An employment contract sets out the terms of employment between employer and employee. Terms often include information about salaries, bonuses, benefits, vacation entitlement and termination clauses. If it comes to the point in which an employee is terminated, the termination clause becomes incredibly significant, dictating the employee’s entitlements and the employer’s responsibilities. An employer can choose to repudiate an employment contract, including the termination clause. However, once the employer has repudiated the contract, the employer cannot then choose to rely on it to limit the employee’s post-termination benefit entitlement, as the next case shows.

Employer Contradicts Termination Clause by Requiring Additional Consideration from Employee

The employer hired the employee for the position of customer advocate. The employee commenced her employment in 2014, pursuant to a written employment agreement. In 2018, the employer promoted the employee to the role of sales representative, and the parties signed a new employment agreement. The contract stated that the employer was able to terminate her employment without cause by providing two weeks of notice or pay in lieu of notice in addition to the minimum notice or pay in lieu of notice, benefits and severance pay required by the Employment Standards Act (ESA).

In late March 2020, the employer terminated the employee without cause. The employer provided the employee with a letter of termination, which stated it would pay the employee the ESA minimum of two weeks’ pay. The employer also provided an “Enhanced Severance Offer” which provided for an additional two weeks’ pay on the grounds that the employee agreed to sign a Release in favour of the employer.

The employee retained a lawyer who advised the employer that the “Enhanced Severance Offer” was in breach of the 2018 Employment Contract. By requiring a Release first, the employer had gone against the terms of the employment contract which already provided for the additional two weeks’ pay. The employer responded by apologizing, admitting it had made a mistake. Then the employer paid the employee the equivalent of two weeks’ pay and the monetary value of her entitlements under the ESA.

The employee brought a wrongful dismissal suit against her employer. She claimed that the employer had repudiated the 2018 employment contract, which meant the employer could not rely on the termination clause limiting her entitlements.

Employer Deprived Employee of Benefits Owing to Her

The Ontario Superior Court of Justice cited the definition of repudiation of contract as occurring “by the words or conduct of one party to a contract that show an intention not to be bound by the contract”. The Court determined that the employer had indeed repudiated the 2018 employment contract by contradicting the termination clause.

By terminating her employment, the employer was bringing the employment agreement to an end. The two weeks’ salary in lieu of notice was the only monetary entitlement available to the employee under the 2018 Employment Contract, apart from her statutorily prescribed ESA entitlements. By refusing to pay the two weeks’ salary without a signed Release, the employer had deprived the employee of the entirety of the monetary benefit available to her apart from the statutory benefits.

The Court further found that this breach could not subsequently be cured by the counsel’s apology on behalf of the employer and by post-breach payment of the amounts owed.

Termination Clause Would Have Been Unenforceable for Being in Breach of the Employment Standards Act

The Court also considered whether the termination clause would have been enforceable, had the employer not repudiated the contract. In examining the contract’s reasons to justify a “just cause” termination, it found that three categories in the contract failed to rise to the statutory threshold set out in the Termination and Severance of Employment Regulations, and thereby breached the ESA. Those three categories included:

• “a material breach of this Agreement or our employment policies”;
• unacceptable performance standards;
• repeated, unwarranted lateness, absenteeism or failure to report for work”.

The court reasoned that these three categories of just cause permitted dismissal without notice of termination or termination or severance pay in circumstances where the employee is not “guilty of wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer.” 

The Court concluded by stating that if the Termination With Cause Provision was unlawful as contrary to the ESA, then all the termination provisions in the 2018 Employment Contract were unenforceable. Lastly, the court found that an employer’s attempt to contract out of the ESA could not be saved by a ‘saving provision’.

In determining the appropriate notice period, the Court awarded the employee six months and damages in the amount of $16,807.52.

As can be seen, employers need to be careful in drafting termination clauses and ensure they comply with the prevailing law. They also need to be careful in how they treat the employment contract and termination clauses. Failing to abide by their own contract could result in higher costs consequences down the road.

Contact Grosman Gale Fletcher Hopkins LLP in Toronto for Employment Disputes

For advice on employee rights, employer liability and other employment or labour law matters, contact the offices of Toronto employment lawyers Grosman Gale Fletcher Hopkins LLP. We regularly advise workplace parties on a wide range of legal workplace issues. Contact us online or by phone at 416-364-9599 to schedule a consultation.