Court Rules on Repudiation of Termination Clause and Awards Punitive Damages for Litigation Conduct :

In Humphrey v Mene Inc ( 2021 ONSC 2539) Justice Papageorgiou in a 68 page decision awarded 12 months notice to a 32 year old COO making $90,000/year with 2.7 years service.

There was a number of interesting issues decided by the Court :

  1. The Court found that the  termination provision was unenforceable because there was no fresh consideration when it was introduced mid term. The Court found that merely changing her status ( but not her pay ) from a consultant  to an employee did not suffice as she had in law been an employee throughout this period anyways .
  2. More interestingly, the Court also invalidated the without cause termination clause on the basis of repudiation. This is the concept that an employer cannot rely on an otherwise lawful  without cause termination provision in certain circumstances . This is how the Judge set it out

[135] I do not read any of the cases before me as laying down the proposition that in all cases where an employer asserts cause and fails it may nevertheless rely upon a without cause termination provision afterwards. The law of wrongful dismissal is based in contract. In all of the above cases, the courts had before them specific agreements with specific clauses which the courts construed. If the parties specifically agreed that the without cause termination provision required an election at the time of termination or that it expressly covered only certain acts of constructive dismissal, I see no reason why a court should not enforce that.

[136] In my view, the following principles emerge from the above cases:

a. 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: Roden, Moore, Simpson

b. However, in all cases, it is a question of construction of the without cause termination provision before the Court as to whether, properly construed, the without cause termination provision applies. Such clauses are subject to strict construction: Ebert, Matthews.

c. 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: Dixon. Although Dixon has not specifically been considered and accepted by appellate courts I find the reasoning compelling. 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.

d. However, minor or technical mistakes made in good faith by the employer will not constitute a repudiation sufficient to prevent the employer from relying upon the without cause termination provision: Amberer, Oudin.

In other words, if the Employer acts in a manner inconsistent with the duty of good faith, this may invalidate the termination clause because good faith is part of all contractual provisions.

The Judge then goes on to set out why in this case the Employer’s conduct was such that it had repudiated its own agreement

[137] I am satisfied that in the circumstances of this case outlined above, Ms. Humphrey has established on a balance of probabilities that Men’s conduct, objectively viewed, demonstrates an intention to no longer be bound by the December 2018 Employment Agreement, thus repudiating it. The conduct which I have found includes setting her up to fail, subjecting her to a toxic workplace, embarrassing and humiliating her before co-workers and clients after her suspension, significantly exaggerating performance issues and the evidence it had in support of these at the time of termination, and alleging cause when it knew or should have known it did not have it. These are not mere technical breaches made in good faith. Men’s conduct in this case goes to the heart of the employment relationship.

My Comment on Repudiation:

This concept of repudiation has the potential of forever changing the way employment law is practiced. It is an unfortunate common employer practice to allege just cause in situations where it is clear that it will fail and is being alleged simply as an intimidation tactic in order to get a better deal for the employer.  In this same category is the defendants’ counterclaim which alleges huge damages because of the plaintiff’s actions.

In the past if this tactic did not succeed in getting a settlement, the employer could simply drop the defence with little worry of any serious consequences. Now it seems that deploying tis tactics could have a serious blowback by invalidating an otherwise valid termination clause.

It is important to know that in this case, the Defendant had originally alleged just cause but had dropped the allegation before trial.

3. The trial judge also awarded the Plaintiff $25,000 punitive damages  because of the Defendant’s litigation tactics. The Judge referred to these actions of the Defendant as grounds for awarding these damages :

a) They led extensive evidence as to the Plaintiff’s poor performance even though they no longer alleged just cause .

b) Some of these performance issues related to a time before the Plaintiff was promoted to her COO position.

c) The Defendants pleadings referred to irrelevant matters which rose to the level of malice.

d) The Defendants never formally amended their pleading withdrawing the just cause allegation so that the public record was not corrected .

e) The Defendant either lied about the existence of certain documents or destroyed them.

f) The defendant breached two Court orders regarding production.

g) Most upsetting, the Defendant in their material made reference to the Plaintiff’s dating patterns in that she used an on line dating service . As the Judge said “ I find that Mene’s. need to refer to Ms Humphrey’s personal life very troubling. Who and how Ms Humphrey dates is no business of Men’s or they Court’s. 

By the way, the Court also awarded $50,000 in aggravated damages because of the mental distress suffered by the Plaintiff given the manner of the dismissal

Lessons to be Learned:

Although it seems OK for Plaintiff’s to routinely make out sized claims for unfair treatment, harassment and discrimination, it now seems quite risky for Defendant’s to use the same scorched earth tactics.

In any event, it is becoming clearer that the Court will scrutinize employer’s actions both before and during litigation and severely punish employers who act in a fashion outside the Courts’ vision of acceptable  behaviour.

Employment litigation may not be a tea party, but neither is it supposed to be a fist fight.