Forging for a cause

“All power is a trust; that we are accountable for its exercise” — Benjamin Disraeli, 1826

Can an employee be fired for a display of character inconsistent with the trust required for their position?

In 1969, Angus MacDonald formed a B.C. mineral exploration and mining company, Prism Resources Ltd. With a passion for exploration rather than the tedium of office work, MacDonald eventually required a solid administrator. Jewitt, a high-flying, experienced mining executive, was recruited as president and CEO.

A few months into the job, during preparations for the annual shareholder’s meeting, Jewitt required the signature of two directors for the draft financial statements. As it turned out, he was the only director in available. Macdonald was in Hawaii and the other directors absent or ill. Rather than disturb Macdonald’s vacation, Jewitt asked his executive assistant to trace Macdonald’s signature on the balance sheet. There was no personal gain. The auditors’ figures were not altered or falsified and the financial statements remained entirely accurate.

Although Jewitt could have phoned Macdonald in Hawaii to seek permission, the court was “satisfied that Jewitt acted with perfectly honest intentions, out of ‘deference’ to Macdonald and his senior and respected position in the company’s affairs since its inception.” There was nothing “covert” about Jewitt’s conduct. Immediately upon MacDonald’s return, before the annual meeting, Jewitt told him what he had done.

But when MacDonald found out, he was dumfounded. He decided Jewett could no longer be trusted, met with the directors and fired Jewett immediately.

Jewitt had not acted with a dishonest motive, but what he did was dishonest. Was this a defect of character on Jewett’s part-or just poor judgment? Does it really matter, the court was asked. Can an employer simply say, as Prism Resources did, “we are not prepared to trust a CEO who is capable of forging a signature to the financial statements, whatever his motives.”

B.C. Justice Kirke-Smith said, “This is a case in which the level and importance of the position involved in the drama are more important than is usually the case.” The courts recognize that the more senior an employee, the higher the degree of trust required. As a practical matter, a dishonest president, or one who invents his own rules, can endanger a company far more than can a lower-level employee.

“The morals of the marketplace have clearly become more mobile in the past few decades … But honesty is still important, and perhaps the more senior and responsible the position held, the more that honesty must not only be inherent, but patent,” Justice Kirke-Smithe concluded.

The B.C. Court of Appeal ruled that Prism Resources could not leave in office a CEO who was prepared, even in good faith, to forge the chairman’s signature. His dismissal was justified.

The Supreme Court of Canada has made clear that dishonesty is not always cause for dismissal. But the dishonesty of a senior executive almost always will be.

What should employers do?

1. Have an ethics policy requiring rectitude at all levels.

2. Ensure job descriptions are drafted in a manner that demands absolute rectitude, inside and outside the workplace, as a criterion for senior positions.

3. Treat seriously any instance of dishonesty, so it cannot be argued that dishonesty is condoned.

Howard Levitt is senior partner of Levitt LLP, employment and labour lawyers. He practises employment law in eight provinces and is author of The Law of Hiring in Canada, soon to be released.