Archive for October, 2008

Credit Card Fraud

Wednesday, October 22nd, 2008

There was an interesting story in today’s Toronto Star about credit card fraud.  It is a reminder for small business that while they are not hit with credit card fraud they are certainly exposed to the possibility.  More importantly, when you think about it, as people build better mousetraps either you get better mice or else the mice move to areas where there are no mousetraps.  In this case, bigger business has been hit with credit card fraud, so the fraudsters either are trying new ways to get at bigger business (because there is still a lure of a larger “score”) or else they focus on small business where there are less security measures.

As of June 30, 2005 (the latest date for which I could easily find statistics), the credit card industry was losing over $200 Million per year to fraud and the annual rate was increasing.  This is certainly a large incentive for the fraudsters.

So, what happens if you are the victim of fraud.  It depends on the arrangements with your credit card company / bank and the circumstances in which the fraud occurred – for example, did you fail to supervise your employees and the fraud was an “inside job”?  It may be that you are on the hook for the fraud losses.  Again, this may also depend on whether you have insurance that covers “fidelity” issues (eg. employee theft).

Let’s suppose that you are responsible for the loss and there is no insurance coverage.  Can you sue the (by now ex-) employee?  Yes.  What are your chances of recovering the money?  Not very good.  In my experience, a 25% recovery is a good recovery.  I have only had one civil fraud matter in which I retrieved over 40% recovery of the losses – and even in that case (which was quite abnormal) the recovery was only 60% or thereabouts.  Why is this the case?  Because often the fraudsters are male and just as often the money is spent on “wine, women and song”.  More realistically, fancy dinners with expensive wins, leases of high end cars that cost a lot of money for both the lease and the upkeep, renting of high cost living accommodations.  The end result – the fraudster lives the high life but everything is rented and therefore owned by someone else who takes back the items when the fraud is discovered so there are no assets to seize.

The target is lucrative, the losses (to the fraudsters) are minimal and there is great incentive for fraudsters to operate.  While small business owners should not be losing sleep over this problem, they should similarly not be turning a blind eye and hoping that the problem won’t land on their doorstep.


The Spammers Are Back

Monday, October 13th, 2008

Ah, it’s been about half a year since the spammers started to send fake e-mails using my domain name, so I guess it’s time they start playing their games again.

As with prior instances, I apologize to anyone who is inconvenienced, but the e-mails are not coming from me.  Hopefully this will stop within a day or so.


When the Employee Leaves

Saturday, October 11th, 2008

This past Thursday the Supreme Court of Canada released its decision in RBCDS.  In that case the manager of RBC Dominion Securities’ branch in Cranbrook, B.C. orchestrated the defection of almost the entire branch to go join Merrill Lynch.  When the group departed, there were only two very junior investment advisors that remained at RBCDS’ branch – effectively wiping out the branch.  RBCDS sued the advisors and Merrill Lynch for failing to give any notice of the intended departure, inducing breach of contract and other claims.

I want to focus on two aspects of the decision in this post.  The first is that at the trial and both appellate levels it was accepted that there was an implied contractual obligation on the part of each of the investment advisors to give adequate notice to RBCDS of their intention to leave.  In this case the amount of notice required was relatively small – two and a half weeks.  However, this is another case of the “flip side” of wrongful dismissal.  Everyone has heard of wrongful dismissal and the fact that an employer cannot fire an employee without giving reasonable notice.  But few people know about “wrongful resignation” which is this flip side.  Just as employers are required to give notice, similarly, employees are required to give notice.

The other aspect of the case is the question of whether an employee can compete with the employer after the employee has left.  The trial judge in RBCDS had held that during the 2.5 weeks notice period the employees could not compete with their old employer.  The B.C. Court of Appeal and the Supreme Court disagreed.  The Supreme Court summarized the law as follows:

“Generally, an employee who has terminated employment is not prevented from competing with his or her employer during the notice period, and the employer is confined to damages for failure to give reasonable notice (Southin J.A. for the majority).  To this general proposition Rowles J.A. may be read as adding the qualification that a departing employee might be liable for specific wrongs such as improper use of confidential information during the notice period.   This appears to be consistent with the current law, which restricts post-employment duties to the duty not to misuse confidential information, as well as duties arising out of a fiduciary duty or restrictive covenant: see England, Employment Law in Canada (4th ed. loose-leaf), § 11.141.  Neither of the latter duties are at issue here.” 

Fiduciary duties will apply if the employee is in a position of management or supervisory duties and cannot be easily listed in this post.  Suffice it to say that if you have a lower level employee, the above statement will apply to them and it will therefore be open to them to compete against you once they leave.  That being the case, it is usually a good idea to have employees sign either non-competition agreements or, better yet, non-solicitation agreements (since courts are more hesitant to enforce the former than the latter).


Apologizing and its Effects

Tuesday, October 7th, 2008

According to a Globe and Mail article today, the Ontario government is planning to introduce legislation to permit a party to apologize to another party.  It is said to be patterned upon the private legislation put forward earlier this year in the Ontario Legislature.  As noted by the article, a few other provinces and 35 U.S. States (New York is not one of them) have similar legislation.  (To see a list of the U.S. States with such legislation, you can click here.)  The U.S. legislation appears to be aimed primarily at medical malpractice, but the proposed Ontario legislation has no limit and could conceivably be used in any type of dispute.

The first thing that most lawyers have routinely advised their clients in the past is that if there is a problem, either do not apologize or else use incredibly wishy-washy language that “sort of” apologizes.  I’ll give you an example,  “I am sorry that if you felt that somehow my actions would seem to be offensive to you in any way, I did not intend such a result and I regret that you came to feel that way.”  Needless to say, not exactly heartfelt.  The problem, though, is that if a full-blown apology was extended it would be taken in one of two ways – either as a true attempt at a reconciliation and a step towards achieving a resolution to whatever the problem is OR as an admission of liability that can be later used to club the person offering the apology over the head in subsequent litigation.

Under the private legislation that the new Act is said to be based upon, an apology would not be seen as any admission of liability.  In addition, it would not be permitted to disclose the fact that an apology was made in any subsequent lawsuit.

Is this a good development for the law?  I would hope so, but I remain a little doubtful.  There is no question that this is a welcome addition to the law.  There are many lawsuits that are started because “there is a principle at stake.”  Often, when you dig down a little deeper, the “principle” is usually just that somebody hurt someone else’s feelings (or pride, or family name, or something similar).  In cases such as this, an apology, especially early on, could be very beneficial.  In fact, if I could suggest something to the Legislature it would be to provide incentives for early apologies.  For example, in the law of defamation an early apology and retraction is permitted to limit or decrease the amount of damages awarded to a plaintiff.  Similarly, think of Mr. McCain going before the national press recently to apologize for the outbreak of listeriosis at Maple Leaf Foods.  Obviously this came before the new legislation but while the “spin doctors” said that it was a very good move from a public relations standpoint, I remember cringing when he did it and wondered how many times that would be replayed by the class action plaintiffs’ lawyers either in a court of law or in the court of public opinion to try and leverage a higher settlement.  But if a defendant such as Maple Leaf Foods could be provided with some incentive for making such apologies it may be better for all concerned.

And therein lies the rub.  The advantage of encouraging apologies is that it may lead to better resolutions of conflicts without the need for litigation.  (And I should say that I am not worried about suddenly having to practice a different type of law because there are definitely enough people out there who will not accept such apologies and will keep the litigation going.)  However, I wonder whether this may back-fire in the sense that if apologies are being made regularly that the people to whom the apologies are made will simply become jaded and think “yeah, you don’t really mean this, you’re just doing it for PR.”  I would certainly hope that this does not become the case, but in case it does, wait until the legislation passes and then send out your apology right away – before people become jaded.