss of faith and trust in him, the court said in dismissing the worker’s claim and upholding his dismissal.
There is a particularly high standard of trust for senior level employees that can justify dismissal if that trust is breached, says Toye.
“I don't think this case changes the law in any material way, but it certainly reaffirms that even a single incident of dishonesty or deceptive conduct in this manner can be enough to fracture the employer’s trust and confidence,” she says.
