By Lyne Duhaime
When an employee in Canada fails to fulfill his functions as expected, the ultimate consequence is a termination of employment “for cause,” which implies that no notice or other severance is paid to him by the employer. The Superior Court of Quebec recently went further.
In Valeurs mobilières Desjardins inc. v. Beaulne, an investment advisor was also ordered to pay his former employer, Valeurs mobilières Desjardins inc. (VMD), $141,233.96 with costs. Why? To compensate VMD for amounts it had to pay a client who suffered damages because of the advisor’s failure to follow the client’s instructions.
Facts
During his nine years of employment, Beaulne was an investment advisor for VMD. In 2006, Beaulne was disciplined after he carried out inappropriate operations on the mutual funds of clients’ accounts. His termination of employment had been recommended, but he was granted a last chance.
In 2007, a client again complained that transactions had been made on his account that were contrary to his investment objectives and that he had suffered a significant financial loss. After an inquiry, the employee was terminated. VMD negotiated a settlement with the client and paid the client $150,498.53 in damages.
VMD deducted the $12,754.39 in unpaid commissions and an amount for unpaid annual holiday pay that it owed Beaulne, and sued him for $141,233.96.
Employment contract
It’s rather unusual that an employment contract contains an indemnification undertaking by an employee toward his or her employer. But this employment contract did — it contained the following clauses:
- The investment advisor is responsible for any loss resulting from the failure of the employee to carry out the transaction in accordance with the instructions of the client or in a way that does not meet with the investment objectives of the client.
- The investment advisor is liable for any debt resulting from a judgment or a settlement negotiated by VMD following a judicial action or a complaint from a client.
Decision
The Quebec Superior Court agreed with VMD. In response to Beaulne’s arguments that the contract was abusive, the court disagreed. Furthermore, the court concluded that the employee’s undertaking to reimburse the employer survived the termination of the contract — despite the fact that VMD’s settlement with the client occurred two days after the termination.
Ramifications for employers
Other than in the context of noncompetition and nonsolicitation undertakings, it’s quite rare for employers to sue former employees for damages. In this decision, the Quebec Superior Court confirmed that, when the employment contract is properly drafted, this is an avenue available to employers.
There is no reason why this principle couldn’t apply throughout the rest of Canada. What is not clear, however, is whether the court would have made the same decision in the absence of an indemnity provision in the employment contract. This decision once again stresses the importance of carefully drafted employment contracts or offer letters.
