IN THE SUPREME COURT OF BRITISH COLUMBIA
Carroll v. Emco Corporation
2006 BCSC 861
Before: The Honourable Mr. Justice Curtis
Reasons for Judgment
Counsel for the Plaintiff
Counsel for the Defendant
Date and Place of Trial:
May 9 -12 & 15 -17, 2006
New Westminster, B.C.
 Michael Carroll claims damages for wrongful dismissal from his employment with the defendant on June 30th, 2005. Emco Corporation alleges that Mr. Carroll was dismissed because he breached his contract of employment by placing himself in a conflict of interest and breached his duty of good faith and honesty by deceiving his supervisors and lying to them about the situation giving rise to the conflict. The allegations arise out of relationships that Mr. Carroll had with two company employees under his immediate supervision.
 Emco is a Canadian company incorporated in 1961 with 25 branches in British Columbia. It is in the business of selling plumbing and heating parts and supplies and also waterworks and industrial products mostly to mechanical contractors and plumbers. One of its branches is located in Abbotsford where it has a 10,000 square foot warehouse with counter services, offices and a showroom.
 Michael Carroll is now 40 years of age. He has a grade 12 education and some short college courses. After graduating from high school, he helped manage a gas station, then drove delivery trucks for four years. He began employment with Emco April 27th, 1989, when he was approximately 23 years old, as a material handler in the warehouse in Abbotsford. He worked at counter sales from 1990 to 1994 when he became a purchasing agent. In 1999, Mr. Carroll was promoted to the position of branch manager. In that position, he was responsible for the operation of the branch, including hiring and firing staff, conducting performance reviews, recommending salary increases, managing the inventory and preparing the branch budget. The branch had eight employees; Mr. Carroll the branch manager, Eric Rasmussen, who was the customer account manager, and considered to be equal in status, Kristine Schaper, the office administrator, Barbara Randall, inside sales, Craig Rasmussen and Terry Klein on counter sales, a warehouse material handler, and later on, Tammy Robertson, who was hired to run the showroom. All of the employees except Eric Rasmussen reported to and were under the supervision of Mr. Carroll. Mr. Carroll himself reported to Sean Kelly, the Regional Vice-President. In the year 2005, Mr. Carroll earned a base salary of $48,000 and received a bonus of $30,000 in addition to which he had a benefit package. There was no written contract of employment.
 When Mr. Carroll took over as branch manager in 1999, the branch was operating at a loss. In 2004, under his management, it had a profit of $200,000. Surveys of customer and employee satisfaction indicated the Abbotsford branch was well managed. Mike Carroll was a valued employee of Emco.
 Mike Carroll and Barbara Randall were friends. She started employment with Emco in 1990 as a part-time data entry person, and they became good friends within a year. To begin with, they were both married. They both had children and the families would visit, however their marriages each resulted in separation. They consoled each other and at some point fell in love. In the summer of 2002, they began a sexual relationship that continued until some time in February 2005. Throughout that entire time, Mike Carroll was Barbara Randall’s direct supervisor. He deliberately concealed the nature of his relationship with her from his employer and repeatedly lied to his supervisors by telling them he and Barbara Randall were just friends. He claims he did so because she asked him not to reveal their relationship. While that may be true, I think he probably had other motives as well for deceiving his employer; for example, he testified he thought if he had revealed the relationship, his employer would probably have transferred one of them out of the branch.
 While carrying on a sexual relationship with Barbara Randall, in his position as branch manager, Mr. Carroll conducted performance reviews, gave her raises and promoted her. He was also responsible for disciplining her with respect to taking more time off work than allowed for by company policy and for coming to work late.
 Mike Carroll, as branch manager, took part in preparing the branch budget. As part of the budget process, an amount was set aside from which he, as manager, could give salary raises to his subordinates according to his assessment of their work and his discretion. In the years 2003 and 2004, Mr. Carroll, in the exercise of his discretion gave the highest raises in the branch to Ms. Randall.
 On June 18th, 2004, Mike Carroll as branch manager wrote a letter on the Emco corporation letterhead. The letter read as follows:
June 18, 2004
To Whom It May Concern:
I am writing this note on behalf of Barb Randall. Mrs. Randall has been employed with Emco Corporation for approximately thirteen years. Because of her position with us, it is necessary for Mrs. Randall to exercise her, very well developed interpersonal skills, both with customers and her peers throughout the day. For the most part, this is something that she excels at and that we benefit from. In the past, Mrs. Randall has experienced changes in her mood a few days in a month that have gone unnoticed by most. Lately those changes have been more noticeable and more frequent to me as well as others around her. Recently they have become what I can only describe as increasingly violent mood swings. The change in Mrs. Randall’s behaviour has deteriorated to the point that her future with this organization is questionable. I sincerely hope that there is some way to help her overcome this challenge, both for her and the strength of this organization.
 Mr. Carroll testified that he wrote the letter to help Ms. Randall to persuade her doctor that her problems were serious enough to warrant treatment. He admitted however that the statement: “The change in Mrs. Randall’s behaviour has deteriorated to the point that her future with this organization is questionable” was, to his knowledge when he wrote it, completely false. In fact, in the performance review that Mike Carroll conducted of Barbara Randall in October 2004, he gave her an overall performance rating of 4 out of 5 (Frequently Exceeds Expectation), higher than he gave any other employee. Ms. Randall’s position with the company was secure on the date he wrote the letter.
 Shirley Boissonnault is the Human Resources Manager for Emco for Western Canada, a position she has held for seven years. She gave evidence that in mid 2004, she received a call from Mike Carroll, very concerned about Barbara Randall’s attendance at work as she had been absent for a total of seven of eight days. Ms. Boissonnault considered that odd, as Ms. Randall had not had such a problem before. She asked Mr. Carroll if there was something going on in Ms. Randall’s life that was causing a problem. Mr. Carroll told her Ms. Randall was suffering from stress from the marriage break-up. Ms. Boissonnault testified she then asked Mr. Carroll if there was anybody else involved and he told her no, there was not. Mr. Carroll testified he cannot recall saying that and did not think Ms. Boissonnault would ask him such a question. I am satisfied that Shirley Boissonnault did ask him the question and that he deliberately lied to her. This was prejudicial to Emco’s interests as it deprived the company of an opportunity to remedy a problem which was producing poor work performance in one of its employees.
 In or about January 2005, Mike Carroll promoted Barbara Randall to the position of inside sales representative. Mr. Carroll requested Mr. Kerry McKearney to do a second interview, and another was conducted by Dave Cox – both of whom were senior to Mr. Carroll. Mr. Carroll received the assessment of his supervisors and made the decision to promote Barbara Randall, without disclosing to his employer he was in an intimate romantic relationship with her.
 The relationship, however, did not go entirely unnoticed at work. Eric Rasmussen recalled that Mr. Carroll frequently went to lunch with Ms. Randall. He recalled asking Mike Carroll if anything was going on between them and receiving the reply: “Absolutely not”, they were just friends. Mr. Rasmussen recalled this conversation as having taken place about six months or a year before Mr. Carroll was terminated at the end of June 2005, which would place the conversation about the fall of 2004 or early 2005.
 In or about February 2005, Mr. Carroll’s immediate supervisor had also heard rumours, enough that he wanted to ask Mr. Carroll about them. Mr. Kelly was concerned because of the potential for there being a conflict of interest in a situation where a branch manager was sexually involved with a subordinate. If such were the case, the company would act to avoid the conflict by having someone independent conduct performance reviews and other supervisory functions. Consequently, in mid February 2005, Sean Kelly spoke to Mr. Carroll, told him he had heard rumblings and asked him if there was something going on between him and Ms. Randall outside of work. Mr. Carroll said, “No we are just friends”. At trial, Mike Carroll gave evidence that when he made that statement to Sean Kelly, it might, or might not have been true, as the relationship was on again and off again and he couldn’t recall whether it was on or off when he spoke to Mr. Kelly. Whether the relationship was in fact on or off at that time, the answer Mr. Carroll gave can have been nothing other than deliberately deceptive – he was the branch manager and he must have known why his employer wanted to know and that he ought to tell them. Furthermore, that confrontation and question must have been a significant moment in Mr. Carroll’s employment. I consider it to be unlikely that Mr. Carroll would not now remember the state of his relationship when he was confronted and gave his deceptive answer.
 Mr. Carroll testified that his relationship with Ms. Randall ended sometime in February 2005 when she told him she had slept with a man she met on the internet, but regretted it and wanted to continue with him. He told her it was over but she did not want to accept that. At that point, he testified she began phoning him at home and harassing him.
 In March of 2005, Mr. Carroll interviewed Tammy Robertson for a position running a new showroom that was to be set up at the branch. Ms. Robertson had previously worked at Emco’s Vancouver showroom. As Mr. Carroll described it, “Tammy and I really connected as individuals, we talked for hours …”. This was not lost upon Ms. Randall who shortly after asked Mr. Carroll “When does the hussy start?” and clearly exacerbated an already bad situation.
 Tammy Robertson began work February 28th, 2005. On or about May 20th, 2005, Mr. Carroll and Ms. Robertson went out for a bottle of wine and spent the night together. The next morning, they were seen by an Emco employee having breakfast. They agreed that having a relationship, given their work situation, was a mistake and both testified they agreed not to continue but that they did resume their relationship in July 2005 immediately after leaving Emco’s employment.
 Around this time, the end of May and the beginning of June 2005, the tension produced in Emco’s Abbotsford branch by the situation became pronounced and unquestionably damaging to its business. An incident occurred between Barbara Randall and Mike Carroll in his office. She alleged that he had forcefully restrained her by putting his hand on the door, and threatened and harassed her. Mr. Carroll testified she was so emotional, he held the door knob until she calmed down because customers were outside and he did not want them involved. For whatever reason, Ms. Randall’s behaviour in the office became very disruptive. The office administrator testified “the atmosphere was horrible … so much tension … I just wanted to get on with my job – was very hard to do so because of drama all day.” She said, “Barb would be afraid to go downstairs to be with Mike on the counter, she wanted me to go downstairs and keep an eye on her.” In his own evidence, Mr. Carroll said, “If I came in the room, she would crouch down and pretend to be scared, then give me the finger and tell me to fuck off.” His response was to tell her to focus on her job. The situation was not conducive to Mr. Carroll continuing as branch manager responsible for providing a leadership role for his subordinates. It was as Mr. Carroll himself described it, “out of control”. He and Ms. Randall were obviously severely distracted, and to a lesser but significant extent so were the other employees.
 Eric Rasmussen gave evidence that upon seeing the situation develop he went to Mr. Carroll and suggested he should call Dave Cox, one of the senior management for coaching. On or about June 6th, Mr. Carroll telephoned Mr. Cox and on June 6th Mr. Cox returned the call and they spoke on the telephone. Mr. Carroll testified he told Mr. Cox there was a lot of tension in the branch, he had been seen with Tammy Robertson and described Ms. Randall’s behaviour. He said the next day Mr. Cox phoned him, in a very emotional state and said, “I can’t believe it, were you fucking Barbara” to which Mr. Carroll said he replied “No”. In his evidence, Mr. Carroll accounted for being untruthful by saying, “How he described it wasn’t accurate. I didn’t feel safe to answer the question honestly. I didn’t think he was willing to listen to anything I had to say”. Mr. Cox denied using the terms described by Mr. Carroll but there was no disagreement in the end result. Mr. Carroll falsely told senior management he had not been involved with Ms. Randall at a time that that relationship was driving an extremely destructive situation in the Abbotsford branch he was managing. Mr. Cox told Mr. Carroll he would leave it to Mr. Kelly.
 Shortly after the conversations with Mr. Cox on the 6th or 7th of June, Sean Kelly spoke to Mike Carroll and asked him if it was true that he and Ms. Randall had had a relationship and Mr. Carroll told him yes. Mike Carroll testified that this was the first time he had ever told his employer the truth about the situation and agreed that by that time he knew that his relationship with Barbara Randall was then common knowledge. He was not truthful with his employer until compelled to be by the fact the truth was then known. Mr. Kelly told Mr. Carroll he was concerned that he had lied to him and that he would assess the situation.
 Mr. Kelly gave careful consideration to the matter. On June 28th, he attended at the Abbotsford branch to interview the other employees. He was told that the branch was “not a tolerable place to work”, that “leadership is lacking – a soap opera” and that it was like “elementary school – the two most important people in the branch aren’t working together.” Mr. Carroll did not take issue with the fact these comments were made.
 Emco decided to transfer the three people involved in the situation out of the Abbotsford Branch. Barbara Randall was offered a position in the Chilliwack branch which she took, Tammy Robertson was offered a position in the Vancouver showroom which she declined, and Mike Carroll was offered a position as a Project Manager in the head office in Coquitlam at the same base salary and benefits, but with no people under his supervision and less opportunity to earn a bonus. Sean Kelly testified that the company no longer felt it could trust Mr. Carroll to supervise other employees and was concerned with his deception and conflict of interest. Mr. Carroll received the following letter terminating him as Abbotsford branch manager, which was delivered to him by Mr. Kelly:
June 30, 2005
Private & Confidential
Michael J. Carroll
205 – 2958 Trethewey Street
Abbotsford, B.C. V2T 6P8
Further to our discussion today, this letter confirms that your employment as Branch Manager at 825 Abbotsford with Emco Corporation will be discontinued due to your behaviour uncovered recently. You have breached my trust and that of other senior managers and put yourself in a significant conflict of interest.
We are prepared to offer you an alternate position at our Regional office in Coquitlam as Project Planner in Project Management. Your benefits and your salary will remain the same.
I trust you will consider this proposal a fair one in light of the circumstances and ask you to respond no later than July 7, 2005. Any questions you may have arising from the contents of this letter should be directed to Shirley Boissonnault, Emco Human Resources Edmonton at (780) 453-4683 or Marlene Root, Emco Human Resources London at (519) 645-3919 or myself.
Regional Vice President, General Manager
Please sign, date and return one copy of this letter confirming your acceptance of the position of Project Planner:
Mike Carroll Date
 Mr. Carroll replied by e-mail on July 7th:
From: Mike Carroll
Sent: Thursday, July 07, 2005 4:48 PM
To: Sean Kelly
I do not accept the position of Project Planner at the Coquitlam office.
I am prepared to continue as Branch Manager in Abbotsford.
#825 Abbotsford, B.C.
 Mr. Kelly phoned Mr. Carroll and advised him his position was not acceptable and Mr. Carroll’s employment with Emco ended on or about July 7th 2006.
 In the case of McKinley v. BC Tel, the Supreme Court of Canada reviewed the authorities dealing with dismissal of an employee for dishonest conduct. The decision of the Court was delivered by Iacobucci J. At paragraphs 48 to 51 of that case, the Court emphasizes the necessity to view the dishonesty alleged in context:
In light of the foregoing analysis, I am of the view that whether an employer is justified in dismissing an employee on the grounds of dishonesty is a question that requires an assessment of the context of the alleged misconduct. More specifically, the test is whether the employee's dishonesty gave rise to a breakdown in the employment relationship. This test can be expressed in different ways. One could say, for example, that just cause for dismissal exists where the dishonesty violates an essential condition of the employment contract, breaches the faith inherent to the work relationship, or is fundamentally or directly inconsistent with the employee's obligations to his or her employer.
In accordance with this test, a trial judge must instruct the jury to determine: (1) whether the evidence established the employee's deceitful conduct on a balance of probabilities; and (2) if so, whether the nature and degree of the dishonesty warranted dismissal. In my view, the second branch of this test does not blend questions of fact and law. Rather, assessing the seriousness of the misconduct requires the facts established at trial to be carefully considered and balanced. As such, it is a factual inquiry for the jury to undertake.
While ample case law supports this position, as discussed above, a second line of jurisprudence seems to run counter to it, suggesting that dishonest conduct always, irrespective of its surrounding circumstances, amounts to cause for dismissal. However, a closer inspection of these cases reveals that they actually support a contextual approach. As noted, these judgments involved dishonesty that was symptomatic of an overarching, and very serious misconduct. In most cases, the courts were faced with allegations to the effect that an employee had intentionally devised to extract some financial gain or profit to which he or she was not entitled, at his or her employer's expense. Such conduct was frequently tantamount to a serious form of fraud, and explicitly characterized by the courts as such.
This being the case, I conclude that a contextual approach to assessing whether an employee's dishonesty provides just cause for dismissal emerges from the case law on point. In certain contexts, applying this approach might lead to a strict outcome. Where theft, misappropriation or serious fraud is found, the decisions considered here establish that cause for termination exists. This is consistent with this Court's reasoning in Lake Ontario Portland Cement Co. v. Groner,  S.C.R. 553, where this Court found that cause for dismissal on the basis of dishonesty exists where an employee acts fraudulently with respect to his employer. This principle necessarily rests on an examination of the nature and circumstances of the misconduct. Absent such an analysis, it would be impossible for a court to conclude that the dishonesty was severely fraudulent in nature and thus, that it sufficed to justify dismissal without notice.
And subsequently at paragraphs 54 to 57:
Given this recognition of the integral nature of work to the lives and identities of individuals in our society, care must be taken in fashioning rules and principles of law which would enable the employment relationship to be terminated without notice. The importance of this is underscored by the power imbalance that this Court has recognized as ingrained in most facets of the employment relationship. In Wallace, both the majority and dissenting opinions recognized that such relationships are typically characterized by unequal bargaining power, which places employees in a vulnerable position vis-à-vis their employers. It was further acknowledged that such vulnerability remains in place, and becomes especially acute, at the time of dismissal.
In light of these considerations, I have serious difficulty with the absolute, unqualified rule that the Court of Appeal endorsed in this case. Pursuant to its reasoning, an employer would be entitled to dismiss an employee for just cause for a single act of dishonesty, however minor. As a result, the consequences of dishonesty would remain the same, irrespective of whether the impugned behaviour was sufficiently egregious to violate or undermine [page190] the obligations and faith inherent to the employment relationship.
Such an approach could foster results that are both unreasonable and unjust. Absent an analysis of the surrounding circumstances of the alleged misconduct, its level of seriousness, and the extent to which it impacted upon the employment relationship, dismissal on a ground as morally disreputable as "dishonesty" might well have an overly harsh and far-reaching impact for employees. In addition, allowing termination for cause wherever an employee's conduct can be labelled "dishonest" would further unjustly augment the power employers wield within the employment relationship.
Based on the foregoing considerations, I favour an analytical framework that examines each case on its own particular facts and circumstances, and considers the nature and seriousness of the dishonesty in order to assess whether it is reconcilable with sustaining the employment relationship. Such an approach mitigates the possibility that an employee will be unduly punished by the strict application of an unequivocal rule that equates all forms of dishonest behaviour with just cause for dismissal. At the same time, it would properly emphasize that dishonesty going to the core of the employment relationship carries the potential to warrant dismissal for just cause.
 I find that Mike Carroll, while the branch manager of the Abbotsford branch, for personal reasons that put him in conflict with the interests of his employer, deliberately and deceitfully failed to reveal his three year relationship with Barbara Randall, his subordinate. During the continuation of that relationship, he conducted performance reviews, gave her salary increases, conducted disciplinary proceedings and promoted Ms. Randall, in all of which instances he knew or ought to have known that his employer would want to know of the relationship so it could take measures to avoid the obvious conflict of interest the situation presented. When specifically asked about his relationship during disciplinary proceedings involving Barbara Randall, in the fall of 2004, he lied to Shirley Boissonnault and deprived the company of an opportunity to take appropriate action. When asked by Eric Rasmussen about the relationship around that time he lied to him. When his direct supervisor asked him in February 2005, Mr. Carroll lied, again seriously prejudicing the company’s opportunity to take appropriate action, and he lied again to Dave Cox when he called about the horrific office situation with Barbara Randall on or about June 6th, 2005. This instance was particularly egregious as it gave the impression Barbara Randall had serious inexplicable behaviour problems when Mr. Carroll very well knew the cause. Mr. Carroll was not truthful to his employer until he admitted the truth to Sean Kelly shortly after he knew the truth was already known from other sources.
 To quote from the text of para. 55 of the McKinley decision, the issue is “whether the impugned behaviour was sufficiently egregious to violate or undermine the obligations and faith inherent to the employment relationship”. In my opinion, it unquestionably was. No company could reasonably be expected to renew its faith in a person empowered with the significant responsibilities of a branch manager when that employee has so deliberately and repeatedly deceived it to its significant prejudice over such an extended period of time.
 Counsel for Mr. Carroll argued that Emco had waived any right to dismiss Mr. Carroll for cause by leaving him in the position of branch manager until June 30th. I reject that submission. Mr. Kelly advised Mr. Carroll immediately that he was seriously concerned and would consider the situation. Emco was entitled to take a reasonable time to do so and to make an appropriate and measured response which it did. There was no conduct amounting to waiver in this case.
 I find Michael Carroll was dismissed for cause. His claim for damages is dismissed.
“V.R. Curtis, J.”
The Honourable Mr. Justice V.R. Curtis