Employees cannot profit by taking unauthorized advantage of their employment, says B.C. Court of Appeal
Three former employees and a broker have been ordered to pay Standard Life Assurance Company more than $1 million by the British Columbia Court of Appeal.
In 2000 Standard Life began an internal investigation that revealed three employees in its Vancouver office had received undisclosed commissions paid by the company on employee group pension plans.
The employees — Donald Liesch, the regional sales group manager, Martin Horsburgh, the sales manager, and Peter Plunkett, the branch administrator — had all been with the company for many years.
Standard Life marketed group pension plans in a way that permitted a customer to choose between dealing directly with a sales representative or through a broker. If a broker was involved, the commission would be paid to the broker as the named “agent of record” by Standard Life.
Standard Life preferred to have a broker involved for each group plan, because it was better from its perspective to have the administration of a plan handled by a broker so its representatives could concentrate on sales, the court said. The effect of that was to reduce the rate of return on the group plans involved so that the cost of the commission was ultimately borne by the beneficiaries.
In 1992 Priority Financial Services Ltd. was incorporated, and Daniel Hintz became the sole director and shareholder. In the years that followed, Liesch, Standard Life’s regional sales group manager, named Priority as the agent of record on as many as 40 employee group pension plans. Standard Life paid commissions to Priority. Priority then cut cheques to Hintz and the three Standard Life employees.
Hintz received no more than five per cent of the commissions. The remainder was paid to the Standard Life employees or to companies held by their wives. Liesch and Horsburgh each received at least 40 per cent of the commissions, which translated into as much as $40,000 per year, the court said. Plunkett received 10 per cent.
The court said Priority provided little, if any, brokerage services in respect of the group plans on which commissions were paid. The employees did nothing beyond their duties as Standard Life employees.
Practice common, say employees
The employees said what they did was quite common among sales representatives at Standard Life and that it was no secret that sales representatives would share commissions with brokers like Priority.
Standard Life rejected the notion that such conduct was known to be widely practiced or that it was in any way condoned.
A lower court judge sided with Standard Life, awarding $446,471.40 — the amount Standard Life had to repay the 13 clients it presented evidence for at trial. The lower court rejected the idea that the fee splitting was a known and condoned practice, and concluded that the employees and the broker had conspired to commit fraud by misrepresenting to Standard Life that Priority was the client-approved broker appointed for each of the 13 plans.
Customers’ signatures forged
The lower court judge found, with one exception, none of the clients had authorized a broker and all wished to deal directly with Standard Life. The judge said the customer signatures were forged on five of the forms and the other forms were signed in circumstances where the person signing did not appreciate the nature of the form. The sole client that had authorized the broker had been led to believe it was the only option.
That court also said the employees were liable for breach of the fiduciary duty they owed to Standard Life and for breach of their employment contracts. The judge rejected the balance of Standard Life’s claim (it was seeking $1,114, 529.89) on the basis that, in the absence of evidence other than 13 clients, she was unable to determine whether the balance of the loss was caused by fraudulent acts.
The employees and the broker appealed the decision, and Standard Life filed a cross appeal.
The Court of Appeal’s decision
The Court of Appeal agreed with the lower court’s decision, but said Standard Life was entitled to the entire amount it was seeking.
“Standard Life is entitled to judgment for the whole of the amount it claims on the basis of the breach of fiduciary duty or the implied obligation of good faith borne by employees,” wrote Justice Lowry for the court. “The appropriate remedy is an accounting for all profits that have been wrongfully obtained.”
It said the law is clear: Employees cannot profit by taking unauthorized advantage of their employment. The only real issue before the court was whether or not splitting commissions with brokers was a matter of established policy at Standard Life.
During the lower court’s trial, Douglas Wagner, vice-president of sales for Standard Life, said the company had never allowed its employees to share commissions it paid to brokers on group pension business. He acknowledged there was no written policy against it, but said “no policy is needed to tell someone not to rob a bank.”
The Court of Appeal awarded damages to Standard Life in the amount of $1,114,529.90.
For more information see:
• Standard Life Assurance Co. v. Horsburgh, 2005 CarswellBC 423, 2005 BCCA 108 (B.C. C.A.)
In 2000 Standard Life began an internal investigation that revealed three employees in its Vancouver office had received undisclosed commissions paid by the company on employee group pension plans.
The employees — Donald Liesch, the regional sales group manager, Martin Horsburgh, the sales manager, and Peter Plunkett, the branch administrator — had all been with the company for many years.
Standard Life marketed group pension plans in a way that permitted a customer to choose between dealing directly with a sales representative or through a broker. If a broker was involved, the commission would be paid to the broker as the named “agent of record” by Standard Life.
Standard Life preferred to have a broker involved for each group plan, because it was better from its perspective to have the administration of a plan handled by a broker so its representatives could concentrate on sales, the court said. The effect of that was to reduce the rate of return on the group plans involved so that the cost of the commission was ultimately borne by the beneficiaries.
In 1992 Priority Financial Services Ltd. was incorporated, and Daniel Hintz became the sole director and shareholder. In the years that followed, Liesch, Standard Life’s regional sales group manager, named Priority as the agent of record on as many as 40 employee group pension plans. Standard Life paid commissions to Priority. Priority then cut cheques to Hintz and the three Standard Life employees.
Hintz received no more than five per cent of the commissions. The remainder was paid to the Standard Life employees or to companies held by their wives. Liesch and Horsburgh each received at least 40 per cent of the commissions, which translated into as much as $40,000 per year, the court said. Plunkett received 10 per cent.
The court said Priority provided little, if any, brokerage services in respect of the group plans on which commissions were paid. The employees did nothing beyond their duties as Standard Life employees.
Practice common, say employees
The employees said what they did was quite common among sales representatives at Standard Life and that it was no secret that sales representatives would share commissions with brokers like Priority.
Standard Life rejected the notion that such conduct was known to be widely practiced or that it was in any way condoned.
A lower court judge sided with Standard Life, awarding $446,471.40 — the amount Standard Life had to repay the 13 clients it presented evidence for at trial. The lower court rejected the idea that the fee splitting was a known and condoned practice, and concluded that the employees and the broker had conspired to commit fraud by misrepresenting to Standard Life that Priority was the client-approved broker appointed for each of the 13 plans.
Customers’ signatures forged
The lower court judge found, with one exception, none of the clients had authorized a broker and all wished to deal directly with Standard Life. The judge said the customer signatures were forged on five of the forms and the other forms were signed in circumstances where the person signing did not appreciate the nature of the form. The sole client that had authorized the broker had been led to believe it was the only option.
That court also said the employees were liable for breach of the fiduciary duty they owed to Standard Life and for breach of their employment contracts. The judge rejected the balance of Standard Life’s claim (it was seeking $1,114, 529.89) on the basis that, in the absence of evidence other than 13 clients, she was unable to determine whether the balance of the loss was caused by fraudulent acts.
The employees and the broker appealed the decision, and Standard Life filed a cross appeal.
The Court of Appeal’s decision
The Court of Appeal agreed with the lower court’s decision, but said Standard Life was entitled to the entire amount it was seeking.
“Standard Life is entitled to judgment for the whole of the amount it claims on the basis of the breach of fiduciary duty or the implied obligation of good faith borne by employees,” wrote Justice Lowry for the court. “The appropriate remedy is an accounting for all profits that have been wrongfully obtained.”
It said the law is clear: Employees cannot profit by taking unauthorized advantage of their employment. The only real issue before the court was whether or not splitting commissions with brokers was a matter of established policy at Standard Life.
During the lower court’s trial, Douglas Wagner, vice-president of sales for Standard Life, said the company had never allowed its employees to share commissions it paid to brokers on group pension business. He acknowledged there was no written policy against it, but said “no policy is needed to tell someone not to rob a bank.”
The Court of Appeal awarded damages to Standard Life in the amount of $1,114,529.90.
For more information see:
• Standard Life Assurance Co. v. Horsburgh, 2005 CarswellBC 423, 2005 BCCA 108 (B.C. C.A.)
