Naive employee involved in pyramid scheme finds there’s no quick buck

Murphy v. Clarica life Insurance Co., 2003 CarswellNB 456 (N.B. Q.B.)

In August 2000, Dennis Murphy was working for Clarica Life Insurance Co., in Woodstock, N.B., selling insurance and mutual funds.

Around the middle of that month he got a brochure in the mail. It outlined a pyramid scheme in which the participant gives $3,000 to a stranger and receives $3,000 from eight other people. Murphy became excited about the prospect of making a lot of money in a short time.

He began talking with other Clarica agents about the scheme.

Murphy’s supervisor, Greg Hunt, called him to find out what his involvement in the scheme was, and to point out its illegality. Murphy denied any knowledge of the scheme. Hunt circulated a memo about the scheme and its illegality. Murphy and everyone in the office with whom Murphy had been talking about the scheme abandoned it.

Hunt said he had received verbal reports that Murphy was “flashing cheques payable to him” for $24,000 around the community as proof his pyramid scheme paid off. The reports also noted that Clarica clients, who had made the connection between Murphy and Clarica, had become worried their money was tied up in a scheme.

On Aug. 28, 2000, Murphy was fired. He was later told it was due to his involvement in the scheme.

The court concluded Murphy was naive about the scheme and honestly did not know it was illegal until he was given Hunt’s memo. The court dismissed the allegations about Clarica’s clients being worried and Murphy flashing cheques.

The court found Clarica did not have just cause for firing Murphy, since all it had to base the firing on was the fact he lied when he was asked whether he was involved in the scheme and his solicitation of other agents to join him. The court also said Murphy could not be fired for contravening Clarica’s policy which disallowed anyone to operate a competing business because Murphy had ended his involvement before he was fired from Clarica.

Murphy had a difficult three years after he was fired. His reputation in the small community was shot, in part due to his abrupt termination. It also took him two years to get his license back to sell life insurance in New Brunswick.

The court awarded Murphy 12 months’ notice, which worked out to $32,743.66 plus interest (and an amount involved of $40,000). He was also awarded costs of $4,125.

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