A recent decision by the Ontario Superior Court of Justice (the “Court”) illustrates that employers can expose themselves to significant liability by failing to comply with termination clauses in employment agreements.
In Perretta v Rand A Technology Corporation [Perretta], the Court awarded an employee pay in lieu of reasonable notice because it found that her employer repudiated the employment agreement between them after terminating her employment.
In Perretta, Rand A Technology Corporation (“Rand”) terminated Candice Perretta’s employment on a without cause basis. The employment agreement between Rand and Ms. Perretta (the “Agreement”) contained a termination clause which provided that Ms. Peretta would receive two weeks of notice, or pay in lieu of notice, in addition to her statutory termination entitlements under the Employment Standards Act, 2000 [ESA] if her employment were terminated without cause.
Upon dismissal, Ms. Perretta received only her ESA termination entitlements. In order to receive the additional two weeks’ pay that had been contracted for, Rand indicated twice that Ms. Perretta must sign a Full and Final Release, which would waive her right to bring any legal claim against Rand related to her employment. Rand did not offer any additional compensation or benefits to Ms. Perretta as consideration for her acceptance of its offer to her. When Ms. Perretta retained counsel, who pointed out its mistake in not paying out the additional two weeks to her, Rand apologized to her and proceeded to pay those amounts to her.
Ms. Perretta rejected Rand’s offer, and brought a motion for summary judgement, arguing that Rand had repudiated the Agreement through their conduct, thereby entitling her to much larger common law reasonable notice. Rand argued that the entitlements set out in the termination clause should still apply.
The Court awarded Ms. Perretta reasonable notice damages representing six months’ pay, in addition to the sales commission income and the monetary value of the benefits she would have received during that period.
The Court agreed with Ms. Perretta’s argument that Rand had repudiated the Agreement by refusing to follow the terms of the termination provision, which should have unconditionally entitled Ms. Perretta to an additional two weeks of notice. Therefore, Rand was barred from subsequently relying on the Agreement to prevent Ms. Perretta from commencing a claim for much larger common law reasonable notice. Despite Rand’s apology and transfer to Ms. Perretta of the two weeks of notice it had contracted for with her, this did not remedy the breach of contract it committed by imposing new conditions on her.
The Court also noted that even if Rand had not repudiated the Agreement, the termination provisions contained within it would have been unenforceable for contravening the ESA. This violation of the ESA resulted from the Agreement’s termination with cause provision because it stipulated conduct that did not rise to the higher standard required under the ESA, specifically wilful misconduct, disobedience, or wilful neglect of duty that was not trivial and not condoned by the employer.
Takeaways for Employers
Perretta reminds employers that they must ensure to comply with the termination provisions they have agreed to with employees, otherwise they risk their termination clauses being rendered unenforceable.
Further, if employers wish to impose conditions on any notice or pay in lieu thereof that is more generous than an employee’s minimum statutory entitlements, they must clearly set out those conditions in the employment agreement. If employers attempt to unilaterally impose conditions that were not previously contracted for in connection with the employee’s receipt of notice, they run the risk of being found to have repudiated the employment contract, therefore exposing themselves to a potential much larger common law reasonable notice claim.
Additionally, the decision serves as a reminder of the recent changes in the law brought on by another recent decision, Waksdale v Swegon North America Inc, regarding termination clause enforceability. Employers should be proactive in reviewing the termination clauses contained in their employment agreements to ensure that all components of a termination clause and any reference to statutory entitlements comply with the ESA.
This blog is provided as an information service and summary of workplace legal issues.
This information is not intended as legal advice.