A Wolf in Employee’s Clothing

To make a business run effectively, we know it takes more than one person. Employers have to hire people to manage the day to day operations of a business. In doing so, employers have to place a certain amount of trust in their employees to do their work honestly and ethically. But what happens when there is a breach of trust and employees have stolen money right from under their noses? Do employers have any recourse? The case below tells the story of one business owner who trusted their employee, only to find over $600,000 missing from the business’ financial accounts. Let’s take a closer look to see what the employer was able to do to not only get their money back, but also punitive damages for the theft of income.

The Story

West Bros. Frame and Chair Ltd. (West Bros) is a Delta-based furniture manufacturing company that employed Ms. Petra Yazbek as a bookkeeper and office manager from 2008 to 2014. The president of West Bros signed blank cheques so Ms. Yazbek could use them to pay suppliers, payroll (including her own salary), and to reimburse her for company-related expenses, such as petty cash and stamps. Ms. Yazbek used the cheques to steal $611,920 from West Bros over the course of 6 years. Her theft was not discovered until she quit her job and the president discovered $220,000 owing on a company line of credit.

Ms. Yazbeck deposited $602,853 of the money she stole from West Bros into a joint account with her husband. Together, they spent the money on Mr. Yazbeck’s business expenses, for their family expenses, and in giving large gifts to Mr. Yazbeck’s sister. Ms. Yazbeck also claimed income from West Bros on her husband’s income taxes even though he had not done any work for the company. Mr. Yazbeck said he never suspected Ms. Yazbeck of stealing money from West Bros, he trusted her ability to manage their finances, and he would continue to trust her because he did not think she had done anything wrong.

Legal Action

Because Ms. Yazbeck took funds that didn’t below to her and abused her position in the company in order to do so, West Bros had legal grounds to sue. West Bros had two avenues in which they could sue. They could sue Ms. Yazbeck for conversion, where an employee takes or controls property that belongs to an employer without permission; and also for breach of trust, where an employee abuses a position of trust and responsibility.

If West Bros could prove conversion in court, not only could they recover the $602,853, but also any interest earned or benefits gained by Ms. Yazbeck while holding the funds. This is known as a constructive trust, meaning the stolen property is still treated as belonging to the employer and simply held by the employee in trust.

West Bros also argued that Ms. Yazbeck held a position of trust and responsibility in West Bros as a bookkeeper and office manager, which meant that she had a legal fiduciary duty to her employer to act in utmost good faith and loyalty toward West Bros.

If West Bros could persuade the court that Ms. Yazbeck had this fiduciary duty to West Bros, it would allow West Bros to recover their property more easily.  West Bros could then sue anyone who knew or should have known that they were receiving stolen money.  In this case, for example, Ms. Yazbeck deposited the money she stole from West Bros into a joint account with her husband, and Mr. Yazbeck spent some of it.  If Ms. Yazbeck had a fiduciary duty, and her husband knew or should have known he was spending stolen money, then Mr. Yazbeck would also be required to repay stolen money to West Bros.

The Results

West Bros took legal action and Ms. Yazbeck was sued for conversion and breach of trust and her husband, Mr. Yazbeck was sued for knowingly receiving stolen funds.

In addition to being liable for conversion, Ms. Yazbeck was found to be in breach of trust because she occupied a position of trust and responsibility over West Bros’ financial affairs. West Bros was vulnerable to her exercise of her power and discretion, so the court decided that the exercise of her power in West Bros’ best interests was an implicit term of her employment agreement.

West Bros was awarded a judgment against Ms. Yazbeck in the full amount of the money stolen plus an additional $40,000 of ‘punitive damages’ against Ms. Yazbeck to punish her for her reprehensible conduct.

The court also found that Mr. Yazbeck was liable to repay up to 50% of the stolen money. Mr. Yazbeck received the stolen money into an account he held jointly, and he knew or should have made reasonable inquiries to find out whether the money was stolen because he had knowledge of suspicious facts and failed to inquire further. Ms. and Mr. Yazbeck jointly owned a home in Delta, so the Yazbeck’s could be forced to sell their home to pay the judgment.

As this case clearly portrays, running a business is a complicated challenge for any business owner, and when legal issues arise there can be serious consequences for either parties. Thankfully, there are ways to make people accountable and legal support is there to guide you through the process. If you have any business needs, whether it’s employee issues, you’re considering a merger or partnership, or you need a shareholder agreement, our legal team at Hamilton Duncan can help. With over 60 years in the business of serving our clients, we are here for you.