We often write about what happens when an employee does not comply with the obligations in their written employment contract. But, what happens when an employer does not follow the terms of a written contract – particularly, the termination provision and tries to rely on that provision later? A recent Ontario court decision,1 reminds employers of one possible negative consequence of failing to comply with their own termination provisions.
What Happened?
The employee worked for the employer from 2014 to March 31, 2020 when her employment was terminated without cause. Her employment contract said the employer could terminate her employment without cause by providing two weeks of notice or pay in lieu of notice plus the minimum entitlements required by the Employment Standards Act, 2000 (the "Act"). The contract did not require her to sign a release for the additional two weeks.
When she was terminated, the employer made a mistake. It refused (twice) to pay the additional two weeks unless the employee signed a release in favour of the employer. The employee retained a lawyer who rejected that and alleged that the employer had breached the contract. The employer realized its mistake, apologized through its lawyer, and paid the two additional weeks of pay.
The employee sued. She argued that the employer repudiated or rejected the contract by its actions and as a result, she was not bound by the termination provision in the contract. She asked the court to award damages in lieu of reasonable notice.
What did the Court Decide?
The court did an objective assessment of the surrounding circumstances. It was looking to decide if a reasonable person would conclude the employer no longer intended to be bound by the contract, and whether the employee was deprived of substantially the whole benefit of the contract.
The court said that a reasonable person would believe the employer no longer intended to follow contract. The employer demanded – not once but twice – that the employee sign a release to receive the two weeks' pay she was entitled to under the contract. By refusing to pay the only money available to the employee under the contract (apart from her guaranteed entitlements under the Act), the employer deprived her of the entirety of the monetary benefit of the contract. This breach could not be fixed by an apology from the employer's lawyer, and late payment of the amounts owed.
The court found that the employer repudiated the contract. The employer could not rely on the termination provision in the contract to limit the employee's entitlements. The court awarded the employee damages in lieu of six months' reasonable notice of termination.
Takeaways for Employers
Employers should ensure that they comply with the termination provisions in their employment contracts. If a release is not required for contractual entitlements that are in excess of the statutory minimums, demanding that an employee sign a release may in some circumstances be a repudiation of the contract. This could jeopardize the employer's ability to rely on the termination provision to limit entitlements. If the employer wants to make termination entitlements provided for in a contract, that are in excess of statutory minimums, conditional on signing a release, this must be clearly stated in the contract.
If you have questions about termination provisions in employment contracts, please contact the author or your regular Fasken lawyer.
Footnote
1 Perretta v. Rand A Technology Corporation, 2021 ONSC 1899
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
