If you’re an employment law nerd – or worse, have had to actually deal with a termination – then you are well aware that it is open season on termination clauses. It began with Waksdale (which we covered here), and the bell has yet to be rung. To summarize the saga, the law in Ontario is such that any termination-related provision (even language in ancillary clauses) that could possibly breach the applicable Employment Standards legislation prevents employers from relying on the termination provision in the employment contract, even if valid.
By now, savvy employers have had their employment agreements updated. Problem solved, right? Wrong. A recent decision from British Columbia reminds us that even the most bulletproof termination clauses can be rendered unenforceable when the termination is implemented wrongly.
Repudiation of Contract
In Klyn v Pentax Canada Inc., 2024 BCSC 372 (“Klyn”), the plaintiff was an employee with almost 16 years of service. He began working for the employer in 2001 and signed the written employment contract (the “Agreement”) in 2006. The Agreement’s Termination Clause provided that upon termination without notice, he would receive the greater of:
- the minimum requirements under BC’s Employment Standards Act, 1996; or
- four weeks of pay for each year of service prior to signing the Agreement, plus an additional four weeks.
Pursuant to the Agreement, he was owed approximately 24 weeks of post-termination pay. Upon termination in April 2022, the employer had the plaintiff sign a letter agreeing to send mitigation reports as a condition to receiving the contractual post-termination payments. In July 2022, the employer stopped making the payments. The employer did not cite a failure to send reports as a reason for stopping the payments, nor did it provide any other reason to support its decision. In fact, the plaintiff mitigated and found alternate employment in February 2023.
Consequently, the plaintiff invoked the common law doctrine of repudiation of contract to claim that the employer no longer wanted to be bound by the Agreement. Repudiation of contract refers to a breach of a sufficiently important contractual term or condition which effects a “substantial failure of performance.” Essentially, it is an assertion that the party has demonstrated a clear intention to no longer be bound by the agreement. Where repudiation occurs, the plaintiff has the right to terminate the contract and seek damages for the breach.
The Court agreed with the plaintiff and found that the employer repudiated the Agreement. The employer’s failure to keep making the requisite payments constituted a “clear unequivocal breach” of a central term of the Agreement. As a result, the plaintiff was entitled to common law reasonable notice damages. The Court awarded the plaintiff an amount of $312,095.78, representing 18 months of pay (less amounts the employer already paid), plus compensation for 78 unused vacation days.
Alleging Just Cause in Bad Faith Can Also Invalidate an Otherwise Valid Termination Clause
Wondering about other ways to invalidate a perfectly good termination clause? Asserting just cause for dismissal and refusing to pay the contractual severance amounts is a good one, as demonstrated in Humphrey v. Mene. In that case, the court held that:
I am satisfied that in the circumstances of this case outlined above, Ms. Humphrey has established on a balance of probabilities that Menē’s conduct, objectively viewed, demonstrates an intention to no longer be bound by the December 2018 Employment Agreement, thus repudiating it. The conduct which I have found includes setting her up to fail, subjecting her to a toxic workplace, embarrassing and humiliating her before co-workers and clients after her suspension, significantly exaggerating performance issues and the evidence it had in support of these at the time of termination, and alleging cause when it knew or should have known it did not have it. These are not mere technical breaches made in good faith. Menē’s conduct in this case goes to the heart of the employment relationship.
But Wait, There’s More
It is worth noting that the employer in Klyn was also ordered to pay $25,000.00 in punitive damages for its conduct at the time of termination, and post-termination. The impugned conduct included the employer’s deliberate failure to compensate the plaintiff despite understanding the Agreement, as well as trying to have the plaintiff sign an overly broad Full and Final Release which made the contractual post-termination payments appear contingent on signing it.
If you’re an employer wondering how to avoid this fate, then we are here to help. We can assist you with implementing terminations, and help you understand your post-termination obligations.
If you’re an employee we would be happy to assist you with matters ranging from reviewing your employment agreement and termination package, to navigating dismissals and helping you understand your rights.
