Breen v Foremost Industries Ltd., 2023 ABKB 552 (Yamauchi) is a new Alberta Court of King’s Bench decision where an employee sued for wrongful dismissal, but the employer turned the tables and was able to get a huge award against the employee for various dishonest acts and other breaches of fiduciary and employee duty.
This case is very complicated, in large part because it involves an employer unraveling international transactions involving Canada, Russia, Cyprus, Panama, etc.
This case should serve as a reminder to employees that they can be sued by their employers in the rights circumstances, and the damages can be very substantial.
Facts
The following were the facts summarized by the Alberta Court of King’s Bench:
- The Plaintiff employee in this case was Mr. Breen
- The Plaintiff was the President and CEO of the Foremost Income Fund and the various entities operating under that fund, but his employer was, for the purposes of this summary, the Foremost Group (“Foremost”)
- Breen had engaged in several questionable international transactions on behalf of Foremost, some of which Foremost was aware of to some extent, and many of which they were not aware of, or not aware of substantive details, until later
- Foremost terminated Mr. Breen’s employment, purportedly for just cause, and Mr. Breen sued for wrongful dismissal
- Foremost defended, claiming to have had just cause for dismissal, and also launched a counterclaim against Mr. Breen. The defense and counterclaim alleged numerous acts of negligence, breaches of employee duty and fiduciary duty, and misappropriation of the employer’s funds
- The ABKB found that Mr. Breen had engaged in transactions that disregarded the expectations / guidelines Foremost had in place. For instance, among many other things:
- Not flagging all transactions that were out of the ordinary
- Spending more money than he was supposed to spend without board approval
- Effectively paying himself some secret funds, by paying funds via Foremost to a Russian agent who then essentially paid a portion back to Mr. Breen. He referred to some of these payments as “gifts” but the Court disagreed
- Otherwise acting dishonestly vis-à-vis his employer
Analysis / Conclusion
Justice Yamauchi had little difficulty concluding that Foremost had just cause to terminate Mr. Breen’s employment. Perhaps the most scathing paragraph of the reasoning on this point reads as follows:
[328] In the case at bar, Mr. Breen’s misconduct was serious enough that any one of the taking of the three gifts from Mr. Chernyk, his lack of forthrightness concerning the Transneft transaction, his misrepresentations to Mr. May, or his exceeding his authorizations would have been sufficient, in this Court’s view, for the Foremost Group summarily to dismiss him with cause. Cumulatively, they point to conduct that is incompatible to the employment relationship. He breached the conflict of interest provision of his Employment Agreement, and he acknowledges this. As well, he was dishonest. Honesty and trustworthiness form the very foundation and is an essential condition of any employment relationship. This is especially so of a person holds a, if not the, most senior management role in the organization. The Foremost Group was entitled to have high expectations regarding the trustworthiness of its most senior officer. […]
Regarding the counterclaim by Foremost, Justice Yamauchi found that Mr. Breen was a fiduciary employee and was liable for various breaches, noting as follows:
[420] […] This Court finds that Mr. Breen was in a fiduciary capacity when he was acting as the Foremost Group’s President and Chief Executive Officer. He used this position to collect the 2011 Gift, the 2012 Gift, and the 2013 Gift for his own benefit. This Court finds that he received those amounts through embezzlement, misappropriation or defalcation while he was acting in a fiduciary capacity in relation to the Foremost Group. […]
The ABKB held Mr. Breen liable for: the payments that were redirected to him, inappropriate payments made to third parties, and generally for some provable economic losses experienced by Foremost because of certain of his breaches in duties as an employee.
The ABKB made an award of $50,000 in punitive damages against Mr. Breen because this was the amount Foremost had claimed in punitives, but the Court noted that it would have awarded more if more had been claimed.
In total, Mr. Breen was ordered to pay Foremost over $450,000 in pecuniary damages, plus $50,000 in punitive damages.
My Take
This case is crazy. The overall result is not particularly surprising given the facts found by the Trial Judge, but there would have been a number of challenges in proving the facts that were proven.
Given the length and complexity of the case, even a thorough summary would likely be 10 or more pages of dense material. Suffice it to say this case re-affirms many employment law principles and has an interesting take on several of them.
Practitioners of employment law may wish to consider reading this whole case. The case considers many aspects of employment law, including just cause, after-acquired just cause, condonation, fiduciary duty, fiduciary liability, employee duty, employee liability, director liability and punitive damages.
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