Thursday, October 27, 2011

The Dangers of Scapegoats

There are two stories in the Toronto Star today about allegations of criminal misconduct against employees.

The 'front page' on the online version is about Oshawa Hospital Foundation firing its CEO, Jim Szeman, and calling the police after a Star report prompted an investigation and "forensic accountants turned up serious money and charity management problems."

Reading the story, it seems like they've done their homework and they're pretty confident that there was mismanagement.  But I have enough experience with media to not take any of it at face value, and I'm particularly doubtful about the strength of the case when the only specific allegations in the story are...less than obvious misconduct.  There's an allegation of self-dealing, that the charity paid a company of his over three hundred thousand dollars...which seems like a lot of money until you realize that this was over a six year period and his annual salary with the charity is over two hundred grand...where it is "unclear" (to the Star) who else on the Board of Directors knew of the self-dealing arrangement.

Reading the news, I always assume that I'm not seeing all the facts.  So it could be that this fellow is a hardened fraudster and the employer's response is reasonable.  Or it could be that he was acting in a transparent manner, taking perks that the general public might not have much patience for in the wake of the e-Health scandal, and that the employer decided it would rather blame let Szeman take the fall than stand behind him.

If it's the latter, there could be real liability risk.

The second story is about a former low-level employee of Durham Region who was fired and charged with fraud.  More to the point, the story is about his acquittal.

Joel Nicholson was an employee with no legal training, in charge of collecting unpaid fines under the Provincial Offences Act.  Then, in 2002, his duties were expanded to include collecting from tenants in subsidized housing who owed rent arrears or money for damage caused.  And he built those debts into the same system he had for collecting other fines, seizing and garnishing assets and income.

Just one problem:  You can't do that.  There are certain actions that you have to take when dealing with residential tenants.  While they're in the rental unit, you need to go to the Landlord Tenant Board for an Order, which can then be converted into a Small Claims Court judgment, and enforced in the Small Claims enforcement process.  After they're out of the rental unit, such claims go directly to Small Claims Court.  The key is this:  You need to get a judgment before you can take enforcement action on a debt.

So Nicholson's actions in collecting these debts were deeply problematic, as was brought to light in 2009.  However, as the Court concluded, the mistakes were innocent on his part.  He didn't realize that he was doing anything wrong.  He didn't know that there was another process he had to use.  And it's not as if he was pocketing the proceeds.  And therefore, he was acquitted.

The story also notes that he is suing the employer in wrongful dismissal.  Likely a solid case, if this Court decision is any indicator.  (It isn't binding.  The burden of proof is different.  In order to convict him, the Crown needs to prove guilt "beyond a reasonable doubt".  To prove that he engaged in misconduct for the purpose of a wrongful dismissal suit, the employer only needs to establish it on a "balance of probabilities".  Accordingly, the fact that he was acquitted doesn't necessarily bar a Court from finding that he engaged in misconduct in a subsequent civil proceeding.)  The judge in the criminal proceeding seemed critical of the Region's managers for not spotting the "flagrant legal problems" in Nicholson's approach, and for failing to consult the Region's legal department.  If these criticisms were picked up by a judge in a wrongful dismissal case, then that could be very bad for the employer.

Where an employer makes allegations of cause which don't pan out, that usually amounts to a breach of the duty of good faith and fair dealing.  (Not always.  There is some case law suggesting that, if the allegations themselves are true and simply don't quite meet the threshold for cause, then there's no reason to think there's bad faith.  Similarly, one can easily imagine a circumstance in which an employer, having diligently investigated allegations of wrongdoing and reasonably, if incorrectly, concluding that the employee is guilty, might not have breached the duty of good faith and fair dealing.)  The more serious the allegations, the more serious the breach of the duty of good faith.  If they bring in the police and an unsuccessful criminal prosecution results, the employer's motives for calling the police will be closely scrutinized, as will their actions in making the police report.  Claims for malicious prosecution, negligent investigation, including aggravated and punitive damages, are easy to imagine in such contexts.


This blog is not intended to and does not provide legal advice to any person in respect of any particular legal issue, and does not create a solicitor-client relationship with any readers, but rather provides general legal information. If you have a legal issue or possible legal issue, contact a lawyer.


  1. In the case of Mr. Szeman there is a lot of community sentiment that the Oshawa Foundation Board is using him as a scapegoat. At a minimum the BOD is definitely not assuming any responsibility of their own. Mr. Szeman is now coming forward with his account of the situation.

  2. By way of update, Jim Szeman has apparently filed a $2.8 million action against the employer. The Statement of Claim itself can be viewed by pdf here:

    The defence is essentially what I would have expected to see (there's even a subtitle "Szeman Being Used As Scapegoat"). Certain evidentiary aspects are pleaded (which is arguably improper in a statement of claim, but still compelling advocacy), including allegations that the Board's prior knowledge of Szeman's actions were well-documented, and that the termination letter itself acknowledged that the prior Board Chair had been aware of the impugned conduct.

    None of this has been proven, of course - these are simply the allegations being made by Szeman - but at least one of the evidentiary allegations appears to be independently verifiable. The Claim notes that the Board Chair had previously publicly (in a news article) defended the actions of Szeman and the involvement of his company, expressing that the Board knew about it and was comfortable with it.

    Independently verifiable, it seems, because the article is still posted here:

    Of course, I might be cautious in putting too much weight on a public statement made after the 'scandal' broke, as here. An employer should definitely not distance itself from the actions of an employee, pending investigation into allegations of scandal. This defence may go beyond the bare obligations of an employer, but - in the absence of other significant evidence that the employer knew about the maligned conduct - the employer could probably explain it away as an attempt to save face and defend the integrity of their organization because of a belief that Szeman was trustworthy.

    Again, I'm not calling Szeman innocent, nor am I calling him guilty - as always, I urge a measure of caution before jumping to conclusions.