Wednesday, 3 April 2019

Employer Entitled to Return of Severance Payment After Discovering Misappropriation of Funds

If an employer dismisses an employee without cause, pays the employee a considerable amount for severance, and the parties sign a full and final mutual release absolving each other from any further claims, can the employer, upon discovering the fact that the employee had lied about his actions while employed, successfully sue the employee for the recovery of the severance funds?

Yes, says the Court of Appeal for Ontario in the case of York University v. Markicevic, 2018 ONCA 893 (CanLII).

Facts

Paragraph one of the Court of Appeal’s reasons for decision read as follows: “The appellant, Michael Markicevic, misappropriated nearly a million dollars from York University (“York”). At the time, he was the Assistant Vice President of Campus Services and Building Operations.” The same undeniably sets a tone for the court’s decision.

The court’s decision continues as follows:

[2] Between 2007 and 2009, he [Markicevic] devised a scheme to falsely invoice the university for work that was not actually done at the university. York paid $374,983.50 for these invoices and the appellant and his co-conspirators pocketed the cash.

[3] In 2009 the appellant inflated a quote for drain repair. The excess was applied to personal home improvements for the appellant and cash was also distributed to the appellant and his co-conspirators. York lost $515,461 as a result of this scheme.

[4] The appellant also had York employees perform work at his personal residences in 2008 and 2009. York paid these employees $23,000 for their time on these jobs.

[5] Finally, the appellant charged York for $61,241 worth of materials that he purchased for his own use.

On February 1, 2010, before York was aware of the extent of Markicevic’s dishonesty, it terminated his employment without cause and negotiated and finalized a severance agreement with him that contained mutual releases. During those negotiations, Markicevic vehemently denied any wrongdoing. York agreed to pay him 36 months’ gross salary, amounting to $696,166. The appellant’s continued employment had become untenable because York had to conduct an investigation into the rumours circulating about his financial impropriety and because of the complaints concerning his bullying behavior.

As a result of the investigations undertaken after the appellant’s departure, York learned of the full extent of the appellant’s misconduct and sued to set aside the releases, recover the money stolen and for repayment of the severance package.

Following a 25-day trial, the trial judge, Justice Barbara A. Conway of the Superior Court of Justice, found in favour of York and rescinded the severance agreement including the releases. She held that, as a fiduciary, the appellant had a positive obligation to disclose his fraudulent activity before he entered into the severance agreement. She also found that the releases and the severance agreement were obtained by fraudulent misrepresentation. The appellant had materially misrepresented his innocence to York and if York had known of the fraud, they would not have terminated him without cause, paid him, and given him a release.

Mr. Markicevic argued that the trial judge erred in concluding that his misrepresentations of innocence induced York to enter into the severance agreement and to release the appellant from any claims York might have against him.

Decision

In upholding the trial judge’s decision, Justice Gladys I. Pardu wrote the following on behalf of the Court of Appeal:

[21] A contracting party who is induced to enter into a contract as a result of a fraudulent misrepresentation is entitled to rescission, and restoration of the benefits conferred on the other party to the contract. The question of whether a contracting party did in fact rely on the misrepresentation, at least in part, to enter into the contract is a question of fact to be inferred from all the circumstances of the case and evidence at the trial. [Citations omitted.]

[28] … it is not necessary to consider the appellant’s other argument that the trial judge erred in concluding that a fiduciary, like the appellant, was bound to look after York’s interests while negotiating the severance agreement and secondly, his argument that the language of the release was broad enough to release the appellant from responsibility for the misappropriations. Here, even if the release was broad enough to bar any claim by York for recovery of the money misappropriated, the release was an integral part of the agreement induced by the misrepresentations as to his honesty. Once that agreement and release were rescinded, York was no longer barred from recovery. This result does not depend on whether or not the appellant was a fiduciary.

With respect to costs, Justice Pardu wrote this:

The trial judge awarded costs of the trial to York on a full indemnity basis. In light of the appellant’s dishonesty I would award costs of the appeal to York on the same basis. I would award costs of the appeal to York in the sum of $105,527.

Commentary

The case is a win for employers. While this decision inserts some uncertainty into the issue of full and final releases, which are more commonly sought by employers than employees, it nonetheless provides hope in cases where employers discover misdeeds in employment.

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As always, everyone’s situation is different. The above is not intended to be legal advice for any particular situation. It is always prudent to seek professional legal advice before making any decisions with respect to your own case.

Image (c) istock/IvelinRadkov

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