In a recent case, the British Columbia Court of Appeal ruled that two fraudulently expensed meals are enough to fire a company’s President of Operations for just cause.
Background
In June 2022, the President of Operations of Galaxy Motors, Mr. Mechalchuk, went on a business trip to Parksville, B.C. with his wife. He and his wife had dinner and breakfast at a restaurant. Mechalchuk wrote the names of his employees on the receipts, implying that he had dined with those employees, and submitted the receipts for reimbursement as a business expense. He was reimbursed for both of the meals.
Eventually Galaxy Motors’ owner ordered a spot audit of Mechalchuk’s expenses. During the audit process Mechalchuk was given two opportunities to come clean, yet continued to lie about the receipts. He was eventually dismissed for just cause. The termination was based on a long list of Mechalchuk’s alleged misconduct.
B.C. Supreme Court decision
At trial, the B.C. Supreme Court found that Mechalchuk was dishonest to his employer: 1) on the basis of the Parksville restaurant receipts and 2) because of his subsequent lies during the audit. The Court did not find any other instances of misconduct. The Court found that the Parksville receipts was just cause for termination. Mechalchuk, as President of Operations, had a high standard of expected conduct due to his position. He had breached the essential conditions of integrity and honesty in his contract and had deliberately concealed his actions which he knew were wrong.
On appeal, the Mechalchuk argued that the B.C. Supreme Court had erred in finding just cause only on the basis of the Parksville receipts when Galaxy Motors had pled a broad pattern of misconduct. The B.C. Court of Appeal held (at p. 29) that if Mechalchuk’s one act of misconduct “went to the heart of the employer/employee relationship” it is therefore “sufficient to find that there was just cause for the dismissal.”
The B.C. Court of Appeal stated, further, at paragraph 31, that the lower court had “a considerable body of evidence” to find that Mechalchuk’s conduct met the above standard for just cause dismissal. That evidence includes:
- Mechalchuk was in the most senior management position as the President of the company which commanded a high level of authority, responsibility and trust. His responsibilities included signing authority and his income and responsibilities were commensurate with Galaxy Motors’ expectations of him;
- The employee handbook specifically provided that “falsifying records or information” was considered a serious offence that due to its severity would lead to dismissal from employment;
- Mechalchuk submitted the Parksville restaurant receipts as being business-related when he knew that they were personal in nature;
- He submitted the receipts as business expenses by writing the names of other Galaxy Motors employees for the purposes of indicating the meals had been with them, when he knew that was not the case; and
- He breached his employer’s trust by submitting false expense receipts and being untruthful about them when given an opportunity to explain. When confronted but his employer about the receipts during the July 11, 2022 meeting, instead of admitting what he had done, Mr. Mechalchuk repeated his account. Unbeknownst to him, Ms. Jones (the owner of Galaxy Motors) had contacted some of the persons identified on the receipts and was aware that they had not been present.
Lessons for company executives
Being an executive in a company can come with a high salary, social standing and a great deal of decision-making discretion. All of these benefits lead to a high standard when it comes time to judge the behaviour of company executives.
Even one instance of dishonesty can break the trust between executive and owner, leading to just cause for dismissal.
Lessons for business owners
As a business owner, you need to employ company executives that you can trust. After all, you’re placing the running of your business into their hands.
That trust between owner and executive is the crux of the employment relationship. If that trust is broken, then the whole employment relationship may be destroyed. This is true even where an executive has only engaged in one or two instances of misconduct, or where the misconduct only leads to a loss of a couple of hundred dollars.
Should you have any questions about how this ruling could impact you or your organization, contact a member of our Labour & Employment team.
Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.