In November 1997 Niels Christensen went to work for DCMW Research International which was owned by husband and wife, Donald J. McDougall and Carol McCloskey. Mr. Christensen was hired as president of the corporation. As part of his employment contract, Mr. Christensen was to be made a director of the corporation. However this never occurred.
Because of the financial woes at DCMW, in December 1997, Mr. Christensen had to sign a guarantee in favour of the National Bank of Canada for an overdraft owing. The guarantee was in the amount of $50,000 and was secured by a mortgage on Mr. Christensen’s home.
In consideration for signing the guarantee, Mr. McDougall, Ms. McCloskey and the corporation signed an indemnity. The indemnity provided undertakings that the National Bank loan would be paid off within one year, that Mr. Christensen would be indemnified for any loss under the guarantee and that 15 per cent of the issue shares of DCMW would be issued to Mr. Christensen.
Unfortunately, over the ensuing months, the receivables generated by DCMW did not meet the expectations of the parties. Mr. Christensen raised the issue of the outstanding National Bank loan numerous times with Mr. McDougall.
In July 1998 Mr. Christensen opened a bank account at a nearby branch of the Toronto Dominion Bank. He named himself as president of the corporation with sole signing authority. He produced a director’s register for the bank, which showed him becoming a director of the corporation as of January 1998. He provided his home address as the corporation’s mailing address and provided the name of his lawyer as the corporation’s lawyer. For the next six weeks or so, he deposited six DCMW cheques totaling $14,595.67 into the TD account.
In September 1998 Ms. McCloskey learned that cheques payable to DCMW had not been deposited into the DCMW account at the National Bank. When she queried Mr. Christensen, she was informed that he had set up the TD account at the direction of Mr. McDougall. The next day Mr. McDougall delivered a letter to Mr. Christensen denying that he had given Mr. Christensen such authorization and dismissed him on the basis of fundamental breach of trust.
Mr. Christensen commenced an action for wrongful dismissal, seeking damages of $80,000 and seeking an order for the transfer of 15 per cent of the issued shares in DCMW to him. He relied on verbal authorization by Mr. McDougall for his actions and denied all allegations of improper conduct.
The main issue at trial was whether Mr. McDougall had proven just cause for dismissal. To determine if just cause is established, the Court first must determine whether the evidence establishes misconduct (including deceitful conduct) on the part of the employee and, if so, whether the nature and degree of the misconduct warranted summary dismissal.
Although Mr. McDougall and Ms. McCloskey alleged other grounds for dismissal, the Court focused solely on the opening of the TD Bank account and transfer of DCMW receivables to that account.
The Court held that Mr. Christensen diverted funds to the TD Bank to ensure that they were not used to pay additional but separate loans with the National Bank. Had the funds been deposited in the corporation’s National Bank account, the funds would have been applied against these additional loans, thus not reducing the National Bank loan for which Mr. Christensen signed a guarantee.
In the Court’s opinon Mr. Christensen was devious and manipulative in diverting the funds and he did so to further his personal interest in having the National Bank loan paid, thereby extinguishing his guarantee.
To determine if the misconduct warranted dismissal, the Court was required to determine whether the employee’s dishonesty gave rise to a breakdown in the employment relationship. The Court held that placing his personal interest first and foremost constituted misconduct and a breach of his fiduciary trust as manager of DCMW. Once the trust that was essential to the relationship of the parties was destroyed, it was not realistic or reasonable to expect Mr. McDougall to allow Mr. Christensen to continue to have control of DCMW. This was a legitimate reason for termination.
The Court ordered that 15 per cent of the issued shares of DCMW be transferred to Mr. Christensen in accordance with the written employment agreement and dismissed the remainder of Mr. Christensen’s wrongful dismissal action.
For more information:
• Christensen v. McDougall, Ontario Superior Court of Justice, Toronto 98-CV-155943, May 16/01.
Because of the financial woes at DCMW, in December 1997, Mr. Christensen had to sign a guarantee in favour of the National Bank of Canada for an overdraft owing. The guarantee was in the amount of $50,000 and was secured by a mortgage on Mr. Christensen’s home.
In consideration for signing the guarantee, Mr. McDougall, Ms. McCloskey and the corporation signed an indemnity. The indemnity provided undertakings that the National Bank loan would be paid off within one year, that Mr. Christensen would be indemnified for any loss under the guarantee and that 15 per cent of the issue shares of DCMW would be issued to Mr. Christensen.
Unfortunately, over the ensuing months, the receivables generated by DCMW did not meet the expectations of the parties. Mr. Christensen raised the issue of the outstanding National Bank loan numerous times with Mr. McDougall.
In July 1998 Mr. Christensen opened a bank account at a nearby branch of the Toronto Dominion Bank. He named himself as president of the corporation with sole signing authority. He produced a director’s register for the bank, which showed him becoming a director of the corporation as of January 1998. He provided his home address as the corporation’s mailing address and provided the name of his lawyer as the corporation’s lawyer. For the next six weeks or so, he deposited six DCMW cheques totaling $14,595.67 into the TD account.
In September 1998 Ms. McCloskey learned that cheques payable to DCMW had not been deposited into the DCMW account at the National Bank. When she queried Mr. Christensen, she was informed that he had set up the TD account at the direction of Mr. McDougall. The next day Mr. McDougall delivered a letter to Mr. Christensen denying that he had given Mr. Christensen such authorization and dismissed him on the basis of fundamental breach of trust.
Mr. Christensen commenced an action for wrongful dismissal, seeking damages of $80,000 and seeking an order for the transfer of 15 per cent of the issued shares in DCMW to him. He relied on verbal authorization by Mr. McDougall for his actions and denied all allegations of improper conduct.
The main issue at trial was whether Mr. McDougall had proven just cause for dismissal. To determine if just cause is established, the Court first must determine whether the evidence establishes misconduct (including deceitful conduct) on the part of the employee and, if so, whether the nature and degree of the misconduct warranted summary dismissal.
Although Mr. McDougall and Ms. McCloskey alleged other grounds for dismissal, the Court focused solely on the opening of the TD Bank account and transfer of DCMW receivables to that account.
The Court held that Mr. Christensen diverted funds to the TD Bank to ensure that they were not used to pay additional but separate loans with the National Bank. Had the funds been deposited in the corporation’s National Bank account, the funds would have been applied against these additional loans, thus not reducing the National Bank loan for which Mr. Christensen signed a guarantee.
In the Court’s opinon Mr. Christensen was devious and manipulative in diverting the funds and he did so to further his personal interest in having the National Bank loan paid, thereby extinguishing his guarantee.
To determine if the misconduct warranted dismissal, the Court was required to determine whether the employee’s dishonesty gave rise to a breakdown in the employment relationship. The Court held that placing his personal interest first and foremost constituted misconduct and a breach of his fiduciary trust as manager of DCMW. Once the trust that was essential to the relationship of the parties was destroyed, it was not realistic or reasonable to expect Mr. McDougall to allow Mr. Christensen to continue to have control of DCMW. This was a legitimate reason for termination.
The Court ordered that 15 per cent of the issued shares of DCMW be transferred to Mr. Christensen in accordance with the written employment agreement and dismissed the remainder of Mr. Christensen’s wrongful dismissal action.
For more information:
• Christensen v. McDougall, Ontario Superior Court of Justice, Toronto 98-CV-155943, May 16/01.
