Canada: Till Theft Do Us Part: The Retail Cashier As Fiduciary

Sometimes it's not a wrongful dismissal case that informs employers and employees of their rights.  In 581257 Alberta Ltd. v. Balwinder Aujla and Harwinder Aujla, the trial was the alleged conversion of funds by former employees where the Alberta Court of Appeal sent a matter back for a retrial saying two important things in the meantime:  (1) an explicit claim of fraud does not have to be made in a Statement of Claim so long as the claim sets out allegations that, if proven, amount to fraud; and (2) an employee entrusted with the keys to a cash till who handles funds belonging to his or her employer should be regarded as in a fiduciary relationship with the employer with respect to the handling of those funds (especially when the employer is a small company with few employees and provides limited supervision of the alleged fiduciaries).  The following is our review of the case.

What happened?

Two employees, a husband and wife, were employed as cashiers and shelf-stockers at a liquor store in Alberta.  In a claim for "conversion" (i.e., unauthorized act depriving an owner of personal property without consent), the employer obtained summary judgment on liability and partial judgment against the wife and against the husband.  A trial proceeded on whether the former employees had converted other monies from the employer and, if so, when and how much?

What happened at trial?

The trial judge found that the employer had proven that the employees had used a common scheme to convert money.  Surveillance film established that the husband had converted an average of $70 per day over a six day work week for approximately five months, while the wife had converted a daily average of $172 for an approximate six month period.  Importantly, the trial judge found that fraud had neither been pleaded nor argued and also that the former employees, in their capacity as cashiers, did not owe any fiduciary obligations to the employer.  Thus, the trial judge said, there was no reverse onus on the employees; the employer was required to prove the amount of its loss.  The employer appealed.

What did the Appeal Court do?

The Alberta Court of Appeal (the Court) found the trial judge had erred in law in concluding that fraud had not been pleaded or argued and that the employees were not fiduciaries and sent the matter back for a new trial.  Here's why.

  •   Fraud

The Court said that while it was true that the Statement of Claim issued by the employer did not expressly use the word "fraud", it was clear in the allegations that the employer was asserting fraudulent conduct.  For example, the Statement of Claim alleged;

The Defendants have converted this money using a number of subterfuges including...

...

The Defendant ... has personally converted the sum of approximately...

...

The Defendants have done everything possible and have used devious methods and actions to avoid detection of the conversions of the money and to transfer the proceeds of the conversion into other assets including: ...

Here's what the Court said:

...we cannot agree that the Statement of Claim does not raise the issue of fraud.  The word 'fraud' need not be expressly stated; the pleadings can still be sound as long as the Statement of Claim sets out allegations which, if proven, amount to fraud ...

  •   Fiduciary Relationship

The Court said that the line of cases relied on by the trial judge to find there was no fiduciary relationship were distinguishable from the situation before it where the question, it said, should have been:

...whether the Employees were in a fiduciary position vis-à-vis the Employer with respect to the handling of the Employer's funds.

The employees, the Court said, were often left in the store alone, with keys to the till.  They were responsible to the employer, at least when working alone for the store in general and the actual proceeds (including cash) in particular.  Because of this, the employees stood in a fiduciary relationship to the liquor store.  The Court said:

In our view, 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, as here, the employer is a small company with few employees and limited oversight of those employees.

Why does a finding of fraud or fiduciary matter?

A general principle in this area of law is that the onus is on the plaintiff (the liquor store owner in this case) to establish the amount of loss from the wrongful act of the defendant.  However, once fraud or breach of fiduciary duty is established and the plaintiff has shown that it made all reasonable efforts to determine the amount of the loss, then the evidentiary burden shifts to the defendant to disprove the amount of the loss and the cause of the loss.

The employer, in this case, alleged that the female employee converted "approximately $200 during each of more than 900 shifts she worked as a retail clerk and a similar claim was made against the male employee.  What happened, though, was that the employer's theory on damages seemed to shift as the trial commenced and after it reviewed the employees' bank records and discovered approximately $350,000 deposited during the period the employees were employed by the employer.  The employees reportedly could not, or would not, explain the source of those funds.  Even after there was some evidence provided by the employees' son (that some of the money was his), there was still $116,000 unaccounted for.  If the onus to disprove the loss was on the employees (through the fiduciary duty analysis), their lack of explanation for the unaccounted for $116,000 could obviously be used as evidence against them.

A new trial has not yet been reported on.

What this means to you?

The findings of the Court in this case may even be more important now that leave to appeal  has been dismissed by the Supreme Court of Canada.  Dishonesty and misappropriation of funds have individually and in conjunction with one another been held to be justifiable cause for dismissal with cause.  Trust and honesty have been noted as fundamental to the employment relationship, particularly in the retail context.  Having good policies in place while important is sometimes not  enough to prevent fraud or theft at the workplace.  Recapturing losses due to employee theft has always been a perplexing issue for employers mainly due to evidentiary issues. News reports suggest that employee theft is more widespread than we may understand and that 26% of small or mid-size firms have been victimized by retail theft.

This Alberta Court of Appeal decision is good news for employers who experience employee theft.  The burden of proving that funds were not converted, or stolen, from the employer may sometimes shift to the employee if the facts are right (i.e., the employee is a fiduciary).  In such cases, if the employer lays an evidentiary basis to support the claim and takes "reasonable steps" to determine the amount of its loss (i.e., through bank records and testimony), the burden will shift to the former employee to disprove the amount of the loss being alleged.

This case extends the interpretation of fiduciary duties signalling that the duty may be owed by more employees than just senior officers or directors of corporations as has been the status quo until now.  It's an area of law that we will be keeping an eye on.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Alison Strachan
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