It is a rare occurrence that employers sue their current or former employees.   We see it more often in cases where employers are suing to enforce or seek damages because an employee has stolen confidential information or has violated a non solicitation or non competition clause:  see for example Quick Pass Mater Tutorial School Ltd v Zhao 2018 BCSC 683; 2022 BCSC 846.

So I read with interest a recent action brought by an employer against its long serving Payroll Supervisor for $1,923,290 that the supervisor had stolen from 2015 to 2021 (yes you read that right).

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B.A. Blacktop Ltd. and Eurovia BC Inc. v Fazio, 2023 BCSC 892

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In this case the employee F resigned on August 5th 2021.  Shortly after her departure the employer commenced an internal investigation that led to the discovery that F had been using her knowledge of their computerized system to systematically defraud B A Blacktop of almost $2 million.  It is not clear what caused the employer to conduct the review.

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The employer filed a NOCC starting an action against F and immediately got a Mareva injunction freezing F’s assets.  F was self represented and filed a Response to the NOCC but basically ignored the substance of the action for fraud and instead made allegations of a toxic workplace and various forms of mistreatment by the employer.

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The court had little trouble in entering judgment against F.  The employer led evidence that included a detailed forensic audit report that identified 885 unauthorized payments in excess of $1.9 million that were deposited into 19 separate bank accounts that she held in 4 separate financial institutions.

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The forensic audit report identified the modus operandi of the fraud:

      Briefly, Mr. Williams identified Ms. Fazio's modus operandi as follows:

1. First, she would secretly select current and past employees of the plaintiffs at random and change the payroll direct deposit bank account information from the employees’ bank accounts to bank accounts owned and controlled by her;
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2. Second, she would create fictitious payment proposals that induced the plaintiffs’ computer payroll system to pay unauthorized employee wages that were not owing directly to her own bank accounts;
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3. Third, she would create payment instruction text files based on the payment proposals and upload them to the plaintiffs’ online banking platform, which automatically instructed the plaintiffs’ banks to make the unauthorized payments to one of her 19 bank accounts; and
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4. Finally, she would in many cases reverse the bank account information in the employee master file back to the original and correct bank account for that employee after the unauthorized payment had been made.

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The court awarded judgment for $1,923,820.74, interest, $100,000 punitive damages and special cost. The latter two awards are rarely made and only in the most egregious circumstances.

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So the good news for the employer is that it obtained judgment for the stolen money.  The bad news for the employer is that it appears from the judgment that it might have real trouble collecting:

During submissions, Ms. Fazio effectively admitted the fraud. She says she developed a gambling addiction and gambled all of the money away to an online gambling portal. She says she is now without assets or income and in poor health.

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What Should Employers Do?

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Employers face numerous financial challenges in this post COVID world.  Everything from cyber security attacks and ransom demands to spiraling costs of doing business.

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So just as employers take steps to try to avoid or diminish the damage of cyber attacks and ransom demands or protect its petty cash, so too should employers monitor the financial matters and not simply trust the employees who hold important positions of trust especially those responsible for the financial aspects of the business. Here are some suggestions.

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1. First and foremost, employers need to be careful when hiring such senior employees.  This is now more difficult given the employee shortage.  BUT cutting corners on the hiring process can be very costly:  Check out our previous article on the Art of Hiring.  Background checks etc will sometimes reveal problems.
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2. Consider the methods used by F as noted above that went undetected.  Was there any hint of impropriety?  E.g. did she fly to Vegas every weekend?  Did she show an unusually high standard of living?  Were there rumours?
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3. Have your accountants and auditors provide a security protocol that might detect the problem earlier.  And don’t feel bad about checking someone who you feel is a trusted employee—if they are a trusted employee they will understand the need for financial security measures.
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4. Implement regular reviews of employees’ computers.  It is important to ensure that you have the right to access employees’ computers and cell phones to ensure their privacy rights are protected but so are your business interest.

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Mike Weiler & Chris Drinovz

May 31, 2023

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Note to Readers: This is not legal advice. If you are looking for legal advice in relation to a particular matter please contact one of our group members. We communicate all these updates to our clients and readers on our Employer Resources Portal and through monthly Newsletters.