What is 'Self-Dealing' in Employment?

• Author: Bowal, Peter
• Position: Columns

Introduction

While they have human bosses, most employees work for corporations, which are legal fictions with no physical existence. That renders employers technically vulnerable to their own employees who might want to take advantage of them. It is both impossible and undesirable to scrutinize every employee during every minute on the job.

There are many ways in which employees can put their own interests ahead of their employers' interests. This "self-dealing" may include taking the employer's business opportunity, using corporate funds or equipment for personal use, purchasing company stock on insider information, and working in a competing business. Employees can lie, steal and act dishonestly and disloyally to their employers in uncountable ways to gain personal advantage. They can use knowledge, processes and relationships gained from their employer in ways that injure the employer.

To offset this vulnerability and to ensure an alignment of interests, the common law imposes a general duty of fidelity, good faith and loyalty on all employees. They must be honest and cannot let their personal interests conflict with those of the employer.

Senior managers and those in special positions of trust and authority are called "fiduciary employees". They must not use their positions to gain a personal advantage, profit or opportunity. They are held to the highest standard in advancing the employer's best interests, and they face the strictest scrutiny in that regard.

Policies and Codes of Conduct

Employers should enact and publicize Codes of Conduct to prohibit self-dealing. Policies and Codes of Conduct are enforceable obligations in the employment contract if they are brought to employees' attention when they are hired. One such clause in a large Calgary employer's Code of Conduct prohibits:

Influence, or seeking to influence, a corporate decision in a manner that favours another individual or organization in the expectation of realizing personal gain for yourself, a related person, or others with whom you have or have had an association. The UPM-Kymmene Case

Steven Berg was a corporate director and largest shareholder of the forestry company Repap. He sought the Senior Executive Officer role and an enhanced employment contract with renewable five-year terms and benefits such as a signing bonus of 25 million shares and stock options. If he was terminated, the new contract would have to pay him out the remainder of his five-year term.

Repap...