Regular subscribers to the Employers' Edge blog will have read about the downfall of a seemingly endless stream of termination provisions in recent years. Typically, the decision rests on the language of the provision; however, much like the subject of last week's blog (found here) the very recent case of Humphrey v Mene Inc. is an important reminder that an employer's conduct may serve to invalidate an employment contract and open the door to increased liability.
In Humphrey v Mene Inc., the plaintiff served as the Chief Operating Officer ("COO") for the defendant employer. Prior to assuming this role, the plaintiff served as Vice President of Operations pursuant to a Consulting Services Agreement.
In or about December 2018 - several months after accepting the role of COO - the plaintiff was presented with a new employment agreement which included a termination provision limiting her entitlements to those provided under the Employment Standards Act, 2000. Notably, the plaintiff was not given the opportunity to negotiate her salary and received no additional benefits as a result of signing the contract. For this reason, the court found that the termination provision was unenforceable, in part, for want of fresh consideration.
Shortly after signing the new employment agreement, the plaintiff requested a salary review and, in response, was placed on a two week suspension pending a decision from the employer as to whether she would be terminated from employment or merely demoted to a non-executive level position. The court unsurprisingly found that this conduct amounted to constructive dismissal and noted that the employer had consistently behaved in a manner that was hostile, belittling and controlling towards the plaintiff.
When the plaintiff indicated that she would not accept a demotion, she was terminated with cause - although this position was ultimately withdrawn after the employer destroyed all relevant documents purportedly in accordance with its document retention policy.
In light of these circumstances, the court went further and invalidated the without cause termination provision on the basis of repudiation - essentially holding that although the provision may otherwise be lawful, the employer's conducted was so significant that it rendered the provision unenforceable.
Justice Papageorgiou articulated this position as follows:
"Where an employer alleges cause and fails, or withdraws its cause allegation, or repudiates an employment agreement through acts which constitute constructive dismissal, the employer is not precluded from subsequently invoking a without cause termination provision for the purpose of calculating the employee's damages.
[However] even if the contract, properly construed, permits an employer to terminate without cause after a failed for cause termination, there are some breaches or acts of repudiation which are so significant, or of such an order of magnitude, that they render a without cause termination provision unenforceable.
All employment agreements are negotiated and agreed to on the basis of certain implied minimum expectations as to how the employer will conduct itself, the duty of good faith being one. An employee's agreement to accept terms which significantly impact on the employee's common law rights must be taken to be made in the expectation that the employer will comply with these minimum implied expectations. Where the employer significantly departs from such expectations, in my view, the employee should not be held to extremely disadvantageous provisions which he, she or they agreed to. This is not rewriting the contract but giving effect to what the parties must reasonably have intended."
Ultimately, the court found that the employer's conduct demonstrated an intention to no longer be bound by the applicable employment agreement. As such, it was disentitled from relying on the without cause termination provision.
Despite the plaintiff's relatively short 2.7 years of service, she was awarded 12 months reasonable notice. Interestingly, the employer's position that the plaintiff did not have the necessary minimum qualifications for her role was taken as an admission that it would be difficult for her to obtain comparable employment in the circumstances. The plaintiff was also awarded $25,000.00 in punitive damages and $50,000.00 in aggravated damages.
From start to finish this case serves as a clear example for employers of what not to do. As we have blogged about on previous occasions (see here), alleging cause as a litigation tactic is not looked kindly upon by the court and can result in a substantial award of damages against an employer. This is not to say that just cause terminations cannot be successfully achieved; however, before taking such action, consult with the team at CCPartners to determine whether you have a valid "just cause" case or whether a different approach to termination might be warranted.
The CCP team can assist employers in navigating terminations and drafting enforceable termination provisions. Please contact one of our lawyers who can assist with all of your workplace concerns.
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