'When that element of trust is breached, it’s often just cause for dismissal': lawyer
The Federal Court has upheld the firing of a banking sector worker who didn’t follow proper procedures and collected unearned commissions of nearly $100,000.
“In roles like this one, where there's a lot of responsibility for client funds, an expectation that the employee should be held to a particular professional standard and carry out their responsibilities ethically, when that element of trust is breached, it’s often just cause for dismissal,” says Annie Gray, a labour and employment lawyer at Stewart McKelvey in Halifax.
The worker was hired by Royal Bank of Canada (RBC) in 2000 to be a customer service agent. Over time, she became an investment retirement planner who was licensed to manage mutual funds as a registered representative of RBC.
The worker’s compensation was based on fees, bonuses, and commissions calculated by RBC’s compensation guide, which the worker and all investment retirement planners were required to attest to in writing each year that they had read it and agreed to abide by its terms. There were also additional written guidelines and training around pay mechanisms and procedures, plus a code of conduct that set ethical standards for all RBC employees to follow laws, regulations, and RBC policies.
The code of conduct also stated that overstating an expense report or falsifying a sales record to exceed a target would be a violation of the code and RBC’s trust, and false statements were never tolerated, regardless of the amount or reason.
The compensation guide set out that the worker received commissions for the acquisition and consolidation of client assets only if those assets were external to RBC. Internal sales, such as reallocating client assets from one fund to another, did not trigger commissions.
Worker didn’t follow bank procedure
In 2017, the worker performed many internal rebalancing transactions in which she manually redeemed client investments for cash and used the cash to buy new investments. However, she was supposed to use an automated process called CART, which sorted transactions into two categories – compensable and non-compensable. Investment retirement planners who didn’t use CART were required to notify payroll of non-compensable transactions.
However, the worker didn’t report her non-compensable transactions, leading to her receiving unauthorized commissions from internal rebalancing transactions. After discovering some of these transactions in June 2017, the branch compliance officer sent her an email reminding her to use CART for rebalancing client funds.
The worker replied she would use CART going forward and that she appreciated “the heads up.” However, she continued to perform the transactions without CART and receive unauthorized compensation.
In November, RBC changed the payroll system so that investment retirement planner sales automatically defaulted to being non-compensable. However, the worker logged into the system and manually changed it to the compensable option for several internal sales.
Workplace audits and investigation
An RBC payroll verification and control officer audited the worker’s transactions in early 2018, finding 138 transactions for which she received unauthorized compensation with a value of more than $29,000. The worker agreed that RBC could correct the overpayments on her next paycheque.
Another audit in June that year discovered that the worker had posted 60 internal sales as external, claimed compensation for the same sale twice, and backdated some sales she had missed so they fell within the commission window. In total, the audit found that the worker had collected more than $70,000 in unearned commissions, fees, and bonuses over the course of 2017 and early 2018.
RBC’s corporate investigation services commenced an investigation that included an interview of the worker. The worker acknowledged her conduct and that she wasn’t entitled to the commissions, but she said the errors were RBC’s fault because the bank should have detected them sooner.
RBC approached the matter effectively that helped build a case for dismissal, according to Gray.
“[RBC] had clear policies to document important responsibilities and consequences, and when misconduct was discovered, it was managed in a way that was reasonable in the context,” she says. “So here, when there was reason to believe that the relationship and trust was an issue, they made sure of a proper investigation that allowed the employee time to respond.”
Termination of employment
After the investigation report was issued, RBC terminated the worker’s employment without cause on July 26, 2018. RBC conducted an exit audit of the worker’s transactions and determined that she had been paid more than $98,000 in unearned compensation.
The worker brought a claim for unjust dismissal before the Canada Industrial Relations Board, arguing that dismissal was excessive without progressive discipline.
A board adjudicator found that the email from the branch compliance officer was sufficient warning for the worker to realize that she needed to change her ways and start following procedures, or else her employment was in jeopardy. In addition, the worker’s reply confirmed that she understood that the CART process was the correct way to rebalance internal funds, the adjudicator said.
The context in which the email was sent to the employee was important, says Gray.
“There are circumstances in which the email to this employee could have been ambiguous and not sufficient to flag the issue, but in the context where she has sophisticated knowledge of what she was doing and had to go through a lot of hoops to get the commissions that she didn't deserve – and her response saying, ‘Now I know what to do’ - looking at it in the full picture when she continued to act in a way that she knew she wasn't allowed to, there didn’t need to be a specific warning,” she says.
Breach of trust
The adjudicator determined that the worker’s conduct was fundamental to her role and “irreparably destroyed the heart of their employment relationship, which at its essence required honesty, integrity and trust.” Given that the worker was employed by a financial institution and dealt with “millions of dollars of client money,” her dishonesty broke the trust required to perform her duties with RBC, the adjudicator said, adding that the worker was unable to explain her conduct and tried to shift the blame. The termination was upheld.
The worker applied for judicial review of the adjudicator’s decision, maintaining that the email she received was an “ambiguous admonishment” that wasn’t adequate warning that her employment was in jeopardy, as it didn’t specifically say that her behaviour was prohibited.
The Federal Court noted that termination without progressive discipline “is limited to cases of egregious misconduct” that “goes to the root of the employment contract.” In this case, the adjudicator assessed the requirements of the compensation guide and the code of conduct, which both addressed serious misconduct related to what the worker did. The worker was responsible for managing millions of dollars in client money, received nearly $100,000 in unearned compensation, and she refused to accept responsibility for what she did, trying to shift the blame onto RBC, the court said.
The existence of the code of conduct and compensation guide was likely crucial to establishing just cause, says Gray.
“They clearly set the stage that these rules were important and foundational to the relationship because they were so clearly spelled out and had to be signed off on frequently,” she says. “So it made it clear that this was a fundamental issue and it was also indisputable that the employee knew the obligations she had to meet in the [rebalancing of investments] process.”
Fundamental misconduct
The court agreed that the worker’s misconduct was “serious and fundamental” to her role with RBC and it broke the trust that was required for her to continue. There were no mitigating factors and the worker still hadn’t fully repaid RBC for her overcompensation, said the court.
The court found that the worker didn’t demonstrate any unreasonable findings by the adjudicator. As a result, it dismissed the worker’s application for judicial review.
“This case is consistent with a line of cases about the financial services industry,” says Gray. “[The worker] was responsible for managing clients’ money and millions of dollars, and that really imposed a greater duty of trust on her in the employment relationship, and it was easier to meet that threshold of just cause in that context.”
