Employee fired after flawed investigation awarded extra damages due to shabby treatment

Employees who are fiduciaries (ie generally senior officers/executives) owe a very high duty toward their employer, one which essentially requires them to act in the utmost good faith, to the point of even placing their employers’ interest ahead of their own. As a result, misconduct which would not be cause for discharge for a regular employee, will often be cause for the dismissal of a fiduciary. That is particularly true respecting misconduct touching upon dishonesty or conflict of interest.

What is less discussed is that, in exchange for those obligations, there is a responsibility on the employer to act fairly and appropriately in dealing with the fiduciary or, as the case discussed today stated, a fiduciary “must be the recipient of the benefit of some mutuality of duties”

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In a ruling in Rutledge v Markhaven Inc., a 2022 case in Ontario, the judge found that the employer did not treat Laura Rutledge, who was employed as executive director for 21 years, earned $117,000 a year and oversaw 150 employees, in the honest, fair, responsible manner which was required.

According to the ruling, Rutledge became romantically involved with a contractor who began reporting to her. After several complaints, which the employer sat on, it decided to conduct an investigation and used an investigation firm associated with the law firm which acted for it on this case. That was particularly problematic since Rutledge was informed that the investigator would “co-ordinate an “independent” third-party investigation, but the firm was not independent. What was also troublesome was that the investigation began before Rutledge was even informed of it, through an IT analysis of her email accounts.

In the course of the investigation, Rutledge’s counsel expressed concern that the investigation was “expanding from whether the nature of Rutledge’s relationship with this employee of the contractor influenced his obtaining the position into her conduct subsequent to that, how Markhaven’s services were being managed and whether she was being forthcoming as a fiduciary “

The investigator failed to take prudent steps to keep the investigation confidential as it conducted interviews at the nearby Tim Hortons where some of Markhaven’s 150 employees took their breaks and meals.

The court noted that, since Markhaven was aware of Rutledge’s relationship for a considerable period before the investigation was called, it had condoned the relationship so could not rely on it as cause for discharge.

Rather than properly assessing her answers and making decisions based on those and the other information disclosed in the investigation, the court found that an effort was made to intimidate Rutledge into changing her answers and she was suspended from her job, even though she was honest when asked questions about her relationship.

When Rutledge attended examination for discovery in her lawsuit, she was shown a photograph of her home with comments by defence counsel about a pending motion relating to obtaining security for the employer’s cost in the case, a motion which was never brought, implicitly threatening a lien on her home without any legal basis. The court noted this conduct in the litigation itself also attracted bad faith damages.

For all of these reasons, Rutledge was awarded an additional $50,000 in bad faith damages.

The stress of the investigation resulted in Rutledge applying for STD benefits, which were paid for by the employer, and therefore deducted from the damages for wrongful dismissal of 22 months, which was also awarded.

There is a dog’s breakfast of variegated misconduct covered in this decision, which employers should be aware of.

One is that the conduct of your outside investigator can result in damages against the employer, as they are realistically held to higher standards than those investigating internally. As I have noted, using outside, rather than internal, investigators, is usually a major mistake. So is suspending before analyzing the results of the investigation, which many employers do when there is an investigation, as a matter of course.

Similarly, expanding the scope of an investigation, once commenced, without compelling reasons, is problematic, as is not commencing an investigation without even advising the person investigated. Privacy rights are particularly important during investigations as is hurtful conduct, compounded if the employer is aware that the employee is already suffering psychologically.