Wayward Fiduciary entitled to receive bonus from former Employer, says Court of Appeal

The Court of Appeal’s decision in Mady Development Corp. v. Rossetto, 2012 ONCA 31, reaffirmed the principle that equitable relief is always discretionary and fact specific.

Mr. Rossetto was employed as an executive with Mady Development Corp., D. Mady Investments Inc., and Mady Contract Division Ltd. (“Mady”).  For three months in the fall of 2007, Mr. Rossetto renovated his home using labour, materials, and money diverted from Mady.  Mr. Rossetto’s misdeeds were not discovered by Mady until December of 2008, at which time Mr. Rossetto was terminated.

Mady commenced a proceeding against Mr. Rossetto to recover damages arising from Mr. Rossetto’s misconduct.  Mr. Rossetto counterclaimed with respect to unpaid bonuses for the years 2007 and 2008.  The parties submitted the dispute to arbitration.

The arbitrator awarded Mady damages totalling $546,452; $315,453 on account of the value of the misappropriated labour, materials, and money diverted by Mr. Rossetto, and $231,000 on account of losses flowing from delays to one of Mady’s legitimate projects caused by Mr. Rossetto’s misconduct. 

With respect to the unpaid bonuses, the arbitrator found that pursuant to the terms of his employment contract, Mr. Rossetto was entitled to an annual bonus of 30% of Mady’s profits after overhead.  The arbitrator found that this bonus was an integral part of Mr. Rossetto’s compensation from Mady, and further found that a dishonest dismissed employee is entitled to be paid for the work he has done.  The arbitrator awarded Mr. Rossetto $364,661.33 in satisfaction of his unpaid 2007 and 2008 bonus.

Mady appealed the portion of the arbitration award dealing with Mr. Rossetto’s bonus entitlement.  This was an appeal to Justice Allen, sitting as a single judge of the Superior Court of Justice.  Justice Allen allowed Mady’s appeal, holding that, as a general principle, a fiduciary is not entitled to compensation for the period of their wrongdoing.

Justice Allen’s decision was further appealed to the Court of Appeal by Mr. Rossetto.  The Court of Appeal held that there is no general principle that a fiduciary is not entitled to compensation during the period of their wrongdoing.  Instead, they stated that equitable remedies (e.g., for a breach of fiduciary duty) are always subject to the discretion of the court, and a fiduciary’s entitlement to a bonus depends on all of the facts before the court.  Although in some circumstances it will be appropriate to deprive a fiduciary of his or her bonus, this is not an automatic result.

The Court observed that Mady had already been made whole for Mr. Rossetto’s misconduct by way of the arbitrator’s $546,452 award of damages.  Furthermore, the bonus at issue was not a discretionary bonus, but rather was a non-discretionary bonus that was an integral part of Mr. Rossetto’s compensation under his employment contract.  The Court stated that Mr. Rossetto was just as entitled to the bonus component of his compensation as he was to his regular salary.  For those reasons, the Court of Appeal held that the arbitrator’s decision was reasonable, and the Court restored the arbitrator’s award.