08/09/2024
Employer’s conduct found to repudiate otherwise valid contract
Law360 Canada (August 8, 2024, 3:03 PM EDT) --
Anthony Giannotti
The recent decision in Klyn v. Pentax Canada Inc., 2024 BCSC 372, (Klyn) from the Supreme Court of British Columbia should cause even further intestinal discomfort for employers as it demonstrates the court’s ever-growing protection of employees. As I noted a few months ago, the line of cases stemming from Waksdale v. Swegon North America Inc., 2020 ONCA 391, and Dufault v. The Corporation of the Township of Ignace, 2024 ONSC 1029, appear to be a cautionary beacon for all employers to not only have proper contracts in place to properly protect them but to also act in accordance with those contracts in a good faith manner.
Klyn was an independent contractor for the first six years of his relationship with Pentax. He then became an employee in 2005 under a valid contract, which clearly set out the terms of his remuneration, termination, mitigation and other points. The contract was slightly varied over the years with proper consideration being paid for the changes. In 2022, Pentax terminated him without cause. The termination provisions of the contract required him to mitigate his damages but not report to Pentax on his efforts. The contract provided that payments, as agreed in the event of termination, would be paid to Klyn as salary continuation; however, in addition to other amounts not being included in the amount being paid to Klyn, such as commissions, and based on the alleged failure to “report” on his mitigation efforts, Pentax unilaterally ceased payments to Klyn. The court found that the failure by Pentax “to make the payments required under the termination clause to be a clear and unequivocal breach of a central term of the contract” and found the employment contract was repudiated by Pentax.
The parties had agreed that a reasonable notice period in this case would be 18 months if the contract were invalid. The court agreed and awarded damages based on the 18-month period.
In Klyn, the court set out the applicable law as: “Repudiation is a breach of contract by one party giving rise to the right of the other party to terminate the contract and pursue the available remedies for the breach. A breach is a repudiation of the contract if it is a breach of a contractual condition or some other sufficiently important term of the contract so that there is a substantial failure of performance …”
The Klyn case is a poignant reminder of the necessity to “do what’s right” as opposed to protecting the bottom line. Justice Peter Edelmann in Klynn performed an analysis of the conduct of the employer, Pentax Canada Inc. and, in my opinion, quite correctly found that the conduct of Pentax constituted a clear repudiation of the employment contract (which contained a valid termination provision that would have protected Pentax but for its conduct.) This opened the door for the court to find common law damages for pay in lieu of notice instead of sticking to what was agreed upon in the contract by the parties.
To add further pain, the court awarded punitive damages for the conduct citing the principles that “an employer has an overriding duty of good faith and honest performance of the terms of employment. This duty includes the manner in which the employer terminates an employee … Punitive damages are an exceptional remedy. The objective of punitive damages is to punish, deter, and denounce misconduct that is, among other things, malicious, oppressive, harsh, vindictive, and reprehensible such that it undermines the notion of decency within the justice system.”
The court found that the termination letter purported to impose a number of conditions not contained in the contract. The court found that the most troubling aspect of the termination letter was a requirement to sign a “Full and Final Release Agreement” within seven days in order to accept the offer. While the language is indirect, it implied that Klyn’s entitlements under the contract were contingent on the signing of the release. The release was broad and included an assertion that all monies owed “have or will have been paid” presumably waiving any right to pursue funds that were already owed. The court held that the sending of a termination letter with terms so transparently in the employer’s interest couched in language that gave Klyn the impression that his entitlements depended on the acceptance of those terms was oppressive and clearly designed to leverage Klyn in the circumstances in an attempt to extract concessions to the sole benefit of Pentax. The court found this to be an implicit threat to withhold payments to which Klyn was legally entitled was not only oppressive but reprehensible.
The court went on to state, “Moreover, I find that Pentax’s conduct in deliberately failing to compensate a terminated employee according to even its own understanding of the terms of the contract warrants rebuke. I have taken into consideration that this is the same conduct which led to the repudiation of the contract, to Pentax’s detriment.”
Again, this case should serve as a template for hypervigilance on the part of employers and their counsel to ensure congruence between the written contract and the attendant actions in the cases of termination of employment.
Anthony Giannotti is a Certified Specialist in Civil Litigation by the Law Society of Ontario since 2004. He was voted “Lawyer of the Year” by his peers in Best Lawyers™ in Canada for Employment Law and has been recognized in Best Lawyers™ since 2022 as one of the best lawyers in Canada for Employment and Personal Injury law. He has acted as trial counsel in several precedent-setting cases, including Mustapha v. Culligan and Bouma v. Flex-N-Gate. Photo credit/copyright 2024 MARTA’S LENS
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