THE EMPLOYERS' EDGE
Mistake Is No Defence: An Employer’s Failure To Abide By Termination Language Repudiated The Contract, Even After They Tried To Comply
A recent decision from the Ontario Superior Court of Justice provides a stern lesson for employers who terminate someone’s employment without complying with the language of the employment contract.
In this case, the employee was not offered pay in lieu of notice as stipulated in her contract, unless she signed a Full and Final Release. Realizing this mistake, the employer later apologized and paid the employee her entitlements. Unfortunately, the court ruled that the apology was too little, too late, as the employment contract had already been repudiated.
The Plaintiff commenced work for the Defendant in 2009 as a customer advocate and was later promoted to sales representative. The Plaintiff had an employment agreement that was executed in 2018. The agreement contained the following provision:
Termination Without Cause – We may terminate your employment in our sole discretion, without cause, by providing you with two weeks of notice or pay in lieu of notice (or some combination thereof), plus the minimum notice or pay in lieu of notice (or some combination thereof) and severance pay (if any) then required by the ESA. [The Employer] will also continue your Benefits to the extent and for the minimum period required by the ESA.
On March 31, 2020 the Defendant terminated her employment without cause. The Plaintiff was provided a letter along with a Full and Final Release that the employer asked her to sign as a precondition to receiving an “Enhanced Severance” offer.
The Plaintiff sent a letter to the Defendant on April 1, 2020 pertaining to her dismissal. The Defendant replied by letter on April 2, 2020 and demanded, again, that she execute a Full and Final Release as a condition to her receipt of the two weeks’ pay owed to her by the Termination Without Cause Provision. The Plaintiff retained a lawyer who wrote to the Defendant that its treatment of its employee was in breach of the 2018 Employment Contract. The Defendant responded on April 24, 2020, through its legal counsel, and apologized for requiring that the Plaintiff sign a Full and Final Release. The Defendant then transferred to the Plaintiff the equivalent of two weeks’ pay and the monetary value of her entitlements under the Employment Standards Act (ESA).
There were a number of issues in this case, principal among them was whether the Defendant repudiated the 2018 employment contract by refusing to initially pay the Plaintiff two weeks’ notice in addition to her ESA minimums upon termination, per the 2018 employment contract.
The lone Judge ruled that the Defendant’s actions in this case did indeed repudiate the contract, thereby entitling the Plaintiff to common law reasonable notice. The Plaintiff was awarded six months of salary totaling $30,300.00, less the amount already paid by the Defendant, which came out to $16,807.52.
The Test for Repudiation
In assessing whether the actions of the Defendant had repudiated the contract, the court summarized the test for repudiation as follows:
20 The test is whether, considering surrounding circumstances, including the nature of the contract, the motives which prompted the purported breach, and the impact of the party’s conduct on the other party, a reasonable person would conclude that the breaching party no longer intends to be bound by the contract with the result that the innocent party would be deprived of substantially the whole benefit of the contract. A party can repudiate a contract without subjectively intending to do so, because the assessment is made objectively.
The 2018 Employment Contract imposed on the Defendant the contractual duty to pay the Plaintiff two weeks of pay upon termination without cause and without notice, in addition to her entitlements under the ESA.
The Defendant refused to make such payments, requiring the employee to sign a Release before she could receive funds. Of central importance was that the Defendant did not make these demands of the Plaintiff on only one occasion, but twice. In the eyes of the court, this removed the possibility that the Defendant’s initial demand for a Full and Final Release was the product of momentary inattention.
In the end, the court was satisfied that a reasonable person assessing the Defendant’s conduct would conclude that in demanding that its employee execute a Full and Final Release and comply with the terms of an “Enhanced Severance” offer as preconditions to receiving the two weeks’ pay to which the employee was contractually entitled, the Defendant no longer intended to be bound by the 2018 Employment Contract. Even if the Defendant’s mistake was innocent and resulted from a simple lack of understanding of the very employment contract that it had drawn, and even if it did not understand its obligations at law until so advised by counsel, the Defendant’s conduct evidenced an intention not to be bound by the 2018 Employment Contract, assessed objectively.
The Defendant relied on a number of cases that were distinguished by the court. In Oudin v. Le Centre Francophone de Toronto, 2015 ONSC 6494, 27 C.C.E.L. (4th) 86, Dunphy J.’s refusal to find repudiation of the employment contract was on evidence of arithmetic errors in the computation of the values of the amounts owed, amounting to less than a weeks’ pay out of 21 weeks owed. Similarly, in Kerzner v. American Iron & Metal Company Inc., 2017 ONSC 4352, C.C.E.L. (4th) 142, Mew J. found that repudiation of contract was not established where the parties disputed compliance with post-termination amounts owed.
According to the Court, the Defendant’s breach was not “one act isolated from its surrounding circumstances”, it was a series of acts: the March 31, 2020 termination letter; the drafting of a detailed Full and Final Release with multi-faceted terms; the imposition of several additional entitlements in the proposed Enhanced Severance offer; and doing so not once but twice, by restating its demands in its letter of April 2, 2020.
Lesson for Employers
The Judge concluded that if the only consequence to the Employer for its imposition of new demands at the time of termination is to apologize and pay the amount that it was lawfully required to pay, there would be little or no incentive to comply with its termination provision. Accordingly, the Employer was required to pay common law reasonable notice damages to the Plaintiff.
Employers should be aware of their obligations when terminating someone’s employment without cause, and should equally uphold those obligations upon termination. If you are not fully aware of your legal obligations you should proactively contact a lawyer for assistance.
Contact the legal experts at CCPartners for advice on any matters relating to wrongful dismissal.
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