Courts Continue to Favour Employees after Termination

Courts Continue to Favour Employees after Termination

August 30, 2021

By Brian Babcock

We have written often about how Ontario courts tend to favour employees in wrongful dismissal law suits. Often, these cases involve the validity of a clause that attempts to limit payments sue on dismissal to less than required by law.

Perretta v. A Rand Technology Corporation illustrates a somewhat different take on the issue. It turned not on the validity of the clause, but in the employer’s failure to follow the provisions of the clause. It was costly for the employer.

In this case, the employer terminated without cause but refused to pay the employee the two weeks pay in lieu of notice required under the termination clause unless she agreed to conditions not included in the employment contract, all of which were for the employer’s benefit.

The judge decided that this constituted a ‘repudiation’ of the contract – that is, the employer indicating that it did not intend to follow the contract. Turnabout is fair play, and this meant that the employee was no longer bound by the termination clause, and successfully sued for damages based upon an entitlement to six months notice, or 13 times what was provided in the contract.

The test for repudiation is an objective one – meaning that the actual intent of the employer is not relevant; rather, the court asks whether an outside observer would conclude that the employer no longer intended to be bound by the contract. In reaching this decision, a judge looks at the contract itself, the surrounding circumstances, the motives of the employer, and most importantly, whether the impact on the employee would deprive them of substantially the whole benefit of the contract.

It is somewhat surprising that this judge equated loss of the “benefit” of the termination clause by the employee with loss of the benefit of the contract. However, an earlier Court of Appeal decision held that insisting on inserting a new contractual term can amount to repudiation, and that is essentially what the employer tried to do here. This is also consistent with earlier cases that point out that the reason to favour employees in applying contract terms is that employment contracts are almost always drafted by employers, and strict application against employers is the courts’ tool to encourage all employers to draft a lawful termination clause at the outset, and now, based on Perretta,  to follow it at the time of termination.

Even though the employer’s actions were simply a mistake, it turned out to be a very expensive error.

The additional asks in Perretta were not harsh requirements, consisting of a wide ranging but not unusual form of release and indemnity, return of company property, and the employee to update her LinkedIn profile. If that had been spelled out in the contract, it might well have been enforceable, and if the contract otherwise complied with Employment Standards Act provisions (on a side note, the judge also found the clause as worded invalid as not compliant with the statute).

The lessons here for employers are:

  • Take care in drafting termination clauses not only to comply with the ESA, but to include everything you need at termination
  • Upon termination, do not tie immediate payment under the clause to the employee doing anything not spelled out in the clause

As is usually the case, the lesson for employees is the value of having an employment lawyer review your rights upon termination. Otherwise, you may leave money on the table.