October 20, 2023

Author: Dylan Snowdon

On October 4, 2023, the Alberta Court of King’s Bench dismissed a wrongful dismissal claim and awarded significant damages to his former employer in Breen v Foremost Industries Ltd, 2023 ABKB 552. The decision is 553 paragraphs, so this post only briefly covers the facts and issues addressed by the Court.

Mr. Breen was the President and Chief Executive Officer of the Foremost Income Fund and a group of related businesses called the Foremost Group. Mr. Breen’s employment was terminated for just cause on March 26, 2014.

Termination Letter Details and Grounds for Mr. Breen’s Dismissal

In its termination letter, Foremost stated that Mr. Breen’s misconduct included:

• Failure to follow Foremost business control policies and procedures including without limitation in relation to [a contract] entered in or around December 2013;
• Misrepresentation of business information to the Board;
• Unresponsiveness to corrective instructions in respect of the foregoing;
• Lack of candour in dealing with the Board on these issues;
• General non-performance of your employment obligations or incompetence.

Constraints on Mr. Breen’s Authority and The Court’s Findings

As an employee, the Court found that there were four overarching constraints on Mr. Breen’s authority that were clearly communicated and understood. He was required to consult with and obtain approval from the Fund Board on:

• any expenditure that was above his spend authorization limit;
• any contract that contained “red flag” terms;
• any matter that was material and unusual or out of the ordinary; and
• compensation matters.

The Court found Mr. Breen had breached all of these requirements repeatedly and that he had withheld material information about problematic projects from the Board, issued bonus payments to employees improperly and without authorization, entered contracts above his authorization limits, placed employees on paid leaves of absence without authorization, received and concealed payments of “gifts”, and ultimately that Foremost had just cause to terminate Mr. Breen’s employment.

Legal Battle Unveiled: Mr. Breen’s Wrongful Dismissal Claim

Mr. Breen denied that Foremost had just cause to terminate his employment and filed an action for wrongful dismissal. Foremost filed a counterclaim claiming that Mr. Breen had breached his fiduciary duties, including the duties to safeguard the Foremost Group’s property, a duty to avoid conflicts of interest, and his duties of loyalty, honesty, and good faith.

The Court’s Verdict: Just Cause for Mr. Breen’s Termination

The Court determined that through the course of the litigation, Mr. Breen aggressively sought to prevent Foremost from obtaining incriminating records, “even going so far as to bring a cross-application alleging contempt against [Foremost counsel] for allegedly breaching the implied undertaking.

The Court ultimately determined that “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.”

Mr. Breen’s Personal Liability to Foremost

The Court dismissed that wrongful dismissal claim and found Mr. Breen personally liable to Foremost for:

• “gifts” made to Mr. Breen’s company, namely the 2011 Gift ($25,974.89 USD), the 2012 Gift ($30,000 USD), and the 2013 Gift ($110,250 CAD);
• fraudulent agent fees of $78,000 USD and $35,000 USD;
• damages of $200,000 suffered as a result of Mr. Breen’s breaches of his fiduciary duties and the Employment Agreement;
• punitive damages in the amount of $50,000 CAD.

Lessons on Fiduciary Obligations and Employment Terminations

Although there are a large number of conclusions to draw from this decision, the most important point is that senior executives are held to high standards with respect to their obligations of loyalty, good faith and avoidance of a conflict of duty and self-interest. Not only are fiduciaries potentially responsible for losses but breaching fiduciary obligations can result in punitive damages awards as well.

Contact Carbert Waite Employment Lawyers

If you have questions about fiduciary obligations or just cause terminations of employment, please contact the Carbert Waite Employment Lawyers.