Canadian Employment Law Today

Canadian HR Reporter, 2021 Jacquelyn Humphrey's employment history with Mene - — a designer, manufacturer and re- tailer of jewelry — started in 2016 in the capac- ity of director of global communications. She progressed to vice president, then COO some time between May and July 2018. In December 2018, Humphrey signed an employment agree - ment that purported to limit her entitlements to the employment standards minimums. In January 2019, on the heels of some perfor- mance issues, Humphrey asked for a salary in- crease. The CEO questioned her dedication to the company, removed her from her COO position and suspended her for two weeks. At the end of that period, the company would decide whether or not to terminate or demote her. Humphrey responded through her lawyer, prompting the company to terminate the relationship on a with-cause basis and allege serious performance failures, despite having never previously engaged in formal performance management with Hum - phrey. Humphrey sued for wrongful dismissal. Mene - abandoned its cause allegations, almost one year after asserting them, claiming that evidence of the employee's alleged misconduct had been destroyed. The issue of repudiation Wrongful dismissal cases should settle quickly after an employer abandons an allegation of just cause. In this case, though, Mene - believed it had an enforceable employment contract, which limited Humphrey's entitlement to the statutory minimums. Her position was that the contract was invalid because it was not supported by valid consideration, and because Mene - engaged in conduct that repudiated the relationship. The court agreed that there was no consider - ation for the agreement, but its treatment of the repudiation issue represents the most notewor- thy aspect of the decision. Precluding an employer from relying on a contract of employment that limits an employ- ee's entitlement to notice of termination be- cause the employer engaged in acts of repudia- tion is an unusual and extraordinary remedy. In the 1995 B.C. decision, Dixon v. British Columbia Transit, the court held that the employer had re- pudiated the employment agreement by taking a deceitful position of cause for dismissal. The employer was precluded from relying on its ter- mination clause. The decision in Dixon seemed to be an out- lier, until 2021. Court invalidates termination provision The court, finding Dixon persuasive, held that the employer's conduct was sufficiently egre- gious to invalidate the termination clause. The court found that, prior to termination, Mene - repudiated the relationship by removing Humphrey's responsibilities, suspending her, and threatening to demote her. The following also constituted repudiation: • The employer informed a vendor that Humphrey had been dismissed, prior to her receiving the suspension letter. It also sent a message to all employees advising that she was not a fit for the COO role. • The employer set up Humphrey to fail by promoting her with limited experience and failing to provide any performance feedback. • The employer subjected her to a toxic work - place. Relying on email and text communi- cations that predated Humphrey's promo- tion, the court held that the CEO's behaviour towards Humphrey violated "a fundamental and implied term of any employment relationship… to treat the employee with civility, decency, respect and dignity." • The employer exaggerated performance issues and alleged cause when it knew or ought to have known it had none. Further, it refused to abandon its position of cause for almost a year after initially asserting it. • The employer delayed paying Humphrey her statutory entitlements, despite abandon - ing its position of cause. The court grounded its findings of repudia- tion in the duty of good faith, which it named as an implied minimum expectation in the nego- tiation of all employment agreements. "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," said the court in Humphrey. "Where the employ - er 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 much reasonably have intended." The court noted that not every instance of wrongful conduct by an employer will consti - tute repudiation. An unsuccessful or withdrawn position of cause, asserted in good faith, does not invalidate a termination clause. A technical mistake or error by the employer would also not preclude it from relying on a termination provision. In the case of Humphrey, the court was satisfied that Mene - did not commit "mere technical breaches made in good faith." Rather, its conduct went "to the heart of the employ - ment relationship." Humphrey was awarded 11 months' wages at her salary of $90,000, aggravated damages of $50,000 due to the mental distress she suffered and $25,000 in punitive damages. The court relied on Mene - 's litigation conduct, trumped- up allegations of cause, dishonesty, failures to comply with court orders and irrelevant refer - ences to Humphrey's personal life for the award of punitive damages. Takeaways for employers As the court noted, Mene - could have chosen to part ways with Humphrey in a professional manner. A sensible approach may have been to provide her with a reasonable severance pack - age in exchange for a release, using its termina- tion clause as potential leverage. Its aggressive, no-holds-barred approach out of the gate cost it, at the very least, tens of thousands of dollars in legal fees and more than $150,000 in dam - ages. Employer counsel frequently say "bad facts make bad law" and the Humphrey case is a prime example. In addition to aggravated and punitive damages, employees can argue that an employ - er's bad faith represents repudiatory conduct sufficient to invalidate a bargained termination provision. We are likely to see such claims with increas- ing frequency. Significantly, in the Ontario decision of Per- retta v. Rand A Technology Corporation, released shortly before Humphrey, the court invalidated the employer's restrictive termination provision because it demanded that the employee provide a release in exchange for contractually agreed-to severance compensation. Despite the absence of bad faith, the court found that the employer's "mistake" represented a sufficiently serious act of repudiation to invalidate the termination clause. Perretta suggests that invalidation of ter - mination clauses for bad faith conduct may be the norm, not the exception, going forward. Ultimately, the best antidote for liability for bad faith conduct is to not engage in it. Take the high road. Be empathetic. Understand the vulnerability of employees at termination and be vigilant not to exploit it. As one senior em - ployment lawyer often said to clients, terminate like you're letting your best friend go. Employ- ees will always trade respect and courtesy for the remote prospect of a windfall. For more information, see: • Humphrey v. Mene - Inc., 2021 ONSC 2539 (Ont. S.C.J.). • Matthews v. Ocean Nutrition Ltd., 2020 SCC 26 (S.C.C.). • Dixon v. British Columbia Transit, [1995] B.C.J. No. 2465 (B.C. Arb.). • Perretta v. Rand A Technology Corporation, 2021 ONSC 2111 (Ont. S.C.J.). Rishi Bandhu is an employment lawyer in Oakville, Ont., advising employers and em- ployees on all aspects of employment and labour law. He can be reached at (905) 849-0025 or rishi@blpc.ca. 6 | | June 30, 2021 June 30, 2021 « from ONTARIO EMPLOYER'S on page 1 Employer's conduct egregious enough to invalidate clause Cases and Trends Cases and Trends

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