Our Legal System At Work...((( Away O T )))

[Kip Powick]

The Ontario Court of Appeal recently restored an arbitrator’s decision giving a fired executive bonuses of $364,661, even though he misappropriated company money and resources during the relevant period.

Leonard Rossetto was a vice president with Mady Development Corp. and for 10 weeks between September 3 and November 15, 2007 he diverted labour, materials and used company funds to renovate his house. The company discovered his wrongdoing and fired him on December 12, 2008.

In an arbitration hearing related to the diversion of resources, Mady sought damages and also argued that because Rossetto was terminated for cause they were not obligated to pay his bonuses.

The arbitrator agreed with the first point and awarded Mady $546,452. This broke down as $315,452 for the costs of misappropriated labour, material and funds and $231,000 to compensate Mady for the delay in one of its projects because Rossetto diverted resources and attention to his own home renovation.

But the arbitrator found that Rossetto's employment contract entitled him to 30 per cent of Mady’s profits after overhead. Because his bonus was an integral part of his contract from the first day he entered into his employment, Rossetto was awarded $364,661 in bonuses for 2007 and 2008.

Mady appealed the bonus-related part of the decision to the Ontario Superior Court of Justice. Justice Beth Anna Allen agreed with Mady that Rossetto was not simply an employee who had been fired – he was in a fiduciary relationship with the company and so was not entitled to compensation for the period of his wrongdoing. She ruled that Rossetto was not entitled to a bonus.

Rosetto appealed and the Ontario Court of Appeal restored the decision of the arbitrator in a January 2012 ruling. The court found that an employer is not free to withhold wages due for past performance, even where the past performance involved a time when the employee was acting in breach of his fiduciary duty. The Court said it was appropriate to pay the bonuses.

The result was that Rosetto deducted the bonus amount from the damages awarded to Mady. He was also awarded $32,000 in costs for the two levels of appeal.