• Departure

  May 18, 2017

Employee Fiduciary Obligations

A 2013 decision of the Alberta Court of Appeal has confirmed that where an employer gives an employee the responsibility for handling the employer’s money, that employee has fiduciary obligations with respect to those funds. This means that where the employer makes reasonable attempts to calculate the amount of money that went missing, it is up to the employee to prove that the amount is less.

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In 581257 Alberta Ltd. v. Aujla, the defendants were a husband and wife duo who worked as cashiers and shelf stockers at the plaintiff’s liquor store. The company became suspicious that funds were going missing, but did not have adequate video surveillance of the cash registers. Unbeknownst to the defendants, a hidden camera was installed and it captured video of the defendants either failing to scan items, scanning only some items, or scanning items of a lesser value. This led to there being more cash in the till than had been recorded as sold. This “extra” cash was pocketed by the defendants. Both defendants were fired.

The defendants acknowledged stealing a total of about $7,650, which they had rationalized at the time as being interest on a loan that they had made to the wife of their employer. The company thought the amount stolen was much higher and sued for full recovery of the money taken. The problem? The company could not prove how much was missing.

Because of an unsophisticated inventory system and the manner in which the money had been taken, the company could not determine from its own records how much money had gone missing. And while the video surveillance provided clear proof of theft, the video only covered the last two months of the defendants’ lengthy employment. Approaching it from a different angle, the company reviewed the defendants’ banking and tax records and ultimately determined that there was approximately $116,000 that was unaccounted for. The company wanted it all.

The trial judge readily accepted that the theft had occurred, but required the company to prove its damages because the company could not prove that the defendants had committed fraud or that they owed fiduciary duties. Based on the video evidence, the judge calculated an average theft rate, per shift, and awarded $8,610.00 against one defendant and $8,844.42 against the other.

On appeal, the court concluded that although the defendants – as low-level employees – did not meet the traditional definition of “fiduciaries,” they were in a position of trust because they were responsible to the company with respect to the handling of the company’s money. More specifically, the court held that where an employee is entrusted with the keys to the till and tasked with handling funds belonging to his or her employer, then that employee ought properly to be regarded as standing in a fiduciary relationship with his or her employer with respect to the handling of those funds. This is especially so where the employer is a small company with few employees and limited oversight.

The implication of this, the court said, is that once a fiduciary duty is established, and the employer shows that it has made all reasonable efforts to calculate the amount lost, the burden then shifts to the thieving employee to disprove the amount of the loss. This shifting of the burden of proof dramatically reduces the difficulty faced by employers in recovering stolen funds in circumstances where it would be difficult or impossible for an employer to prove every instance where an employee had misappropriated funds. It is also not a stretch of the imagination to see fiduciary duties extend to employees who handle inventory, valuable assets, or cheques and transfers where they have signing authority. The court directed a new trial to determine the amount lost on this basis.

A little bit of good news for employers.

At the new trial, the court relied on the expert evidence of an accountant who estimated the amount lost by calculating the average amount of money stolen per shift by each of the two defendants as established in the observed incidents, multiplied by the number of shifts from the inception of the defendants’ employment. The employer was awarded compensatory damages in the amount of $167,810 against Ms. Aujla, and $9,240 against Mr. Aujla. Ms. Aujla’s subsequent appeal was dismissed.

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