A recent Ontario decision dealt with the issue of liability as
between two defrauded employers: is a past (former) employer liable
to a new employer when a fraudulent employee steals money from the
latter to satisfy its debt to the former?
In the recent Ontario Superior Court of Justice decision in
Healthy Body Services Inc. v. 1261679 Ontario Ltd., 2013
ONSC 6396, the defrauded employer, Healthy Body Services, attempted
to recover from the former employer, Raytek, on the basis that the
fraudulent employee, Mr. Patel, paid Raytek a settlement with funds
stolen from Healthy Body Services. As is the case with many
fraudsters, Mr. Patel appeared to have a history of fraud, and had
similarly defrauded his prior employer, Raytek. Using funds stolen
from Healthy Body Services, Mr. Patel paid significant amounts to
satisfy the claims of Raytek.
Healthy Body Services based its claim against Raytek in the
causes of action of knowing receipt and unjust enrichment. The
claim of knowing receipt requires the plaintiff to establish that
the defendant received trust property, with knowledge that the
property was transferred to that defendant in breach of a trust. If
the funds can be traced, the only issue for the Court is whether or
not the defendant "had knowledge of facts that would have put
a reasonable person on notice or inquiry as to the source of the
funds." If so, the claim will succeed, and the plaintiff is
entitled to the return of its money.
The claim of unjust enrichment has 3 necessary elements: an
enrichment, a corresponding deprivation, and the absence of a
juristic reason for the enrichment. Assuming that tracing can be
established, the central issue is whether or not a juristic reason
exists for the payments. In the Healthy Body Services case, the
Court noted several factors to support a juristic reason; namely
that the first employer acted in "commercial good
conscience" when making the settlement agreement, the employer
had a civil judgment on same issue, and the funds the employer
received were applied for commercial purposes.
The Healthy Body Services decision provides useful direction for
settlements with a former employee. The key point is that the
former employer must take care to shield itself from future
liability concerning the source of settlement payments in case
their source is a subsequent fraud. These steps should include:
Carefully assessing the circumstances regarding payment of the
funds. Are there any facts which may put the employer "on
notice" to make reasonable inquiries as to the source of the
funds? While the employer does not need to be "unduly
suspicious", the employer cannot turn a blind eye to facts
that reasonably require investigation.
Entering into a settlement agreement, obtaining a judgment or
otherwise documenting the obligation of the fraudster.
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Unfortunately, reasonable accommodation for employees in the workplace continues to be the source of significant litigation and even today we continue to see outrageous examples of employers behaving badly.
We are now beginning to see reported cases involving charges and subsequent fines laid against employers for failing to provide information, instruction and supervision to protect a worker from workplace violence.
On October 13, 2016, the Supreme Court of Canada denied leave to appeal an Ontario Court of Appeal decision which ordered an employer to pay a former employee 37 months of salary and benefits following termination.
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