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Repudiation and wrongful dismissal: Breaking down the lessons from a B.C. ruling

In Klyn v Pentax Canada Inc., 2024 BCSC 372, the Supreme Court of British Columbia Found that, regardless of whether the termination provision contained within the employment contract was enforceable, the employee was entitled to wrongful dismissal damages under the common law due to the employer’s conduct.

Background

The employee began working for the employer in June 2001 as an independent contractor. He then became an employee of the company in January 2007.

An employment contract was entered into which included a termination provision that permitted the employer to provide pay in lieu of notice in the form of “salary continuance,” subject to the employee’s duty to mitigate. The termination provision also stated that commissions would be included in the employee’s termination entitlements, calculated using a 2-year average of commissions from the fiscal years preceding the termination.

In April 2022, the employee was terminated without cause. Upon termination, the employer attempted to impose non-contractual conditions on the employee’s contractual termination entitlements. For example, the employer imposed a condition that the employee to make monthly mitigation reports. While the employment contract did contain a requirement for the employee to mitigate his damages, there was nothing in the contract that required the employee to make mitigation reports. The employer threatened that termination payments would cease if the employee failed to comply with the mitigation reporting demand.

The employee did not make such mitigation reports, and the employer ceased payments in July 2022.

The court’s decision

In this case, the Court did not even look at whether or not the termination provision contained within the employment contract was enforceable.

Instead, the Court noted the ways in which the employer failed to meet its obligations under the employment contract: First, the few payments the employer did make upon termination did not include commissions as required by the employment contract; Second, the employer ceased payments when no mitigation reports were made by the employee – despite the employment contract containing no mitigation reporting requirement.

As such, the Court found that the employer had clearly and unequivocally breached a central term (i.e., the termination provision) of the contract and the employment contract was therefore repudiated by the employer. Accordingly, the employee was entitled to reasonable notice under the common law. The parties agreed that 18 months would be the appropriate reasonable notice period.

For clarity, repudiation is where a party breaches a fundamental term or condition of a contract – often by failing to perform the obligations or duties required by that contract. As a result of repudiating an employment agreement, an employer cannot rely upon the termination provision within that agreement.

Finally, the Court found that the employer’s conduct warranted punitive damages in the amount of $25,000.00. Some of the employer’s conduct that justified such damages included: the attempt to impose additional conditions to the employee’s termination entitlements; a requirement for the employee to sign a “Full and Final Release” to receive the contractual entitlements – especially since that release was extremely broad and attempted to waive the employee’s right to pursue funds that were already owed; the implicit threats to withhold payments that the employee was legally entitled to; and the employer’s failure to compensate the terminated employee even to its own understanding of what was owed under the employment agreement.

Lessons for employers

For employers, this case highlights the importance of being careful in their conduct towards employees upon termination, as well as the importance of adhering to the terms of an employment contract. Treating an employee unfairly or failing to comply with the obligations under the employment contract may increase the damages that an employer is liable for.

In many situations, wrongful dismissal claims for common law reasonable notice are based on assertions that the termination provision within the relevant employment contract is unenforceable and fails to contract out of common law entitlements. However, as this case clearly demonstrates, there is another way in which an employee may become entitled to common law reasonable notice, even if the termination provision is enforceable and the employment contract did contract out of the common law.

If an employer fails to comply with its own obligations pursuant to the employment contract, then a court may find that the employer has repudiated the employment agreement, and therefore the employer cannot rely upon an otherwise enforceable termination provision to determine how much an employee is owed upon termination. Instead, the employee will become entitled to reasonable notice under the common law.

Finally, the same conduct that resulted in a repudiation of to the employment contract may also support an award of punitive damages against an employer for a breach of the employer’s obligations of good faith and honest performance of the terms of the employment contract.

John Hyde is the managing partner at Hyde HR Law in Toronto. He advises management on all aspects of employment and labour law, including representation before administrative tribunals, collective agreement negotiation, arbitrations, wrongful dismissal defence and human rights.