Howard Levitt: Ex-CEO ordered to pay firm $500,000 in wrongful dismissal suit gone wrong

Alberta court not only rejects wrongful dismissal claim, but leaves ex-CEO to pay back funds and damages

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By Howard Levitt and Nadim Mansour

Ask any employment lawyer, and they will tell you that our courts generally take the side of employees.

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A never-ending onslaught of employee-friendly decisions confirms that is the case. The abundance of legal precedent in favour of the employee — and their lawyers who blog about it on social media — encourage would-be litigants to sue, some with formidable cases and others who have no business in a courtroom.

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How then does a fired employee wind up personally liable to their former employer for over half a million dollars?

The case of Breen vs. Foremost Industries Ltd., recently decided before the Alberta Court of King’s Bench, sends a welcome message to employers: do not be afraid to counterclaim against employees in the right circumstances.

The employee in question, Patrick Breen, started with Foremost Universal Limited Partnership, an industrial manufacturer in the energy industry, as a vice-president in the early 2000s. He quickly rose through the ranks and, in 2003, began his position as president of the Foremost Income Fund. In that capacity, he also acted as chief executive officer for the entirety of the Foremost Group, overseeing all businesses under the group.

After commanding the role of CEO for over a decade, Breen found himself ousted by the company and terminated for cause in 2014. The termination letter alleged Breen had engaged in serious and habitual misconduct in the discharge of his duties, including lack of candour and failure to follow business control policies.

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Despite the harsh allegations levelled against him, Breen sued for wrongful dismissal in April 2015. The Foremost Group counterclaimed for breach of fiduciary duties.

Terminations for cause are described by our courts as the “capital punishment” of employment law. Such terminations are not often upheld by courts, and rightfully so given the financial blow to fired employees deprived of severance.

In this case, however, the court not only concluded that the Foremost Group had just cause to dismiss Breen, but also that Breen owed monetary damages to the Foremost Group. The trial lasted four weeks, beginning on April 25, 2022, and the court’s decision was issued on Oct. 4, 2023.

As chief executive and the most senior officer of the company, Breen enjoyed the unique position of being accountable only to the company’s board of directors. Breen, to the detriment of his wrongful dismissal lawsuit, abused that unique position, the court found.

It unearthed repeated violations of restrictions placed on his authority as CEO. Breen was found to have repeatedly exceeded his spending authorization limits and entered material transactions that were unusual and contained “red flags.” He did all the above without the board’s approval — which was, of course, required.

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To make matters worse, the court’s verdict indicated that Breen had been the beneficiary of various gifts obtained “through embezzlement, misappropriation, or defalcation while he was acting in a fiduciary capacity.” Would-be litigants seldom consider the risk of reputational harm from an unfavourable court decision. With a publicly available decision and the ensuing public shame, it is unlikely that Breen will ever find work as a CEO again.

Ultimately, Breen was held personally liable to Foremost for a hefty sum of over $500,000, including punitive damages of $50,000.

In a warning that ought to send shivers down the spines of employees contemplating misusing their positions for personal gain, Justice Keith D. Yamauchi noted: “This Court might have been inclined to award a much higher amount, had the Foremost Group asked for it.”

And of course employers would be right to ask a court for higher amounts of punitive damages where their employees are caught stealing from them. Punitive damages serve the dual purpose of deterring not only the individual responsible but also others who might consider engaging in similar misconduct in the future. Employee fraud is surely a form of misconduct attracting deterrence and denunciation by our courts.

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Employers, the message is clear: Do not be afraid to get aggressive when you are in the right to do so. Do not shy away from pursuing claims against employees when they have committed outrageous wrongs.

And to those employees who engage in bad behaviour: Think twice before you sue. The truth will come out in court, and even the best lawyer cannot change the facts.

Howard Levitt is senior partner of Levitt Sheikh, employment and labour lawyers with offices in Toronto and Hamilton. He practices employment law in eight provinces. He is the author of six books including the Law of Dismissal in Canada. Nadim Mansour is a lawyer at Levitt Sheikh.

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