Failure to disclose

Employee’s failure to disclose ownership position in a supplier insufficient grounds for termination

Peter Davey worked for Syncrude Canada Ltd. from 1977 until he was terminated without notice on Nov. 23, 1993. Although he was considered an above-average employee and had progressed to a supervisory position by the time of his termination, Syncrude alleged just cause in its dismissal of Mr. Davey.

In response to Mr. Davey’s claim that he was wrongfully terminated, Syncrude argued that his conduct amounted to a conflict of interest or dishonesty which justified termination for cause. In support of this claim, Syncrude relied on the fact that Mr. Davey:

- was related to a principal officer of a company which did business with Syncrude;

- held a share interest in that company;

- authorized the purchase of goods from that company; and

- was not open and forthright in disclosing his association with that company.

The company in question, Enviro-safe Chemicals Inc., was partly owned by James Davey, Peter Davey’s brother. James Davey made sales calls to Syncrude and by April 1990 Enviro-safe was supplying its product to Syncrude.

In June 1990, acting in his supervisory capacity, Peter Davey signed a document titled “request for addition of spare parts to inventory” (or SPL). An SPL was one method by which supplies were purchased by Syncrude. This document represented a request to obtain goods which would be frequently used and which would be regularly stocked by the warehouse on an ongoing basis. The document also indicated Enviro-safe Chemicals as the supplier.

At the time that Peter Davey signed this document, he was aware that Enviro-safe was his brother’s company. Peter Davey was not concerned about listing Enviro-safe as the supplier because he knew that the policy in the purchasing department was to investigate all suppliers to determine the best price before committing to any particular supplier. There was no guarantee that Enviro-safe would ultimately be the chosen supplier.

In October 1990 James Davey was in financial need and asked Peter Davey for a $10,000 loan. Peter Davey granted the loan to his brother in exchange for ten per cent of Enviro-safe shares.

In September 1993 Peter Davey’s supervisor, Rick Nilson, became aware of the fact that Enviro-safe was owned in part by Peter Davey. He was questioned about his connection to the company.

Peter Davey contacted the solicitor of Enviro-safe, William Rooke, and asked that his status be clarified for the benefit of Syncrude managers. Mr. Rooke confirmed that Peter Davey had held a ten per cent share in the company, but that this interest was being decreased to five per cent as a result of a subscription of 50 per cent of outstanding equity shares in the company by another corporation who was prepared to inject capital into Enviro-safe. Mr. Rooke also confirmed that at no time was Mr. Davey either a director or an officer of Enviro-safe.

Despite the assurances of Mr. Rooke, Syncrude remained concerned about Peter Davey’s involvement in Enviro-safe. In October 1993 Peter Davey was advised to make a declaration of his interest in Enviro-safe to Syncrude’s corporate secretary whose function it was to give guidance on such issues.

Peter Davey provided a two-sentence memo to Mr. Nilson and the corporate secretary confirming that he was a five-per-cent shareholder in Enviro-safe and that Enviro-safe was on Syncrude’s bidders list. The statement did not indicate that Peter Davey’s brother was a significant shareholder in Enviro-safe. Mr. Nilson brought this to Peter Davey’s attention and as a result Peter Davey provided Syncrude with a more detailed disclosure statement.

As a result of the disclosure statements, a meeting was scheduled for Nov. 24, 1993, which became a termination hearing for Peter Davey. Mr. Nilson felt that Peter Davey had been dishonest by failing to fully disclose his relationship with Enviro-safe, and that he had not complied with company policy on conflict of interest. Syncrude relied on this dishonesty as cause for termination.

Upon hearing the evidence, the Court held that the position adopted by Syncrude was not supported by the facts. The SPL signed by Peter Davey in June 1990 was not initiated by Peter Davey, merely signed by him. He was also correct when he concluded that the purchasing department would check out alternative suppliers. The fact that Enviro-safe’s name appeared on the SPL would not guarantee a sale of their product to Syncrude.

The fact that Peter Davey had to contact Mr. Rooke to clarify his status in the company demonstrated that Mr. Davey was not fully aware of his status in Enviro-safe. Further, Mr. Rooke contradicted Syncrude’s belief that Mr. Davey was a director of Enviro-safe.

The Court was not satisfied that Peter Davey had acted in a fashion which can be characterized as dishonest. As a result, Syncrude did not have just cause for terminating Peter Davey. The Court held that the appropriate length of notice, in this case, was a period of 18 months.

For more information:

Davey v. Syncrude Canada Ltd., 2001 ABQB 652.

To read the full story, login below.

Not a subscriber?

Start your subscription today!