2006 BCSC 1819 Zerr v. The Corporation of the District of North Vancouver

Before: The Honourable Mr. Justice Curtis

Reasons for Judgment

Counsel for the Plaintiff	Barry T. Gibson, Q.C.
Counsel for the Defendant	Nazeer T. Mitha & Andrea Zappavigna
Date and Place of Trial:	June 12-16 and 19, 2006
	Vancouver, B.C.

[1] Richard Zerr claims damages for wrongful dismissal from his position with the District of North Vancouver. The District alleges that Mr. Zerr was terminated for cause for submitting a false log of kilometres travelled in his private vehicle.

[2] Richard Zerr is 51 years of age. He is a career civil servant in the field of municipal government. Mr. Zerr is the holder of a Certificate in Data Processing from the University of Regina (1986), a Business Administration Diploma, University of Regina (1987), a Bachelor of Arts Degree, Urban Geography Major, University of Regina (1990), and a Masters of Public Administration Degree, University of Western Ontario (1995). He has been employed in his field as follows: City of Regina Planning Department from 1979 – 1987, Manager of Administration City of Regina 1987 - 1990, Director of Planning and Lands, City of Yellowknife 1990 - 1993, Manager Area Planning and Development, North Surrey, City of Surrey 1993 – 1994, Manager Planning and Administration Parks and Recreation Department, City of Surrey, 1994 – 1995, Manager of Community Development Planning and Development Department, City of Surrey 1995 – 1996, Manager Administration Planning and Development Department, City of Surrey 1996 – 1997, and Director of Planning and Development, District of Sechelt 1997 – 1998.

[3] On July 8^th, 1998, Mr. Zerr was hired by the District of North Vancouver as the Director of Community Planning, Building, Land and Bylaw Services. He commenced work in that position August 10, 1998 with an annual salary of $91,622, four weeks vacation and a monthly automobile allowance of $226 per month based upon the District’s policy for persons driving 150 – 299 kilometres per month. Mr. Zerr testified that when he was hired he was led to believe that his automobile allowance was a “perk” of his position. Throughout the time Mr. Zerr was employed by the District, he never kept any records of the kilometres he drove in relation to his work.

[4] When Richard Zerr was hired, the District policy for automobile allowances included (inter alia) the following wording:

1.2 Utilization of employee’s personal vehicles for which a standby allowance and/or kilometrage reimbursement will be paid.

The rates of the allowances and reimbursements are to be as follows:

1.2.1 Standby Allowance/Kilometrage/Insurance Reimbursement

· Regular Business Drivers:

Average per month (km)	Monthly Standby Allowance	Kilometrage/ Insurance Premium Reimbursement
150 - 299	$100	$126
300 - 499	$100	$204
500 - 799	$100	$321
800 - 1100	$100	$438

The monthly standby allowance is for standby availability of a vehicle; not for actual use nor is it in any way connected with reimbursement of vehicle expenses.

6.5 In December, Human Resources will distribute a Justification form to be completed by the employee, signed off by the Department Head and Director and returned to Human Resources. The form will indicate business kilometrage driven January to December and should have attached to it proof of business insurance coverage. Detailed information on business kilometrage driven may be required and must be provided upon request. Failure to provide such detailed information may result in the arrangement being withdrawn or the amount received being reduced. Employees who are not able to demonstrate that they have driven the minimum threshold level for the kilometrage reimbursement received will be required to reimburse the overpayment. Employees able to demonstrate that they have consistently exceeded the maximum threshold may apply for retroactive adjustment;

…

6.7 Definition of kilometrage: For the purpose of calculating kilometrage for the kilometrage reimbursement, the following is included:

6.7.1 Business kilometrage during business hours after reporting to your regular place of work within the District boundaries.

6.7.2 Pre-authorized business kilometrage outside of regular business hours including reporting to your place of work when no additional premium is paid for such work.

6.7.3 Pre-authorized kilometrage driven between home and another work site outside of the District’s boundaries.

[5] Prior to 2004, the District had never requested detailed usage logs from its employees, although it did have them record annual totals.

[6] Mr. Zerr was not to be paid overtime but was entitled to receive additional weeks paid vacation on the basis of a credit of half of the overtime hours worked, up to a maximum of 112.5 hours, being three weeks based upon a 37.5 hour work week. There is no issue Mr. Zerr was a very dedicated and hard working employee. Although his required office hours were 8:00 a.m. to 4:30 p.m., and later 8:00 a.m. to 5:00 p.m., he was usually at work at 7:00 a.m. and on council Mondays frequently still working at midnight. Mr. Zerr testified that he had usually earned his extra 112.5 hours vacation entitlement by May or so of each year and very likely that was the case.

[7] When Richard Zerr began work for the District in August 1998, approximately 80 employees reported to him. He was responsible for managing the application of the District’s policies, including the car allowance policy, for employees under his management.

[8] On July 31, 2001, Mr. Zerr was sent a letter confirming the corporate restructuring of the District under which two Divisions, Planning, Building, and Environment Services, and Parks and Engineering Services were consolidated into a new Division, Planning, Engineering, Parks and Regulatory Services, effective July 1, 2001 under Mr. Zerr’s management. This was a very substantial increase in Mr. Zerr’s responsibility in that it placed approximately 325 employees and about $50,000,000 of the District’s budget under his management. Mr. Zerr’s salary was increased to $125,000 per year. On January 1, 2004, it was increased to $143,383.54 per year.

[9] One of the reasons for the corporate reorganization was that an audit of the Parks and Engineering Department had revealed theft of time and merchandise from the operating centre. Mr. Zerr was to implement the recommendations of KPMG, the auditors, to stop this loss and was successful in doing so, in part by adding locked gates, an access card system and a restriction on private vehicles entering the area.

[10] Prior to Mr. Zerr assuming the responsibility for the Parks and Engineering Department, the former manager had been claiming the maximum vehicle allowance of $438 per month based upon driving 800 to 1,100 kilometres per month. Mr. Zerr testified that M. Sherwood Johnson, the District’s Manager of Human Resources suggested to him that he should claim the maximum car allowance with his additional duties and he did so. As of January 1, 2002, Mr. Zerr received $700 per month under the category requiring 800 – 1100 business kilometres per month.

[11] Effective January 1, 2001, the Canada Customs and Revenue Agency changed its treatment of automobile allowances. A task force was formed to review the District’s policy. Mr. Zerr was a member of the task force and attended at least two, and possibly more of its meetings. On the recommendation of its task force, the District amended the policy to include wording as follows:

1.2 Utilization of employee’s personal vehicles for which a vehicle allowance and/or kilometrage reimbursement will be paid.

The rates of the allowances and reimbursements are to be as follows:

1.2.1 Vehicle Allowance

· Regular Business Drivers:

Average per month (km)	Vehicle Allowance
150 - 299	$190
300 - 499	$318
500 - 799	$508
800 – 1100+	$700

The vehicle allowance is for availability of a Code 07 – “business use” (inclusive of $1,000,000 Third Party Liability) insured vehicle and inclusive of all vehicle expenses.

6.4 In December, Human Resources will distribute a Justification form to be completed by the employee, signed off by the Department Head and Director and returned to Human Resources. The form will indicate business kilometrage driven January to December and should have attached to it proof of business insurance coverage. Detailed information on business kilometrage driven may be required and must be provided upon request. Failure to provide such detailed information may result in the arrangement being withdrawn or the amount received being reduced. Employees who are not able to demonstrate that they have driven the minimum threshold level for the kilometrage reimbursement received will be required to reimburse the overpayment. Employees able to demonstrate that they have consistently exceeded the maximum threshold may apply for retroactive adjustment;

6.5 Canada Customs and Revenue Agency has declared the vehicle allowance (1.2.1) to be fully taxable. The kilometrage reimbursement (1.2.2) is not considered a taxable benefit. Those employees in receipt of a vehicle allowance (1.2.1) are required to provide CCRA with the appropriate Revenue Taxation form to assist in declaring offsetting expenses and verifying that the personal vehicle is used for business purposes. This form will be available on District Junction. It is required for audit purposes that employees receiving allowances keep detailed records of total personal and business kilometrage driven and expenses. It is suggested that employees receiving the vehicle allowance instruct Payroll to increase the income tax deduction rate accordingly.

6.6 Definition of kilometrage: For the purpose of calculating kilometrage, the following is included:

6.6.1 Business kilometrage during business hours after reporting to your regular place of work within the District boundaries.

6.6.2 Business kilometrage outside of regular business hours including reporting to your place of work.

6.6.3 Kilometrage driven between home and another work site outside of the District’s boundaries.

[12] Unfortunately, the North Vancouver District’s problem with fidelity losses did not stop with those identified in the Parks and Engineering operating centre. It was discovered that the Northlands Golf Course operated by the District, which was expected to make about $700,000 per year was making about $200,000. Investigation of this problem revealed that the golf course had been defrauded of approximately $300,000 or more. Mr. Zerr took part in meetings to deal with this problem.

[13] The District’s Chief Administration Officer when Mr. Zerr was hired was Gordon Howie to whom Mr. Zerr reported. Mr Howie left the employment of the District in February 2003. Mr. Zerr became the acting Chief Administration Officer and applied for the position which was eventually awarded to Mr. James Ridge. Mr. Ridge came from employment with the City of Toronto, however his past employment included many years with military police functions and he had extensive experience conducting investigations. Mr. Ridge testified, “I have extremely high expectations, honesty and integrity are not a threshold that people can cross.” He testified he had “zero tolerance” for dishonesty.

[14] On the 3^rd of May 2004, Mr. Ridge met with Mr. Zerr and advised him that he was going to restructure the organization of the District’s departments and would be breaking up Mr. Zerr’s division and recreating a Parks and Engineering Department. Mr. Zerr was disappointed that he had not been included in the design of the reorganization. Mr. Ridge advised him that the reorganization would be cause for a claim for constructive dismissal but told him he was a valued employee and he hoped he would continue to work for the District. Mr. Ridge testified that after that meeting, Mr. Zerr came to him and offered to take a cut in pay so that there would be equity with the other Directors. Mr. Ridge refused this offer – the first of its kind he had ever encountered in his career. Mr. Ridge described Mr. Zerr as a hard working employee who was very experienced and very intelligent.

[15] Anita Tai is the internal auditor for the District of North Vancouver. She began work there as an accounting clerk in 1977. In the 29 years she worked at the District, car allowances had never been audited, however, in or about 2002, her manager, Mr. Dennis Bach advised her that she should consider adding the transportation policy to her work plan but she was too busy to do so at the time. Mr. Bach subsequently recommended to Mr. Ridge that an audit of the automobile allowance be done and in April 2004 Mr. Ridge instructed Anita Tai to conduct such an audit.

[16] To do so, Anita Tai sent the following e-mail:

TO: Vehicle Allowance Recipients

FROM: Anita Tai, Internal Auditor

SUBJECT: Record of Business Kilometrage

As you are aware, the District Transportation Policy establishes the entitlements and responsibilities with respect to those positions that are required to use a vehicle in performing their duties with the municipality.

For those positions that are designated to receive a vehicle allowance, they are required to complete a justification form to be submitted to Human Resources in December each year. Vehicle allowance recipients are required to maintain a travel log (detailed information) of their business travel, which must be provided upon request.

As a routine audit function, I am requesting that all vehicle allowance recipients provide me with a copy of their detailed travel log for 2004 by Friday, April 30^th.

Thank you in advance for your cooperation.

The e-mail meant to refer to the 2003 year and was understood as such.

[17] When Mr. Zerr’s log was not received by the deadline, Ms. Tai sent him an e-mail dated May 7, 2004 stating “Would you please forward me a copy of the above asap.”

[18] Richard Zerr, as he freely admitted, had never kept any logs of his travel. He testified that he considered the allowance as a “perk” of his position. If that was the case, he could simply have said that was his position, and that he had no logs to submit, but that is not what occurred.

[19] Mr. Zerr had not kept detailed logs but he had in or about January 2004 completed a form entitled “Vehicle Allowance – Annual Status Report”, in which, in his own handwriting he entered the number 13,250 for the column “Actual 2003 kms Driven”. This sheet was then completed for 16 other people under his management and Mr. Zerr signed the sheet to signify his approval of the claims. Mr. Zerr testified the figure he used was a “guesstimate”.

[20] He said that when he got the e-mail from Anita Tai he felt he was being singled out. He spoke to Mr. Ridge and told him that he didn’t keep records and he would have to have his assistant Ruby Clarke construct a log, and Mr. Ridge did not take issue with that.

[21] Mr. Zerr said he asked Ruby Clarke to go through his daytimer to see when it looked like he had travelled. He instructed her that on Monday nights when he stayed very late she should charge for one trip home. Ms. Clarke prepared the log and put it in his basket. He hadn’t looked at it when he got Ms. Tai’s e-mail. He looked at the first page and said it didn’t look right and Ms. Clarke asked him to give it back and she would work on it. He said he went back to his assistant the next week to inquire about the log and she told him she had already handed it in. When he asked her why she did that, his assistant said because Anita Tai was pressuring her.

[22] The log submitted to support Mr. Zerr’s claim consisted of a page for each month, with distances listed for specific dates and job descriptions. The monthly distances were: January 1,048; February 987; March 849; April 1,044; May 1,184; June 1,658; July 1,042; August 539; September 1,681; October 1,508; November 867; and December 843. Remarkably, the total of these numbers was 13,250 exactly the same as Mr. Zerr’s “guesstimate” on the annual claim form.

[23] The logs did not bear Mr. Zerr’s signature, although each page provided for one after the words “I hereby certify that the above report is correct and that distance reported was travelled on District business only.” It is Mr. Zerr‘s evidence and position at trial that his travel logs were drafted in the form submitted by his assistant Ruby Clarke and submitted by her without having been checked and reviewed by him. When asked why the numbers came to 13,250, Mr. Zerr said of Ruby Clarke “Well she obviously worked to the numbers.”

[24] Mr. Zerr agreed in his evidence that the travel logs submitted were not accurate in some of the details given. In 22 instances, claims were made for 96 kilometres for his travel home from work and back again between five o’clock and the seven o’clock council meeting, yet Mr. Zerr agreed he had only gone home five or six times. In the result, he had claimed for kilometres he had not driven. Mr. Zerr also agreed that in 18 instances his log charged 48 kilometres for the trip home when he had stayed late, which the District claims is contrary to policy. On the basis of the audit, the District reassessed Mr. Zerr’s Travel Claim to category 3 at 508 per month, rather than category 4 at 700 per month and recouped the $192 difference from him for 17.65 months, being $3,338.80 in total, by deducting that amount from his pay. Mr. Zerr never disputed that, nor has he claimed repayment; rather his position is that if his logs were false he is not responsible for that because he did not have a chance to review them.

[25] Ruby Clarke’s version is starkly different. Ms. Clarke was Mr. Zerr’s assistance from October 1998 until he left in August 2004. When Anita Tai asked for the travel logs in April 2004, it was Ms. Clarke’s responsibility to get the logs from all the employees in the division claiming a travel allowance. She testified that every year she had collected the annual report forms so that the appropriate allowance could be calculated for the next year.

[26] Ms. Clarke agrees she prepared the detailed travel log submitted for Mr. Zerr. She said that when the request for logs was received, Mr. Zerr had asked her to print out his Outlook calendar from the computer and calculate the meetings he had been to. When she printed out the calendar, Mr. Zerr told her to use the Map Quest site to calculate the distances travelled. He instructed her to calculate 96 kilometres for council meetings starting at 7:00 p.m. and 48 kilometres for monthly meetings that started at 5:00 p.m. When she did so, she told him the numbers did not add up to 13,250 and he asked her to leave it with him so he could review it. She had attached the calculator tapes to the calendar print out. Ms. Clark testified that the next day there were handwritten notations on the calendar of Northland meetings, which when she recalculated the numbers brought the total to 13,250. She testified she gave Mr. Zerr the log and the calendar to review and he put it in with papers he usually took home. The next day, Mr. Zerr said the logs were ready to go to Anita Tai and on his instructions, she submitted them. She said she didn’t notice that Mr. Zerr hadn’t signed the logs.

[27] I find Ruby Clarke’s version of events much more convincing than Mr. Zerr’s and I accept her evidence concerning how the log was prepared and submitted as accurate. That the detailed numbers should add up to precisely Mr. Zerr’s “guesstimate” of 13,250 kilometres is beyond coincidence. It is unlikely that Ruby Clarke would have concocted that result on her own. It is much more likely Mr. Zerr did so in the manner Ms. Clarke described. It is also very unlikely that Ruby Clarke, Mr. Zerr’s assistant would submit a travel log which she had been asked to reconstruct from records without getting Mr. Zerr to approve it first.

[28] The suggestion that Ruby Clarke committed perjury to support the position of the District and Mr. Ridge is inconsistent with both the circumstances and her character as a witness as I observed it.

[29] The inference I draw from the foregoing is that Richard Zerr knowingly submitted a false travel log to support his claim for travel expenses, and later falsely accused his assistant Ruby Clarke of submitting the log without his approval.

[30] Anita Tai was very concerned about the travel log submitted by Mr. Zerr, along with that of some other logs, in particular, that of another employee whose employment, like Mr. Zerr’s was terminated. Ms. Tai prepared a report and discussed her concerns with Mr. Ridge. Mr. Ridge seeing that the matter was serious had an investigation undertaken by KPMG in order to obtain what he expected would be an object assessment of the situation.

[31] In the course of the investigation, KPMG employees interviewed Mr. Zerr on July 23, 2004. Ms. Andrea Chan took notes of that meeting which have been entered in evidence. I accept that Ms. Chan accurately noted that Mr. Zerr told the auditors he had not been on the committee that reviewed the District’s mileage policy. This statement was not true, and suggests that when interviewed Mr. Zerr was attempting to lessen his responsibility for having made claims that he knew were contrary to the District’s policy.

[32] Upon receipt of KPMG’s preliminary report, Mr. Ridge came to the conclusion he would recommend Mr. Zerr’s termination to the District Council. He testified that he did not believe Mr. Zerr’s claim that he did not prepare the logs, nor did he believe that Mr. Zerr did not understand the District policy, or that the logs were honestly prepared. Mr. Ridge testified that he felt Richard Zerr had fundamentally violated his trust, such that he was no longer suitable to continue to manage his department.

[33] Mr. Ridge prepared a PowerPoint presentation to put forward his recommendation and arranged a Council meeting for August 18, 2004. Mr. Zerr’s lawyer was not available on that date and requested an adjournment. Mr. Ridge was anxious to have the matter dealt with expeditiously and the meeting was not adjourned. Neither Mr. Zerr nor his lawyer attended the meeting. The letter from Mr. Zerr’s lawyer of August 18, 2004 included the claim “Mr. Zerr did not review the Justification prepared by his assistant …”.

[34] The Council minutes from the August 1^st meeting state as follows:

2. Personnel Matter

File 07.2600.20/000.000

Community Charter s. 90(1)(a)(c)

Verbal Report: Chief Administrative Officer

The Chief Administrative Officer indicated that Mr. Zerr had been provided with an opportunity to have representation at this meeting, but he had been advised that neither Mr. Zerr nor his representative would be in attendance.

The Chief Administrative Officer provided a verbal report to Council on the Internal/External Audit of Staff Kilometrage and Personnel Matters Arising from the Audit.

Council members were provided with an opportunity to review the letter dated August 18, 2004 from Mr. Zerr’s Solicitors, Farris, Vaughan, Wills & Murphy regarding the findings relating to Mr. Zerr.

The meeting recessed at 4:55 p.m. and reconvened at 5:00 p.m.

Mayor Bell confirmed that all Council members in attendance had reviewed the letter.

Moved by Councillor CRIST, Seconded by Councillor NIXON and CARRIED

THAT Council terminate Richard Zerr with cause, effective 4:30 p.m., Friday August 20, 2004; unless a letter of resignation is received from Mr. Zerr prior to that time.

[35] Mr. Zerr chose not to resign and his position was terminated.

[36] Zero tolerance for employee dishonesty is not the law. In some circumstances, a warning or other discipline would be the appropriate course, however, without attempting to define with precision where conduct crosses from that which requires other forms of discipline to that which warrants termination, Mr. Zerr’s conduct clearly warrants his dismissal.

[37] Mr. Zerr advised the KPMG investigators that he drove 32,000 kilometres per year of which 24,000 represented travel from his home to his place of work. He testified at trial that the 32,000 was an estimate. I do not know whether service records for his vehicle were available to support this estimate, but nothing was offered to confirm it. It is possible some of the 24,000 kilometres between home and work could have been claimed under the District policy. In his 2003 tax return, Mr. Zerr reported that he drove 9,600 kilometres for business purposes under the tax definition of that term. No calculation particularizing that claim, nor was documentation supporting it was submitted.

[38] Exactly how many kilometres Mr. Zerr did drive for business purposes as defined by the District policy is not clear, but it is clear that he attempted to support his car allowance claim by deliberately submitting information that he knew was false or contrary to the District’s policy.

[39] I find Richard Zerr’s employment with the District of North Vancouver was properly terminated for cause. He had fundamentally violated the trust that his senior management position required, and in doing so fundamentally breached his contract of employment. A senior municipal manager who knowingly submits a false car allowance claim and then blames his secretary for conduct for which he is responsible cannot reasonably expect to retain his position.

[40] Mr. Zerr’s claim for damages is dismissed. The matter of costs may be spoken to if necessary.

“V.R. Curtis, J.”
The Honourable Mr. Justice V.R. Curtis