In Singh v Clark Builders, 2025 ABKB 3 Justice Becker Brooks had a situation where the employer alleged just cause and therefore did not pay the 90 day contractual severance clause in the contract.
The Judge found that there was no just cause.
Could the employer still rely on the 90 day clause or did they repudiate the contract and thus have to pay common law notice, which in this case was held to be 12 months ?
First the Judge accepted these 4 principles :
- 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.
- 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.
- 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.
- 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.
The Judge then ruled as follows:
[92] An employer’s failure to establish just cause will not disentitle the employer from enforcing an otherwise valid without cause termination provision provided the allegations of just cause are made in good faith: Simpson v Global Warranty, 2014 ONSC 6916 at para 8.
[93] In my reading of the authorities surveyed in Humphrey, provided there is a good faith basis for the employer to allege just cause, both at termination and during litigation, an employer who subsequently decides not to pursue just cause or is unable to prove just cause, is notprecluded from relying on a without cause termination provision.n
[94] The good faith requirement means the allegation of just cause cannot be brought dishonestly or for an improper, dishonest, or fraudulent purpose.
My Comments :
The process would seem to unfold as follows:
- If just cause is alleged initially but dropped before trial and the defendant subsequently pays the contractual severance, the issue would then shift to determining if the initial claim of just cause was done in good faith.
- If just cause is alleged and not dropped and then the Court finds that there was no just cause, the issue would then go as to whether the allegation, although not proven, was made in good faith.
- Remember this is only relevant where the without cause termination clause is valid.
- It appears that this may be the same analysis in a constructive dismissal case. Therefore even if the plaintiff wins the constructive dismissal argument, unless they can show that the employer acted in bad faith, they will be limited to their contractual severance, not common law notice.
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