The Ontario Superior Court of Justice recently held that an employer’s actions upon terminating an employee, namely its refusal to pay severance pay and other benefits, objectively exhibited its intention to not be bound by the terms of the employment contract. In summary, the Court determined that the employment contract had therefore been repudiated and that as a result, the employer was unable to rely on the contract to limit the employee’s entitlements.
Perretta v. Rand A Technology Corporation: A Repudiation Saga
The facts of Perretta v. Rand A Technology Corporation reveal circumstances that are liable to occur and to have occurred many times over in the employment context. The plaintiff, Ms. Perretta, worked as a sales representative for the defendant beginning in 2018, at which point she signed an employment contract. Like many employment contracts, the agreement provided that the employer could terminate the employee’s employment without cause. However, Rand, the employer, could only do so by providing two weeks of notice or pay Ms. Perretta benefits and severance pay as required by Ontario’s Employment Standards Act in lieu of notice.
In the wake of Canada’s first COVID-19 wave, the plaintiff’s employment was terminated without cause. Rand refused to pay Ms. Perretta the agreed-upon two weeks’ pay unless she first signed a full and final release, which was presented to her as a component of an “Enhanced Severance” package. After significant back and forth between the two parties, Rand apologized, admitting it had made a mistake, and transferred the equivalent of two weeks’ pay and the monetary value of entitlements under the Employment Standards Act to the plaintiff.
Following this episode, the plaintiff argued that she was entitled to damages for wrongful dismissal at common law because Rand had repudiated the employment contract. She further submitted that the termination provisions in the contract were unlawful and unenforceable because they breached the Employment Standards Act.
Repudiation of Employment Contracts in Ontario
Repudiation occurs when one of the parties to the agreement breaches a fundamental term or condition of the contract, thus demonstrating it no longer wishes to be bound by the terms of the contract. Where a contract is repudiated, the other party to the contract is entitled to sue for damages.
In the case at hand, at para. 20, the Ontario Superior Court of Justice delineated the test for repudiation as whether:
[C]onsidering surrounding circumstances, including the nature of the contract, the motives which prompted the purported breach, and the impact of the party’s conduct on the other party, a reasonable person would conclude that the breaching party no longer intends to be bound by the contract with the result that the innocent party would be deprived of substantially the whole benefit of the contract.
The Court added that a party can repudiate a contract without intending to do so, as the assessment determining repudiation is an objective one. The test for determining repudiation requires a three-step analysis:
- An objective assessment of the defendant’s breach
- The deprivation of the entirety of the bargain
- An examination of the surrounding circumstances
In this case, the employer had a contractual duty to pay the plaintiff two weeks’ of pay upon termination without cause and without notice, in addition to entitlements provided as per Ontario employment law, which it refused. Furthermore, the Court underscored that the defendant only agreed to pay Ms. Perretta her two weeks’ pay if she signed a full and final release. This condition was stated four times in the employment termination letter and was demanded on two occasions, which the Court interpreted to signify that this demand was neither casual nor accidental.
The presiding judge in the case was satisfied that a reasonable person assessing the employer’s conduct would conclude the employer had demonstrated its intention to not be bound by the employment contract. The Court further reached this conclusion due to Rand’s admission that it had made a mistake.
The judge then turned to the second prong of the repudiation test, examining whether there was a deprivation of the entirety of the bargain. This part of the test demands an assessment of the impact of the breaching party’s conduct on the other party, in this case, the ex-employee. Importantly, the breach must deprive the innocent party of “substantially the whole benefit of the contract,” as delineated in Remedy Drug Store Co. Inc. v. Farnham at para. 50. The Court concluded that by refusing to pay the two weeks’ salary, the employer had deprived the plaintiff of the whole benefit of the employment contract.
Finally, as it concerns determining the surrounding circumstances of the repudiation, the Court highlighted that Ms. Perretta’s employment was terminated in the wake of the COVID-19 pandemic, a time of increased vulnerability and economic uncertainty.
Employers: Be Aware of Post-Termination Conduct
This case highlights the importance of employer behaviour during as well as after the termination of an employee. The Court examined and dissected the defendant’s actions post-termination, taking the pandemic and the employee’s vulnerable situation into account. Furthermore, the decision highlights that Ontario courts are unsympathetic to employers who repudiate employment contracts, even if they do so unintentionally or by accident, as was argued in this case.
Contact Ottawa Employment Lawyers Tierney Stauffer LLP
Our employment law lawyers can help minimize employer exposure to liability, and provide legal assistance with employment contracts, disciplinary actions or termination, and much more. If you are an employee with concerns about your employment contract or termination package, we will review your situation and advise you of your rights. To discuss your matter with a member of our employment team, contact Tierney Stauffer LLP in Ottawa & Eastern Ontario at 1-888-799-8057 or contact them online to schedule a confidential consultation.