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Lessons for employers about expense claims from the Mike Duffy trial

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We’re now several days into the Mike Duffy trial and the stage is set for a public examination of the expenses that Mr. Duffy claimed while he was a member of the Senate.  Ultimately, it will be up to Justice Vaillancourt to decide if Mr. Duffy is guilty of a criminal offence, but this case may have a lot of Canadians asking themselves about the proper claiming of corporate expenses.

This is an issue which comes up with some frequency in our work with employer clients.  We will get a call from an employer client who has just become aware of irregularities in an employee’s expense claims and will wonder about options: Do we have to investigate?  How do we investigate?  Can’t we just fire them?  Would this constitute just cause?  These are all good questions and they’re rarely ones that get answered with the information we receive in that first telephone call.

When irregularities arise with an employee’s expense claims, some employers are quick to jump to the conclusion that the claims are fraudulent and that a case for just cause is a “slam dunk.”  In our experience, this is rarely the case, and we often find ourselves assisting our employer clients with obtaining additional information necessary to help inform the ultimate decision about whether to fire for cause.  It’s interesting to see that some of the typical justifications for expense “irregularities” are now being put forward as defences in the Mike Duffy trial.  For example:

  1. The rules were vague or unclear

In a case where the expense policy language is unclear or open to interpretation, or where certain things are not defined or set out explicitly, it will be far more difficult for an employer to hold an employee accountable for not following the policy strictly.  In the same vein, an employer will need to be able to establish that the employee was aware of any rules or policy.  In an ideal world, there will be a clear document that an employee has signed which proves that they reviewed and understood the rules, or were even trained on them.

  1. I made a mistake – I didn’t intend to defraud the organization

Even where the rules are clear, in many cases it will be difficult for an employer to show that the employee made the claim fraudulently and with intention to deceive, rather than simply making a mistake (or as these have been referred to by counsel for Mr. Duffy, “administrative processing irregularities”).  So, for example, where an employee submits a claim and is required to add up various expenses supported with receipts and the amount claimed does not match the receipt amounts, this could easily be attributed to a mathematical error.  However, this is in contrast to a situation where, for example, an employee claims a meal for business development purposes and, upon investigation, it is determined that the employee did not in fact entertain a prospect but rather was dining with his or her spouse.  Proving intention to deceive and therefore defraud the company will be far easier in the latter case.

  1. People knew that I made these claims and/or approved them

Where the evidence shows that the employee’s expense claims were being reviewed by and approved by the organization for some period of time (or where the employee can show that someone in a position of authority was aware of the claims and did not object to them), an employer will have a far more difficult time attempting to justify a termination for cause relating to improper expense claims.  Employers can anticipate that such conduct on their part will prompt the employee to argue that he or she was led to believe that an otherwise questionable expense was in fact proper.

Ultimately, even if the results of an investigation show that the employee has claimed improper expenses, it is necessary, as it is in all cases where termination for just cause is being considered, to look at the totality of the circumstances.  Once these are known, it is then necessary to consider whether termination – and for just cause – is the proportional disciplinary measure.  Let’s say, for example, that an employee was is in extreme financial distress due to some traumatic personal circumstances, or perhaps the employee apologized and immediately paid back the improper expense claim when it was identified, or the amount in question is very small – in some circumstances, these factors could threaten a successful case for just cause.

Of course, the case making headlines these days is not about whether Mike Duffy will lose his job – it is about whether he will be found guilty of a crime for, among other things, fraud and breach of trust, and potentially sentenced to five years in prison.  Even if he is acquitted, employees who are inclined to play a little “fast and loose” with those expense claims should not rest easy.  Just because a cause case is not a “slam dunk” does not mean one can’t be made out and it will depend entirely upon the circumstances of each case – circumstances that an employer would be well advised to investigate thoroughly before making any rash decisions.

Christine Thomlinson

About the Author: Toronto Employment Lawyer Christine Thomlinson is a co-founder and co-managing partner of Rubin Thomlinson LLP. Appearing regularly on Best Lawyers and Leading Practioners lists in Canada, Christine is known for her high capability to think strategically, and her ability to find practical, often innovative, legal solutions to her clients’ challenging workplace issues.