Archive for November, 2008

Corporate Credit Card and Employees

Monday, November 10th, 2008

A decision came down from the Divisional Court up in Sudbury on Oct. 31 involving a dispute over Petro Canada credit cards.  It seems that a company obtained several Petro Canada credit cards with the intention that they be used to gas up the company vehicles from time to time.  The company decided for some crazy reason to keep the credit cards – along with their PINs – in an unlocked area that was known to the various employees.  Not too surprisingly, an employee grabbed a card and proceeded to ring up thousands of dollars of purchases of cigarettes.  One of Petro Canada’s gas station employees thought that this was odd, after seeing it happen for more than a few days, so he called the company and the credit card fraud was discovered and stopped.  When Petro Canada sent the bill for payment, the company refused to pay on the basis that the company believed that the cards were only good for purchasing gas, and not for purchasing other items sold by Petro Canada.

Petro Canada responded on the basis that the cardholder agreement was clear and the company was stuck with the purchases made by its employee – whether authorized or not.  The trial judge and the Divisional Court concluded that Petro Canada lost because the application form and the credit cardholder agreement appeared to restrict the use of the card for gas purchases.  While I find this result odd, the Court did not give any specific mention of the wording of the agreement, so I will have to trust the Court that this was so.  That said, the Court did go on to expressly state:  “This is different from a situation where an employee is provided with a VISA card that can be used for the purchase of any item almost anywhere.”  It is clear that if the situation had involved a credit card that was not restricted to just gasoline purchases the company would have been on the hook.

What is also interesting about the case was the position of the trial judge.  Petro Canada had argued at trial that the company was liable on all charges against the credit card until the company advised Petro Canada that the credit card had been used without authority.  The trial judge rejected this argument and also faulted Petro Canada for not having a better fraud detection system that would have flagged what amounted to approximately $250 per day in cigarette purchases as likely fraudulent.  The Divisional Court overturned this position and held that Petro Canada could rely on its cardholder agreement that required the company to report the fraud and that Petro Canada was not required to establish a fraud detection system as this was not a requirement of the cardholder agreement.  That said, Petro Canada still lost because the purchases were not for gasoline.

Ultimately, if the credit card had not been limited to specific purchases, the company would have been obligated to pay Petro Canada the money spent on the credit card.  Small businesses should ensure that if they have corporate credit cards that they should kept in a secure place and used only by authorized employees (the fewer, the better).  Otherwise, you may find yourself with a large credit card bill at the end of the month and nothing to show for it.

CALC

Looking at the Big Picture in Litigation

Tuesday, November 4th, 2008

There is an interesting story from the Canadian Broadcasting Corporation’s web site about an exotic dancer who was fired because she was too old (she is 44).  Her response was to file a human rights complaint.  Various people commenting on the story said things along the lines of “if you’ve got it, flaunt it” and good for her for sticking up for her rights.  I looked at it in a completely different way. 

Should she have filed the complaint and sought to have a hearing before the Human Rights Tribunal?  I’m not even going to think of wading into the minefield that is the merits of the complaint.  What I found more interesting, though, was the following statement: “[Her name] started her exotic dancing career four years ago, and says she raked in thousands of dollars each week.”  Now, let’s see, of those thousands of dollars, my guess is that she was probably “officially” paid far less than even one thousand dollars per week in salary or wages.  So the rest of that money likely came from patrons at the club.  And you can bet that that money came in the form of cash.

And you can pretty much guarantee that however many thousands of dollars she made each week from money paid by patrons at the club was not declared as income on her annual income tax returns for the last four years.  Uh oh!  Congratulations to her.  She has filed a complaint with the human rights tribunal and has obtained national exposure (pardon the pun) for her fight against the club’s owner.  Now, in doing so, she has the opportunity of obtaining compensation from the Tribunal – but the general maximum for such compensation is $10,000.  Let’s take a very quick look at undeclared income.  Suppose that she worked 40 weeks per year and made $1,000 per week in undeclared income – or $40,000.  Let’s suppose further, just to make it easy, that she was in a 25% tax bracket, so she owes $10,000 per year for taxes for the four years that she has been dancing.  In the end, then, she has put forward her complaint and is fighting what she considers to be “the good fight”, but at most she will likely get $10,000 (quite possibly less) and some feeling of vindication or satisfaction, but in return she could very well be hit with tax reassessments of $40,000 plus interest, plus penalties – if it turns out that someone at the Canada Revenue Agency happens to read her story.

And that is one of the issues you always have to consider in litigation – the “big picture”.  Often it comes in the sense of questions like: “which is more important to me, getting paid on this bill but losing the client for future work or taking the hit in the hopes of getting more work later?” or “will there be any ‘ripple effect’ if I sue and will such an effect be detrimental?”  In the case of the dancer, I get the feeling that she might have wanted to think a little bit harder about the big picture before she went ahead with her complaint.

CALC