2005 BCSC 266add.doc Zadorozniak v. Community Futures Development Corporation et al

Before: The Honourable Madam Justice Humphries

Reasons for Judgment

Counsel for the plaintiff	J.B. Carter
Counsel for the defendants	E.A. Harris
Date and Place of Trial:	June 22, 23, 24, 25, 28, 29, 30; July 12, 13, 14,& 19; September 8, 2004
	Kamloops, B.C.

[1] The plaintiff, 49 years old, was hired as general manager of the defendant on November 6, 2000, and was fired on February 1, 2002. The defendant contends it was for cause. The plaintiff sues for wrongful dismissal, and for damages in the form of an increased notice period for the manner of dismissal (see Wallace v. United Grain Growers Ltd. [1997] 3 S.C.R. 701). The action against all individual defendants has been discontinued without costs by consent. The Statement of Claim was drafted by Mr. Zadorozniak himself before counsel became involved. Though no formal amendment was sought, it was agreed between counsel that the prayer for relief as set out in the pleadings should reflect only the above-noted claim.

[2] Community Futures Development Corporations are non-profit entities with over thirty branches in smaller centers throughout British Columbia. The corporations promote employment opportunities and are lenders of last resort for potential entrepreneurs and businesses. The defendant, Community Futures Development Corporation of Nicola Valley (“CFDC”), is located in Merritt, B.C.

[3] The core funding for the Community Futures Program is provided by the Minister of Western Economic Diversification, now called Western Development (“WD”). This allows the program to run their office and to lend money. Various other programs, e.g. the Self-employment Program, the Employment Services Program and the Enterprise Program, are funded by Human Resources Development Canada (HRDC).

[4] Prior to beginning employment with the defendant, the plaintiff had worked for CFDC in another small town in B.C., but had left to take an unrelated job in Williams Lake because it was important to his wife to be closer to her daughter in Penticton. When the job with the CFDC in Merritt was advertised, he applied, as Merritt is closer than Williams Lake to Penticton and because he had enjoyed his previous work with CFDC. He was the only person interviewed.

[5] Mr. Zadorozniak was hired and began work on November 6, 2000 at an annual salary of $57,000. The letter containing the offer of employment referred to a six-month probation period.

[6] Witnesses called for the defendant agree everything went well for the first six months. There was no formal evaluation or conclusion to the probation period, but the plaintiff received informal feedback telling him he was doing a good job.

[7] On December 10, 2001, Mr. Zadorozniak received his annual appraisal. The appraisal stated that he had the potential to be an excellent manager but required improvement in several areas. He was directed to "win back trust and confidence of staff", "improve relationship with funders," and "insure that Board is informed of any financial matters that have ongoing costs that exceed budget; Line changes on budgets must be approved by Finance Committee." In all other areas he met or exceeded requirements.

[8] By January 31, 2002, without further discussion with Mr. Zadorozniak, the Board had decided to terminate his employment for cause. The letter of termination was delivered to Mr. Zadorozniak at 9:00 a.m. on February 2, 2002, in a meeting in the Boardroom at the CFDC office with all of the Board members present. The letter reads:

January 31, 2002
Joe Zadorozniak
General Manager
CFDC Nicola Valley

Dear Joe

The CFDC Board of Directors on, January 25, 2002 came to a unanimous decision to relieve you of your responsibilities as General Manager of CFDC Nicola Valley. You are hereby notified that as a result of our continued dissatisfaction with your performance, your employment with CFDC, is terminated effective immediately. This dismissal is for just cause.

We have as a Board on numerous occasions requested you to:

1. Improve relationships with our staff

2. Improve your relationship with members of the Board

3. Improve your relationship with HRDC

We have also raised serious concerns about financial irregularities pursuant to our management and direction, both with regard to the agencies financial account, renovations to our new building and hiring staff. Decisions you have made without prior Board approval or consultation.

Further we as a Board have instructed you to specifically accomplish certain tasks and you have failed to do so, including but not limited to;

§ Contact WD for hard copy follow up on their portion and approval of our facility arrangement

§ Timely acquisition of building occupancy permit

§ Continue with HRDC towards salvaging the Enterprise Program

Your actions and omissions have resulted in potential liability concerns for CFDC. Valid warnings by the Executive Committee have been followed by written evaluation and a review with yourself, yet the problems that have been identified in all areas continue to worsen and your behaviour towards members of the Board has become so deteriorated that it constitutes insubordination. We have lost confidence in your ability to carry out your duties as General Manager for CFDC.

Therefore we are dismissing you from employment for just cause. Please return all company property in your possession to the undersigned today. This includes the company visa card, keys, computer passwords, and any other related items.

Please remove your personal items from this office immediately and/or arrange a time to do so that is mutually agreed to by George Mathieu, CFDC Board of Directors Chair.

Yours truly,

George Mathieu

CFDC Board of Directors, Chair

[9] Mr. Zadorozniak testified he tried to read the letter but could not concentrate on it. He did see that he was being fired for not getting along with the staff, who had assembled outside the Boardroom, wondering what was going on. He left the Boardroom and went out to the staff, waving the letter and asking them if they agreed he did not get along with them. The staff, according to the two who testified, were in shock and said nothing. Mr. Zadorozniak went into his office. The Board members stayed in the boardroom for a few minutes, but then became concerned Mr. Zadorozniak was deleting files. Four Board members went to his office, knocked, and entered. A scuffle ensued while the Board members tried to unplug Mr. Zadorozniak’s computer, and Mr. Zadorozniak was pinned against the wall and held there until the police arrived.

[10] The police escorted Mr. Zadorozniak from the building, which is in downtown Merritt and he put into a squad car on the main street. He was taken to cells, printed and photographed and held there for the day. He was released pursuant to a restraining order not to contact the Board members or the staff. However, most of the staff had already gathered at his house to lend support to Mr. Zadorozniak and his wife.

[11] Mr. Zadorozniak was not allowed to return to the office and has never done so. He has no documents or files from his time at CFDC.

[12] Following his termination, Mr. Zadorozniak successfully applied for Employment Insurance Benefits. The Board unsuccessfully appealed his entitlement to benefits.

[13] Mr. Zadorozniak made extensive efforts to find work. He has been unsuccessful in becoming re-employed. He did find some work selling insurance but lost money at it. His wife, who was on disability for a nerve disease, now works out of financial necessity as a cashier in a grocery store for a sufficient number of hours to cancel out her disability insurance, and Mr. Zadorozniak does bookkeeping work at home. The defendant does not contest his attempts to mitigate his damages.

JUST CAUSE

[14] The defendant contends the dismissal was justified on the following grounds, several of which are not mentioned in the letter of termination:

· dishonesty during the hiring process and throughout employment;

· insubordination/insolence;

· personal harassment of subordinates;

· disclosure of confidential information;

· placing the Board in a conflict of interest;

· incompetence (inability to perform employment obligations)

POSITIONS OF THE PARTIES

[15] The plaintiff says that he has been hampered in the presentation of his case and in the ability to defend himself against the allegations relied on by the defendant because the ground keeps shifting. He points out that even during trial, the defendant raised new matters and produced new documents and theories justifying the dismissal.

[16] In any event, the plaintiff takes the position that most if not all of the allegations of misconduct against him are untrue and unfounded, but, even if true, they were known prior to December 2001 and were not of concern to the Board, or at any rate not looked upon as cause for dismissal. The evidence of the Board members shows that Mr. Zadorozniak's job was not in jeopardy in December of 2001 at the time of his evaluation. Even in January 2002, when the personnel committee was formed, Mr. Zadorozniak asked it to consider a raise and the issue was deferred. At that time, according to Mr. Ruttenberg, chair of the personnel committee, there was no indication Mr. Zadorozniak’s employment would be terminated.

[17] The plaintiff therefore contends that the Board did not view the allegations of misconduct which they now rely on as reasons to summarily dismiss him at the time those matters became known to them. It is only now, after the fact, and in the context of the litigation, that these matters are surfacing as retroactive justification for summary dismissal.

[18] In the plaintiff’s view, the Board is forced to rest its case on the grounds of incompetence, which is clearly what the letter of dismissal is aimed at (aside from the reference to insubordination). If relying on incompetence, they were compelled to give Mr. Zadorozniak warning that his job was in jeopardy, with time to improve. They did not do this, and the abrupt dismissal was unlawful.

[19] The defendant agrees they led evidence of additional matters at trial, but contends the basic problems were always the same – Mr. Zadorozniak’s relationship with funders, staff and money.

[20] The defendant says they are not bound by the reasons given at the time of dismissal, and that evidence of other misconduct which came out during trial is properly relied upon to support the dismissal. As for the aspects of Mr. Zadorozniak's management/conduct which had been known for some time, the defendant contends the evidence does not support condonation by the employer. For instance, Mr. Zadorozniak was told he needed to improve his relationship with staff and instead he exacerbated the problems in defiance of the Board’s orders.

[21] Most importantly, says the defendant, Mr. Zadorozniak handled the financial affairs of the CDFC in such a way as to put their funding potentially at risk.

JUST CAUSE

[22] An employer may dismiss an employee summarily if there is just cause. In Panton v. Everywoman's Health Center Society (2000), 82 B.C.L.R. (3d) 364, the Court of Appeal summarized "just cause" as behaviour that, viewed in all the circumstances, is seriously incompatible with the employee's duties, conduct which goes to the root of the contract and fundamentally strikes at the employment relationship.(see also Rieta v. North American Air Travel Insurance Agents Ltd. (1996) 19 C.C.E.L. (2d) 117 (B.C.S.C.); affirmed [1998] B.C.J. No. 640 (B.C.C.A.)).

[23] The court went on to say, after deciding on the facts of that case that the employer was not entitled to say the necessary relationship of trust was irreparably harmed by the employee's conduct:

Although an employer may lose confidence in an employee, not every loss of confidence demonstrates cause for dismissal. Only where conduct of the employee is sufficiently egregious in all the circumstances, does the right to terminate for cause exist.

[24] It is therefore necessary to consider whether the matters alleged by the Board have been established, determine whether they constitute misconduct and/or incompetence, and if so, whether they are of such an egregious nature as to warrant dismissal without notice.

[25] Much of the conduct alleged to constitute misconduct is also alleged to be evidence of incompetence, so there will be overlap in the discussion of the evidence.

[26] The Board cites a lengthy list of matters which they assert constitute misconduct, individually and cumulatively. I will deal with some of these allegations summarily, and others in more detail. During this review, I will make reference to the piecemeal production of documents by the defendant throughout the trial, which put the plaintiff in a difficult position in trying to prove his case.

[27] Despite the potential for litigation following the firing of Mr. Zadorozniak, the defendant, through no fault of its counsel, who has been most cooperative in trying to remedy the defects in production once she learned of them, either did not keep relevant documents or did not produce them until well into the trial. Due to the manner in which Mr. Zadorozniak was removed from his office, he was unable to take any of his files or documents with him and has been dependent on the defendant's production of documents to assist him in his case.

[28] Three Board members testified - George Mathieu, chair, Harry Kroecker, vice-chair, and Rob Ruttenberg, chair of the personnel committee, which was set up in January 2002. Mr. Mathieu was in charge of the search for documents. He testified he had kept a few himself but threw most away. He found few if any documents in the General Manager's office when he came to search it, but what he found, he produced. Mr. Kroecker appears to have kept none.

[29] Many of the documents most helpful to the plaintiff came to light after the plaintiff had closed his case only because Rob Ruttenberg, who was subpoenaed to testify, came to court several days into the trial with his personal file. He had only joined the Board in June 2001 but he had kept all his documents from the meetings, including the General Manager's reports. At that point, the court ordered a thorough search for documents to be done over the following weekend. Counsel for the defendant agreed that Mr. Zadorozniak could be called in rebuttal to deal with all the new documents.

Dishonesty

[30] The defendant says Mr. Zadorozniak was dishonest in that he lied in his job interview. Mr. Zadorozniak did not explain to the Board the circumstances under which he left the Radville Credit Union some ten years before, which involved a forged receipt and an affair with the loans manager's wife. Although he listed the general manager of the credit union as a reference, the Board did not contact this person.

[31] The two Board members who had been on the hiring committee testified that if they had known the history, they would not have hired Mr. Zadorozniak, although Mr. Kroecker said he would not have fired him for it. It is implicit it Mr. Mathieu's evidence that he does not consider Mr. Zadorozniak worthy of employment as a result of learning of this incident.

[32] Mr. Zadorozniak testified he did not tell the Board all the circumstances because he knew the result would be that he would not get the job. He listed the previous job on his resume and gave a contact number.

[33] In my view, this factor does not justify summary dismissal. The incident happened ten years before. The position of general manager, although involving the handling of money, does not fall into the category of a relationship of the utmost good faith (for a discussion of positions involving the principle of uberrimae fidei see Courtright v. Canadian Pacific Ltd. (1983) 5 D.L.R. (4th) 488 (Ont. H.C.J.), appeal dismissed (1985) 18 D.L.R. 639)(Ont. C.A.)).

[34] If Mr. Zadorozniak had overtly lied in response to a question, the considerations would be different (see Islip v. Coldmatic Refrigeration of Canada Ltd. (2002) 17 C.C.E.L. (3d) 169 (B.C.C.A.). Mr. Zadorozniak did not exaggerate or mislead the Board about his qualifications and was under no obligation to tell them the entire history, which he either disputes or qualifies, unless asked. Otherwise, once having been guilty of misconduct, a person would likely never be employable again.

[35] I note that the Board knew about this incident shortly before Mr. Zadorozniak was fired, because an employee, Deb Rose, had done a search on the Internet and found the ruling on his previous Employment Insurance claim. She gave it to the bookkeeper, Connie Rauch, who delivered it to the Board on January 28, 2002, along with a grievance. However, it was not considered to be relevant to the dismissal at that time as the Board had already decided to terminate Mr. Zadorozniak’s employment.

[36] The defendant says Mr. Zadorozniak was dishonest because he used a company credit card to make a gasoline purchase of approximately $30.00. The defendant, on the first day of trial, produced a sheaf of documents which they claimed to have just found, with which Connie Rauch, the bookkeeper, had spent some time prior to trial trying to prove Mr. Zadorozniak had defrauded the defendant through his expense accounts. It became clear during Mr. Zadorozniak's testimony that Ms. Rauch did not understand the records, which instead showed how meticulous Mr. Zadorozniak had been in his expenses, and the defendant’s counsel soon conceded that.

[37] Mr. Zadorozniak explained that although there were items on the statements that were not legitimate expenses, he did not claim for them and was able to demonstrate that. He agreed in cross examination that he did not have a vehicle allowance and could not claim for such expenses. It was not clarified if this particular gasoline purchase had been claimed for on an expense sheet, but in any event, for the defendant to rely on an isolated incident respecting one small purchase in these circumstances is not justifiable. I do not view it as significant or as an indication of dishonesty giving rise to grounds for dismissal.

[38] The defendant alleged that Mr. Zadorozniak had improperly instructed the auditors not to conduct a full audit. Mr. Zadorozniak testified he had authorization from WD to request only a letter rather than a full compliance audit. It was not until the end of the first week of trial that the defendant produced documents held by Mr. Ruttenberg that actually supported Mr. Zadorozniak's position and confirmed that the executive of WD had agreed to accept a restricted scope audit in the form of a letter. In these circumstances, the instruction provided by Mr. Zadorozniak cannot provide grounds for dismissal.

[39] Insofar as the defendant relies on compliance audit issues related to the acquisition of the new premises, I will deal with that under the discussion of the purchase of the building.

Insubordination, personal harassment, confidentiality

General Manager's Presence at Board meetings

[40] It is alleged that Mr. Zadorozniak was critical of the Board for meeting without him, and was insubordinate in questioning their ability to hold private meetings. On the one occasion he did so, the Finance Committee of the Board had in fact met in secret with Connie Rauch in October of 2001 to review a letter she had provided containing very serious allegations against Mr. Zadorozniak, although she did not specifically name him.

[41] Mr. Zadorozniak knew the Board had met and asked why he had not been allowed to be present. He was given a fabricated answer as to the purpose of the meeting, and did not learn what it had been about until much later, when one of his employees told him about it. In fact the minutes of this meeting were written to conceal what had occurred and Connie Rauch was not listed as present. To call Mr. Zadorozniak's questioning of this meeting "insubordinate" in these circumstances is disingenuous.

[42] The secrecy of this meeting also demonstrates the difficulty Mr. Zadorozniak had in answering the defendant's allegations at trial. Many of the issues not raised until trial were known to the Board as of that meeting, but not only the substance of the complaints but the fact that any were being made was kept from Mr. Zadorozniak. In fact, he was actively misled as to the purpose of the meeting.

Enterprise Program

[43] The defendant also alleged that Mr. Zadorozniak was insubordinate in refusing to put in a proposal to revive the Enterprise Program, upon being directed to do so by the Board.

[44] Mr. Kroecker testifed that he told Mr. Zadorozniak to work on the Enterprise Program proposal, but Mr. Zadorozniak refused and said he was working on the Self-Employment Program proposal instead.

[45] Mr. Zadorozniak testified that he had done a proposal for the Enterprise Program but HRDC felt the Enterprise Program, which was a local Merritt initiative, was a duplication of the Self-Employment Program and was reluctant to renew it. While HRDC considered their position, they granted two extensions to the program. This was confirmed by documents produced by the defendant during trial.

[46] Meanwhile Mr. Zadorozniak began to concentrate on the proposal for the Employment Services program, which was the largest program handled by CFDC, and told the Board he was giving it priority. HRDC cancelled the Enterprise Program in November, two weeks before the final extension deadline, but the larger Self-Employment Program, also funded by HRDC, was renewed.

[47] The Board cites the cancellation of the Enterprise Program as an example of Mr. Zadorozniak's failure to communicate with the funders, indicating his incompetence as well as his insubordination. Mr. Zadorozniak does not dispute that he had difficulty communicating with his counterpart at HRDC, Ms. Robinson. Apparently she left their very first meeting, soon after Mr. Zadorozniak was hired, in tears.

[48] Mr. Zadorozniak prepared at least three copies of a white binder of correspondence with Ms. Robinson to illustrate his difficulties over the Enterprise Program and the efforts he had made to provide the information requested by HRDC. Although two Board members recall having been given copies of the binder, they are not available now. Mr. Zadorozniak, having been compelled to leave the office with no documents, does not have his copy. None of the contents have been provided through other document production.

[49] The HRDC person with whom Mr. Zadorozniak had trouble communicating was replaced by a new person in December, after the Enterprise Program had been cancelled. Board members met with her, and Mr. Zadorozniak had the opportunity to meet with her once. Mr. Zadorozniak testified that he and the new person agreed to concentrate on the Self-Employment program first and then go back and look at the proposal that had been submitted for the Enterprise Program. His employment was terminated two weeks later and it is not clear whether the Enterprise Program was ever reinstated.

[50] I do not find the circumstances surrounding the non-renewal of the Enterprise Program to constitute misconduct, insubordination or incompetence. The documents produced by the defendant half way through trial show that Mr. Zadorozniak was clearly aware of the problems HRDC had expressed about the Enterprise Program, was obtaining extensions, and was keeping the Board informed. If the retention of the Enterprise Program was of such significance to his continued employment that he should have put it ahead of the larger Employment Services Program, he should have been informed. The issue of whether the Enterprise Program was in fact a duplication of the Self-Employment Program, that is, whether HRDC's concern was legitimate, was never clarified.

Stress leave/harassment:

[51] The defendant also alleges that Mr. Zadorozniak was insubordinate in respect of his handling of the extended stress leave of Deb Rose and Connie Rauch. Since the defendant also alleges that Mr. Zadorozniak subjected these two employees to personal harassment, it is convenient to consider these matters together.

[52] These two employees, who testified for the defendant, had difficulty with Mr. Zadorozniak. Deb Rose, upon receiving her evaluation, which was generally positive, with one negative area of comment, left work on stress leave in October 2001 and did not come back. She filed a grievance against Mr. Zadorozniak in November of 2001 but asked the Board to keep it confidential, which they did. Mr. Zadorozniak was not told about it, although he learned at a later time that Ms. Rose had complained about him in a general sense.

[53] Connie Rauch left work November 5, 2001, ostensibly for medical reasons, but the defendant now contends it was because of stress related to Mr. Zadorozniak, although he was never told this. Ms. Rauch eventually filed a grievance on January 28, 2002, days before Mr. Zadorozniak’s employment was terminated. Neither Ms. Rose nor Ms. Rauch returned to work until after Mr. Zadorozniak was fired.

[54] On December 24, 2001, Mr. Zadorozniak sent letters to Deb Rose and Connie Rauch asking for medical confirmation of their leave status and stating that consideration would be given to treating their jobs as abandoned if they could not substantiate a medical reason for their absences. The letters are alleged to have been sent in direct contravention of an instruction from George Mathieu, Board chair, not to send them. Mr. Mathieu did not say the approach was unjustified; instead he testified he felt the timing of the letters was not right - the tone of the letters was too strong to send to an employee who was on sick leave (although if they returned to work there would be no need to send them). Mr. Mathieu said he told Mr. Zadorozniak to ask only for a doctor's letter, not to mention possible abandonment. Mr. Zadorozniak testified that Mr. Mathieu told him to send the letters.

[55] I am not persuaded that Mr. Zadorozniak received any particular direction in respect of these letters or that much turns on it. The important aspect of this situation, according to Mr. Mathieu's evidence, was that, although directed by himself not to contact Ms. Rauch, Mr. Zadorozniak simply recommended that Ms. Rauch be laid off. However, it appears that Mr. Mathieu was mistaken in his recollection of the sequence of events at this time.

[56] Upon receiving the "abandonment" letter, Ms. Rauch contacted Mr. Mathieu, and Mr. Mathieu suggested she attend a meeting with Mr. Zadorozniak and the Board.

[57] In early January, the Board, Mr. Zadorozniak and Connie Rauch met to try and resolve the difficulties between Ms. Rauch and Mr. Zadorozniak. Although the Board felt the meeting went well, neither Mr. Zadorozniak nor Ms. Rauch felt it did. After the meeting, Mr. Zadorozniak wrote a memo to the Board saying he felt he could not build a team with Ms. Rauch and suggesting her employment be terminated. This is cited as a further example of insubordination, but as noted above, Mr. Mathieu's mistaken impression was that Mr. Zadorozniak had written this memo out of the blue while Ms. Rauch was on sick leave and Mr. Zadorozniak was under direction not to contact her.

[58] I do not view these events or Mr. Zadorozniak's handling of the situation as misconduct or incompetence justifying summary dismissal for cause. The Board kept Mr. Zadorozniak in the dark about both employees. He was not told of their complaints about him nor was he told that their reasons for being off on stress leave had to do with him. He was first made aware of the extent of Connie Rauch's complaints, which included serious allegations about his conduct, at the meeting in January. If the Board viewed these issues as significantly affecting Mr. Zadorozniak's ability to continue in his job, they had to be frank and open with him, fully inform him, and allow him an opportunity to answer their concerns.

[59] Alternatively, if the Board simply preferred to keep Connie Rauch as a contented employee and this required them to dismiss Mr. Zadorozniak, they could do so, but only with appropriate notice.

Interactions with staff and Board

[60] There are several other allegations involving Mr. Zadorozniak's behaviour which are said to constitute harassment or insubordination - that when Ms. Rauch requested that Mr. Zadorozniak put his instructions to her in writing, he said "this is bullshit" before doing it (Mr. Zadorozniak does not remember this, but does not deny it); there were unfortunate comments made by Mr. Zadorozniak over a missing file which Ms. Rauch took as a personal accusation against her (Mr. Zadorozniak says he did have a discussion with Ms. Rauch about taking a file without authority); that Mr. Zadorozniak breached his duty of confidentiality by speaking about Ms. Rauch to other employees outside the office; that Mr. Zadorozniak mentioned in a staff meeting that an unnamed employee had filed a grievance against himself and two others, a further breach of confidentiality. Mr. Zadorozniak says he spoke about these latter matters only after his dismissal, although Liz Touet, one of the plaintiff's witnesses, recalled the subject of the grievance being raised at a staff meeting. She said it was discussed in general terms and did not strike her as a breach of confidentiality.

[61] Further incidents of insubordination put forward by the defendant include Mr. Zadorozniak raising his voice in a meeting with Mr. Mathieu and Mr. Kroeker, and Mr. Zadorozniak telling Mr. Mathieu that Mr. Mathieu's view that he could turn over the operational review of the office to the personnel committee in the face of a Board motion directing himself and Mr. Mathieu to do it was "disgusting."

[62] Mr. Zadorozniak was unable to produce a set of minutes with the motion he recalled directing that he and Mr. Mathieu do the review. I cannot attach much significance to the non-production of a document by the plaintiff in the circumstances of this case, but the important aspect of this incident is the strong language used to Mr. Mathieu. Indeed, it is this last unfortunate exchange which seems to have sealed Mr. Zadorozniak’s fate and led to his dismissal.

[63] Mr. Mathieu appears to have considered the comment to mean Mr. Zadorozniak considered Mr. Mathieu personally to be disgusting. After hearing the evidence on this conversation, I do not think it likely Mr. Zadorozniak called Mr. Mathieu disgusting. I think it more likely that Mr. Zadororzniak called the event disgusting.

[64] Generally, some of these latter allegations might cause the Board justifiable concern and might warrant an approach to Mr. Zadorozniak to tell him his personal style and/or his personality were causing difficulty. However none of these matters individually or collectively justifies summary dismissal.

Conflict of interest/ was the funding put at risk?

[65] The Board takes two approaches to this basis for termination. The first involved issues raised by Connie Rauch. The second involves the purchase of the building for the new premises. These issues are cited as instances of misconduct and of incompetence on the part of Mr. Zadorozniak.

Issues raised by bookkeeper

[66] Connie Rauch, the bookkeeper for the CFDC, testified to a number of irregularities aside from the alleged false expense claims referred to above. As already indicated, Ms. Rauch met with the Finance Committee of the Board on October 23, 2001. Although there is no record of what was discussed, it is a reasonable assumption from her evidence that the matters she raised at trial were all talked about during the meeting, as she listed them in her testimony as ongoing concerns throughout her employment which she brought to the Board's attention. She went on stress leave soon after the meeting, on November 5, 2001.

[67] Ms. Rauch said Mr. Zadorozniak had wanted hours to be reallocated between programs in order to get additional help for her. Ms. Rauch admitted she was working overtime and there was no money in the budget to get her some help. Mr. Zadorozniak directed her to allocate the hours in such a way as to get help one day a week. Although this resulted in Ms. Rauch getting help, she did not approve of the method.

[68] In March 2001, Mr. Zadorozniak advised the Board there was a surplus of $55,000 and recommended that $40,000 be put aside for building renovations, and that some of the surplus be used for staff bonuses. The Board approved his recommendations. Although she took the bonus, Ms. Rauch testified that she did not approve of the Board's actions. In her view, surplus money should be returned unused.

[69] Ms. Rauch also testified that Mr. Zadorozniak had wanted invoices and receipts produced to avoid having to return unspent money. The latter allegations were not put to Mr. Zadorozniak in cross examination and it is not clear when that knowledge became available, as Ms. Rauch's office was locked over the weekend when the final document search was being done in mid-trial. However, it is a reasonable inference that these matters were drawn to the Board's attention in the secret meeting, as they arose prior to Ms. Rauch going on medical leave.

[70] The defendant, through Ms. Rauch, criticized Mr. Zadorozniak for moving $40,000 from one account to another before the audit and moving it back afterwards. Mr. Zadorozniak said there was a legitimate accounting reason for this, and all the books were open to the auditors. In fact, he wanted the auditors to tell him how to treat this money. Ms. Rauch admitted that it was not an inappropriate entry, but it should have been done by the auditors, not by Mr. Zadorozniak.

[71] Ms. Rauch says the intern, Ms. Shannon, was paid under one program, and then her wages were credited to the operating account from another program. Mr. Zadorozniak testified that Ms. Shannon was doing work on the other program. Documents produced during trial substantiated this, although Ms. Rauch continued to dispute Mr. Zadorozniak's position.

[72] Ms. Rauch says Mr. Zadorozniak used funds from the investment account to pay for moving expenses into the new building, and now, in Ms. Rauch's opinion, CFDC owes about $90,000 to WD. Ms. Rauch brought this up in the secret meeting in October. There is no indication that Mr. Zadorozniak was ever asked to explain or justify it, and no evidence was called as to whether WD considers this a debt, or whether it must be repaid. Apparently CFDC has a fund for operating expenses, but there was no explanation of how that budget is set.

[73] The issue of cost overruns was raised in Mr. Zadorozniak’s December evaluation. Mr. Zadorozniak testified that the Board members had confused actual renovation costs with the costs of moving the office, and in cross-examination of the Board members, this was verified. Mr. Zadorozniak said he was unable to provide final figures on the renovations until the Board gave him their position on approving extra charges advanced by the two main contractors, which he did not recommend. He felt the contractors should comply with their bid price but the Board did not agree and approved the overruns.

[74] Although many of these issues were not fully explored, it is clear that Mr. Zadorozniak was consistent and energetic in his desire to obtain maximum funding and resources for CFDC. There is no suggestion of personal profit or advantage in anything he did. The defendant's present objection to his creativity is that it had the potential to put their funding in jeopardy if HRDC or WD realized what was happening.

[75] There was no evidence called from either funding source to validate this concern. I am asked to infer it from a construction of the funding agreements. On a strict construction of the agreements, it is arguable. On the other hand, evidence was called that CFDC is currently in a state of non-compliance over a number of issues, none of which appear to trouble the Board.

[76] None of these allegations are, in my view, sufficient to justify summary dismissal on the grounds of misconduct. Although the matters brought up by Connie Rauch could have been made the subject of a legitimate discussion and even possible admonishment to Mr. Zadorozniak, he was not told of many of them. Some he had reasonable responses to. Some formed part of the discussion at his evaluation, and were not identified as concerns putting his job in jeopardy. Some were not put to him cross-examination, coming up only during Ms. Rauch’s evidence at trial, even though Ms. Rauch raised them with the Board in the secret meeting.

[77] As for the financial matters disapproved of by Ms. Rauch and which I am asked to assess in the context of the contribution agreements, it is not sufficient or appropriate to accept her untested opinion that these matters constitute financial misconduct, given her apparent desire to paint Mr. Zadorozniak in as bad a light as possible.

[78] In my view, if these factors are now relied on to support the dismissal, they should have been squarely put to Mr. Zadorozniak during the term of his employment. Even if any of these instances could be termed misconduct, which is far from clear, all or nearly all of them were known to the Board and not seen as grounds for dismissal either when they were reported by Ms. Rauch in October, at the time of his evaluation in December, or at the meeting of the personnel committee in mid-January. All Board members who testified said his employment was not in jeopardy at any of these times.

Purchase of the new building:

[79] The Board alleges various misdoings showing Mr. Zadorozniak's incompetence arising out of the acquisition of new premises. Mr. Zadorozniak was asked, early in his tenure, to find new accommodation for the office. He learned of the old Bank of Montreal building in downtown Merritt. CFDC’s are not allowed to own property, but several had managed to purchase their own buildings. Mr. Zadorozniak suggested CFDC’s predecessor, the Nicola Valley Building Development Centre Society (“BDCS”), which still existed, buy the building and lease it to CFDC. The funds would come from CFDC via an investment by CFDC in BDCS at a 6% rate of return.

[80] The Boards of each entity were comprised of the same members. Each Board passed motions approving this transaction. The Board members who testified agreed that the move into the new building was and is still viewed as a very positive thing for CFDC.

[81] Since Mr. Zadorozniak's termination, WD has required CFDC to refinance the building, and has required the Board to reconstitute itself so its members are not exactly the same as those in the BDCS. There is no indication whether the funding was ever actually in jeopardy.

[82] The Board says they were misled by Mr. Zadorozniak into thinking WD approved of the method of acquisition which they used. Although Mr. Zadorozniak's alleged comments about WD's position on the acquisition of the building are cited as further examples of his dishonesty, Board members were unclear in their testimony as to what, if anything, had been said on that subject in February when the motions were passed. It was Mr. Zadorozniak’s position through his evidence that since CFDC did not intend to own the building, WD's approval was not necessary.

[83] By December, the Board members and Mr. Zadoronziak all agree that the Board asked Mr. Zadorozniak to get written approval from WD. Mr. Zadorozniak testified he explained the acquisition mechanics to Angela Polak at WD and confirmed the information by e-mail. He received no response prior to his termination. Ms. Polak testified she forwarded the information on to her managers as she was not authorized to comment on it. She did have concerns herself because of the way WD’s investment funds were being used and because the two Boards were comprised of the same people.

[84] The e-mail from Mr. Zadorozniak to Ms. Polak was finally produced by the defendant during trial after Mr. Zadorozniak had testified. It is dated January 29, 2002, and supports his testimony - that is that he confirmed by e-mail that he had explained to Ms. Polak the method of acquiring the building. Mr. Zadorozniak was terminated four days later. The Board contends the confirmatory e-mail is not written approval, the lack of which is evidence of Mr. Zadorozniak's dishonesty and incompetence, and provides grounds for dismissal.

[85] I am not persuaded that the Board was enticed into this arrangement to purchase the building by the misrepresentations of Mr. Zadorozniak. The members of the Board were all experienced businesspeople and most had many years of involvement in CDFC and its predecessor. They are understandably embarrassed now at having been required by WD to reconstitute their membership and to refinance the building, and it is convenient to blame it all on being misled by Mr. Zadorozniak.

[86] It is correct to say that that the e-mail is confirmatory and does not constitute approval. However, there is no evidence of follow-up from Ms. Polak's managers and as Mr. Zadorozniak's employment was terminated almost immediately he was given no opportunity to deal with the problem. It appears that Mr. Zadorozniak's understanding as to the legitimacy of purchasing the building this way was wrong, and he should have been given the opportunity to correct it. Instead, although the entire transaction was known to and approved by the Board, it is now cited as an example of Mr. Zadorozniak's incompetence and a reason for summary dismissal.

[87] The Board also mentioned in the termination letter that Mr. Zadorozniak had not obtained a building occupancy permit for the new building as a further example of his incompetence. Mr. Zadorozniak testified that he had had regular meetings with the building inspector, but having only recently moved to B.C., was not familiar with the requirement for a permit. Upon learning of it, he remedied the situation immediately.

[88] I do not view the circumstances surrounding the acquisition of the building, a transaction which was known to and approved by the Board early in 2001, to be grounds for summary dismissal in early 2002.

Relationship with staff and funders

[89] Problems with staff are cited as evidence of Mr. Zadorozniak's incompetence, providing grounds for dismissal. Against the background set out above with Ms. Rauch and Ms. Rose, Mr. Zadorozniak was told at his evaluation in December 2001 that he must improve relations with the staff. He took this to mean, understandably, his own relations with the staff, and was perplexed at this admonishment. The evidence called at trial demonstrates strong support for Mr. Zadorozniak from nearly all the staff, except Deb Rose and Connie Rauch.

[90] The Board members who testified, particularly Mr. Kroecker and Mr. Mathieu, now say they meant there was a rift amongst the staff that Mr. Zadorozniak, as general manager, was responsible to heal. This retroactive characterization of the problem is disingenuous. First, the comments in the evaluation and in the letter of termination clearly refer to alleged shortcomings personal to Mr. Zadorozniak, not to a rift between other staff members: in his evaluation, he is directed to win back the trust and confidence of staff, and to develop a better relationship with staff. The letter of termination refers to their request to him to “improve relationships with our staff”, not “within” our staff.

[91] Second, the "rift" was between those employees who got along with Mr. Zadorozniak and those who did not. If Mr. Zadorozniak was to deal with that rift, he had to know the cause, but this information was kept from him. Both Deb Rose and Connie Rauch had lodged complaints and made serious allegations against Mr. Zadorozniak by the time of his evaluation in December, but the Board ensured he was not told of them. The third employee who did not get along with Mr. Zadorozniak was a male who did not testify at trial. He was acknowledged by both Mr. Kroecker and Mr. Mathieu to have problems at work. Mr. Zadorozniak had dealt with some of the issues about this employee's overtime and work product, but there was more to be done. This man does not appear to factor in the "rift."

[92] As for healing the rift, it was not made clear how Mr. Zadorozniak was expected to do this when the two dissatisfied employees were not at work and never did return during the course of his employment. His attempts to get them back to work are alleged to be grounds for dismissal. His calls to Connie Rauch asking when she would come back have been termed harassment, along with his letters to both asking for medical substantiation for their absences or their jobs would be considered to be abandoned. One could speculate that Mr. Zadorozniak may have behaved differently if he knew the degree of animosity the two employees held towards him, but the information that they had complained about him was kept from him at their request.

[93] Mr. Zadorozniak's relationship with the liaison at HRDC is also cited as an example of his failure to get along with funders. Some Board members seem to concede that the personality of the particular person at HRDC was difficult, but said it was Mr. Zadorozniak's responsibility to get along with her. Mr. Zadorozniak compiled his white binder to show those efforts, but all copies have been lost.

[94] One of the documents produced during trial is a report written by Mr. Zadorozniak in which he recommends continued cooperation with HRDC, regardless of the difficulties other CFDC's were having with them. Mr. Zadorozniak felt he was establishing a good relationship with the new liaison person who replaced the previous one in December of 2001, but his employment was terminated before anything could come of it.

[95] These personnel matters should have been the subject of full and frank discussion between the Board and Mr. Zadorozniak in the context of alerting him that his employment was in jeopardy because of these issues, if indeed it was.

WARNINGS

[96] The Policy and Procedures Manual for CFDC sets out the terms of employment with respect to discipline, suspension and dismissal, and stipulates certain steps to be followed by the general manager. Employees can be subject to discipline, suspension or dismissal only with just cause and in accordance with a policy of progressive discipline: oral warning, written warning, suspension, and dismissal.

[97] The plaintiff submits that he was entitled to be treated fairly and in accordance with the policy. It is arguable whether the policy, given its wording, was meant to apply strictly to the general manager. In my view, the Board need not show it followed each step of the policy in its dealings with Mr. Zadorozniak. However, the policy provides a background against which to consider his termination and is consistent with a general duty of fair dealing.

[98] The courts will look to ensure that an employee was given a proper warning that his job was in jeopardy, and that he clearly understood or should have understood that if he did not improve, his employment would be terminated. The employee must be given adequate opportunity and assistance to improve after being told that his employment is in jeopardy (see Rieta, supra, and Coles v. Dentech Products Ltd. (1994) 6 C.C.E.L. (2d) 105 (B.C.S.C.)).

[99] There were no such warnings here, express or implied. The content of Mr. Zadorozniak's evaluation in December is set out earlier in this judgment. Mr. Zadorozniak testified that he was surprised at the evaluation. He felt his relationship with the staff, with the exception of Deb Rose and Connie Rauch, was excellent. As already noted, those two were off on sick or stress leave and the Board had kept their complaints secret from Mr. Zadorozniak.

[100] As for his relationship with the HRDC, Mr. Zadorozniak testified he had learned from his counterparts in other offices that all CFDC's had problems with HRDC, and he had compiled the white binders to show the efforts he had made. The defendant, while admitting their existence, has either lost or destroyed all copies of that binder.

[101] On the cost overruns, the Board had not only misunderstood moving costs versus renovation costs, but had approved the extra charges from the contractors over Mr. Zadorozniak’s recommendation.

[102] Mr. Zadorozniak testified he was surprised that none of the positive things he had accomplished were mentioned in the appraisal, including the rearrangement of bank accounts to ensure maximum interest, obtaining funding for new positions including an Economic Development Officer, the move to new premises, and the development of the Peer Lending Program.

[103] In any event, Mr. Zadorozniak was told in his appraisal that he had the potential to become an excellent manager. There was no suggestion his job was in jeopardy.

[104] At the meeting of the personnel committee in mid January, Mr. Zadorozniak broached the possibility of a raise. That issue was deferred to the next meeting, but Mr. Ruttenberg, chair of the personnel committee, testified that Mr. Zadorozniak's job was not in jeopardy at the time of that meeting.

[105] Within a week, the Board had decided to terminate Mr. Zadorozniak's employment.

ANALYSIS

[106] Mr. Zadorozniak was clearly dismissed without notice. The defendant therefore bears the burden, which is a heavy one, of justifying the summary dismissal by showing grave or serious misconduct that goes to the root of the employment contract (Panton, supra; Rieta, supra).

[107] The defendant compiled for the trial an extensive list of sources of dissatisfaction with Mr. Zadorozniak. Most were trivial; a few were more important. At the time, however, Mr. Zadorozniak was doing his job, managing the office, obtaining increased funding on the major programs, and acquiring desirable new premises. In the background, there were secret meetings and complaints being made, and Mr. Zadorozniak was given some hint of this when his December evaluation was less than positive. Overall, though, the Board told him he had the potential to be an excellent manager.

[108] Various events took place in December and January that are now said to be grounds for dismissal, mostly involving interaction with Connie Rauch and George Mathieu, but no mention was made of them to Mr. Zadorozniak in the context of putting his job in jeopardy. Then, with no discussion or warning, he was fired at the beginning of February.

[109] After many days of evidence it is still not clear why this peremptory action was taken, except to speculate that the conversation with Mr. Mathieu angered the chairman sufficiently to put the termination chain of events in motion. Thereafter the Board acted precipitously. In hindsight, it appears that Mr. Zadorozniak's style was going to continue to conflict with the Board's approach, particularly that of Mr. Mathieu. But there was no event of misconduct or evidence of gross incompetence that came to light suddenly, justifying immediate dismissal for cause.

[110] From the above review, it is apparent that there was a complex and varied welter of events and complaints produced by the defendant at trial as indications of their dissatisfaction with Mr. Zadorozniak. It appears that most of them center around Connie Rauch and her secret meeting with the Finance Committee in October 2001. The Board should have had a full and frank discussion with Mr. Zadorozniak then, but those issues obviously did not merit a warning at that time.

[111] As the months went on, in retrospect, it seems the Board grew increasingly dissatisfied with Mr. Zadorozniak's style of management. If Mr. Zadorzniak did not suit the Board's requirements, they were entitled to dismiss him with notice. If there were matters of significant concern to them which were putting his job in jeopardy, he should have been told that and given a clear warning that he must improve or lose his employment. Instead, he was given an evaluation, which, while not the glowing endorsement he was expecting, was mixed and offered encouragement.

[112] In the absence of gross misconduct, which I have not found, or full and frank discussion and a clear warning, along with time in which to remedy his alleged deficiencies and improve his performance, he was entitled to notice.

NOTICE

[113] Mr. Zadorozniak was employed for only fourteen months. This is not a long period of time, but he was in a senior management position. Reasonable notice depends not only upon length of service, but upon the character of employment, the employee's age, and the availability of similar employment (Bardal v. The Globe & Mail Ltd. (1960) 24 D.L.R. (2d) 140)(Ont.H.C.)). Six months might be a reasonable notice period, if the dismissal had been routine.

[114] However, the manner of Mr. Zadorozniak's dismissal was very unfortunate, and escalated in such a way that he was publicly humiliated, before the Board, the staff, and the town of Merritt. Though the defendant contends that Mr. Zadorozniak overreacted thus bringing the events of that day upon himself, the plaintiff says the unforeseen and surprising act of being dismissed without notice, then having the Board members enter his office, lunge at him to unplug his computer, pin him to the wall and call the police upon his pushing back, requires additional redress in the form of an increased notice period.

[115] In Wallace v. United Grain Growers Ltd. (c.o.b. Public Press) [1997] 3 S.C.R. 701, the Supreme Court of Canada stated that an employee is entitled to expect fair, reasonable and decent treatment upon termination of employment, a time of acute vulnerability. The court recognized that bad faith conduct or unfair dealing by the employer in the course of a dismissal may give rise to compensation for intangible injuries flowing from the manner of dismissal.

[116] Mr. Zadorozniak was fired in the office at the start of a work day, before the full Board, in circumstances which ensured the staff would be alerted. In fact, Mr. Ruttenberg, chair of the personnel committee, said the Board made a deliberate decision to fire him in the working environment during working hours.

[117] Mr. Zadorozniak was embarrassed in front of the staff of the CDFC, especially since he had just been told the first reason for his termination was his failure to get along with them (a reason that does not stand up to scrutiny) and was taken to a police car on the main street of this small town, thus ensuring that speculation over the reason for his termination would be damaging and difficult to counteract. Then the Board took an active role in Mr. Zadorozniak's application for employment insurance benefits, unsuccessfully appealing his entitlement.

[118] It appears that the Board has been determined to paint Mr. Zadorozniak in as bad a light as possible, from their attempts to deprive him of employment insurance benefits to the production of allegedly false expense claims on the first day of trial. The assertions of wrongdoing and misconduct continued and multiplied during the trial.

[119] This behaviour on the part of the Board obviously caused Mr. Zadorozniak mental distress and could reasonably be seen to have an effect on his self-esteem. More importantly, it is also reasonable to infer an effect on his ability to obtain other employment, given the importance of his job in such a small town and the public nature of the dismissal. Indeed, Mr. Zadorozniak has left no stone unturned in seeking other employment and has been unsuccessful.

[120] In Wallace, the court set the notice period at 24 months. In that case, the defendants dismissed the plaintiff without explanation, and withdrew their allegation of dismissal for cause only on the eve of trial. They had maintained it in the intervening two years, thus preventing the plaintiff from obtaining employment and causing him great distress. The facts before me are not so stark, although the resulting distress and effect on this plaintiff is not dissimilar. Here, the defendant's position remained consistent from the day of dismissal to the end of trial that they had just cause.

[121] Nevertheless, all of the circumstances set out above lend an air of unfair dealing to the dismissal. An increased notice period is justified. I set the appropriate notice period at one year.

COSTS

[122] The plaintiff asks for special costs. There are aspects of this case that would provide some foundation for such an award. In particular, I refer to the defendant's failure to keep, search for and produce documents, and the compilation of allegedly fraudulent expense claims, produced on the first day of trial.

[123] Defendant's counsel put forward their position strongly and fairly. She made every effort to remedy or concede the defects in the defendant's case expeditiously as each one surfaced at trial.

[124] Nevertheless, the plaintiff was put to extra time, expense and distress because of the defendant's last-minute presentation of the alleged false expense claims and the failure to do a thorough search for documents until midway through trial. Not only was extra time required as a result, but these documents were crucial to the plaintiff's case. The production of these documents was fortunate but fortuitous, as the defendant, while preventing the plaintiff from having his own access to his former office or computer, made no effort to preserve any documents relevant to the case, despite the likelihood of litigation. In my view, this conduct, all of which occurred or came to light during the trial, while perhaps not scandalous or outrageous, is nevertheless deserving of reproof or rebuke through costs (see Garcia v. Crestbrook Forest Industries Ltd. (No. 2) (1994) 119 D.L.R. (4th) 740 (B.C.C.A.)).

RESULT

[125] The dismissal was wrongful. The appropriate notice period is one year. Counsel may speak to the resulting amount of damages in lieu of notice if it is in dispute.

[126] Unless there are considerations in respect of costs of which I am unaware and which counsel wish to address throughthe Registry, the plaintiff should have special costs for five days of trial, and the remaining costs at Scale 3.

“M.A. Humphries, J.”
The Honourable Madam Justice M.A. Humphries

Citation:	*Zadorozniak v. Community Futures Development Corp. et al,*
	2005 BCSC 26