October 29, 2003 by Israel Foulon LLP
Question: We are experiencing difficulties related to expense fraud with some of our employees. Can we dismiss an employee without notice for submitting fraudulent expenses?
Answer: Employee expense account fraud can arise in a number of different ways: an employee can use a corporate credit card to purchase personal items or forge the signature of her supervisor approving an unauthorized expense account; an executive may take employees out to eat, ask them to contribute to the bill, and then submit the receipt and recover the full amount through an expense account; or an employee may alter and exaggerate expense accounts in an effort to deceive the Canada Customs and Revenue Agency.
In situations involving employee expense account fraud, a number of factors and the particular circumstances involved in each case must be considered to determine whether the employer has cause to dismiss the employee without notice or pay in lieu of notice. Here are a few tips on how to approach the issue of dismissal for expense account fraud.
The first thing an employer must do if it suspects fraudulent or dishonest conduct is to give the employee a full opportunity to respond before discussing the dismissal. The employee may have a logical and reasonable answer regarding the situation. If no reasonable explanation is given and the employee is ultimately dismissed, the employer will need to establish the employee was dismissed for fraud or dishonesty. An employer should claim an employee acted both fraudulently and dishonestly, as the definition of fraud is much narrower than that of dishonesty. In all cases, an employer will also need to establish that the employee’s misconduct was intentional.
If an employee starts a wrongful dismissal action, the onus of proving there is just cause for dismissal rests upon the employer. The employee is not required to prove that she did not act fraudulently or dishonestly, but if the employer has proven a fraudulent or dishonest act has occurred it is likely the employee will be expected to provide a logical or reasonable explanation for the conduct at issue. Employers should be aware that, at this stage, instead of explaining the conduct, the employee may argue there was no corporate policy on expense accounts or the employer knew of the behaviour and condoned it by, for example, failure to take any steps to prevent it from continuing. If condonation is established on the part of the employer, the dismissal cannot be found to be for cause.
In a wrongful dismissal action the standard of proof an employer must meet to prove its case is described as “on a balance of probabilities.” To satisfy the “balance of probabilities” standard, the employer must produce clear, logical and convincing evidence the employee committed the fraud or was dishonest. Once all of the facts of a case have been presented, a court will consider the position and length of service of the employee, whether the conduct was intentional or simply a single error in judgment and whether the particular conduct of the employee revealed an “untrustworthy character.”
Employers can best insulate themselves from liability for dismissing an employee for fraudulent or dishonest conduct by implementing a clear written policy outlining the procedure for claiming expenses. The policy should clearly state that any violation will be cause for dismissal. Employees should be made aware of the policy and their obligations under it. Most importantly, employers must be consistent in enforcing the requirements of the policy so employees know their expense reports will be reviewed and reimbursement will only occur when proper documentation has been provided.
Unfortunately, in some cases, an employer may not be able to prove its suspicions of an employee who may have committed a fraudulent or dishonest act. In these circumstances, the best approach may be to dismiss the employee without cause and provide a reasonable severance package. This will shelter an employer from a potential lawsuit which may expose it to liability for a reasonable-notice damage award, and punitive or mental distress damages arising from unfounded allegations of fraud or dishonesty.
Peter Israel is the senior partner in the Toronto law firm of Israel Foulon LLP – Employment and Labour Lawyers. He can be reached at 416-640-1550 or pi@qtw38575.mywhc.ca. A version of this article originally appeared in the Carswell publication, Canadian Employment Law Today