Some key questions the Court grapples with in Laba v. CTA, 2016 WL 147656 (N.D.Ill. 2016) are whether an employee who sleeps on the job or runs personal errands on company time opens himself up to a breach of fiduciary or fraud claim by his employer. The Court answered “no” (fiduciary duty claim) and “maybe” (fraud claim) in an employment dispute involving the Chicago Transit Authority (CTA).
Some former CTA employees sued the embattled transit agency for invasion of privacy and illegal search and seizure after learning the CTA implanted Global Positioning System (“GPS”) technology on the plaintiffs’ work-issued cell phones. An audit of those phones revealed the plaintiffs’ regularly engaged in personal frolics during work hours.
The CTA removed the case to Federal court and filed various state law counterclaims to recoup money it paid to the ex-employees including claims for breach of fiduciary duty, fraud and conversion. The Northern District granted in part and denied in part the plaintiff’s motion to dismiss the CTA’s counterclaims.
Breach of Fiduciary Duty
Sustaining the CTA’s breach of fiduciary duty claim against the ex-employees’ motion to dismiss, the Court looked to black-letter Illinois law for guidance. To state a breach of fiduciary duty claim in Illinois, a plaintiff must allege (1) the existence of a fiduciary duty, (2) breach of that duty, and (3) breach of the duty proximately caused damages. The employer-employee relationship is one the law recognizes as a fiduciary one.
While the extent of an employee’s duty to his employer varies depending on whether the employee is a corporate officer, the law is clear that employees owe duties of loyalty to their employers. Where an employee engages in self-dealing or misappropriates employer property or funds for the employee’s personal use, it can give rise to a fiduciary suit by the employer.
Here, the Court found that the employees’ conduct, while irresponsible and possibly negligent, didn’t rise to the level of disloyalty under the law. The Court made it clear that under-par job performance doesn’t equate to conduct that can support a breach of fiduciary duty claim. (**6-7).
The Court upheld the CTA’s fraudulent misrepresentation claim – premised on the allegation that the plaintiffs lied to the CTA about the hours they were working in order to induce the CTA to pay them. Under Illinois law, a fraud plaintiff must show (1) a false statement of material fact, (2) known or believed to be false by the party making the statement, (3) with the intent to induce the statement’s recipient to act, (4) action by the recipient in reliance on the truth of the statement, and (5) damage resulting from that reliance.
Under the Federal pleading rules, a fraud claimant must plead the “who, what, where when and how” of the fraud but the allegation of a defendant’s intent or knowledge can be alleged generally.
Here, the Court found that the CTA sufficiently alleged a fraudulent scheme by the employees to misrepresent the hours they worked in exchange for their paychecks. This was enough, under Illinois fraud law, to survive the employees’ motion to dismiss. See FRCP 9(b); (*7).
1/ While an employee owes an employer fiduciary duties of loyalty, his sub-par job performance doesn’t equate to a breach of fiduciary duty. There must be self-dealing or intentional conduct by the employee for him to be vulnerable to an employer’s fiduciary duty suit;
2/ An employee misrepresenting hours work can underlie a common law fraud claim if the employer can show it paid in reliance on the truth of the employee’s hour reporting;