Canada: Failure To Comply With Termination Provisions May Be Considered Repudiating A Valid Employment Agreement

The case Perretta v. Rand A Technology Corporation, 2021 ONSC 2111, demonstrates that employers must abide by termination clauses as they run the risk of being found to have repudiated an otherwise valid employment agreement due to their conduct.

Facts

The plaintiff, Perretta, was terminated from her position without cause after working with the defendant for 5.5 years. The plaintiff's employment contract provided that Rand A Technology Corporation ("Rand") could terminate her employment without cause by providing two weeks of notice or pay in lieu of notice plus the minimum notice or pay in lieu of notice, benefits, and severance pay required by the Employment Standards Act   ("ESA"). Instead of abiding by the clause, the plaintiff was advised by Rand that the additional two weeks owed beyond the ESA minimums would be withheld unless she signed a full and final release, a condition that was not included in the employment contract. After consulting with Perretta's legal counsel, Rand apologized and transferred the equivalent of two weeks' pay and the monetary value of her entitlements under the ESA. Nevertheless, the plaintiff brought a summary judgment motion arguing that Rand had effectively repudiated the employment contract due to Rand's conduct.

The Ontario Superior Court was asked to consider, among other issues, whether the employment contract between Perretta and Rand was repudiated by the defendant.

Repudiation of Employment Contract

The Ontario Superior Court agreed with the plaintiff and found that the defendant had effectively repudiated the employment contract. Repudiation of a contract, whether an employment contract or otherwise, occurs by the words or conduct of one party to a contract that shows an intention not to be bound by the contract. The Court cited Remedy Drug Store Co. v. Farham, 2015 ONCA 576, to outline the objective test for anticipatory repudiation. In particular, the court is to ask whether a reasonable person would conclude that the breaching party no longer intends to be bound by the employment contract. In doing so, the court must consider the surrounding circumstances including the nature of the contract and the motives which prompted the breach.

In this case, the Court determined that the defendant's conduct constituted a repudiation of the employment contract. Rand did not specify in its employment termination letter that the plaintiff had to sign a Full and Final Release before receiving the two weeks' salary required by the termination provision. The Full and Final Release's use of extensive terms and organization demonstrated that the release was not a mistake on the part of the employer and demonstrated Rand's intent to make these demands against the plaintiff. Lastly, the defendant heavily relied on its reversal of position only after receiving legal advice from the plaintiff's counsel. Taking the acts and the surrounding circumstances together, the Court concluded that a reasonable person assessing Rand's conduct would surmise that in demanding that its employee execute a Full and Final Release and comply with its terms, Rand no longer intended to be bound by the employment contract.   

Because the Court found that the employment contract was repudiated by Rand, it was not necessary to determine whether the termination provisions were unenforceable. However, the Court held that even if the employment contract was not repudiated, the termination clause would be unenforceable, as the just cause provisions contained several clauses that directly contradict the ESA.

Conclusion

The Ontario Superior Court's decision demonstrates that employers must remain diligent to avoid the consequences of failing to abide by employment contracts. Failure to abide by employment contracts can jeopardize an employer's ability to rely on termination provisions to limit entitlements. If an employer requires a release for entitlements beyond the ESA minimum notice, employers must clearly state it within their contract in order to prevent repudiation of the employment contract. Instead of paying 2 weeks' notice on top of the ESA minimums, the employer was required to pay 6 months' notice in total. The defendant could have avoided paying the increased notice had it simply complied with its own contract.

This case serves as a warning to employers to ensure that they comply with their contractual obligations. Giving an apology will not be enough to cure the fatal mistake of failing to abide by a contract.

It is important that when considering a termination of an employee, you have the right advice. If you have been terminated, prior to signing anything, you should contact a lawyer.

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