The Employer Post-Dismissal Release Repudiated Contract

Written by Lewis Waring, Paralegal, Student-at-Law, Editor, First Reference Inc.

In Peretta v Rand v Technology Corporation (“Perretta”), an employer repudiated an employment contract by insisting that a new term be added after the contract had already come into effect. The reason that the employer’s insistence on adding a new term resulted in the repudiation of the contract was that the new term was so important that the employer’s attempt to force the employee to agree to it showed an intention to not be bound by the original contract.

Facts of the case

The employer was a global technology company in the engineering industry. The employee worked for the employer as a sales representative after being promoted from the role of customer advocate.

The employee had been hired on September 29, 2014, and continued to work for the employer for six years until her dismissal without cause on March 31, 2020. According to the employment contract at issue, the employee was entitled to “two weeks of notice or pay in lieu of notice plus the minimum statutory notice or pay in lieu of notice, benefits and severance pay required by the Employment Standards Act, 2000.” This termination clause had intended to guarantee the employee the minimum amounts guaranteed to her under the ESA plus additional parting compensation. It was this additional parting compensation that became an issue in this case.

In the dismissal letter, the employer tried to force the employee to sign a “Full and Final Release” before releasing the additional compensation of two weeks. Under the contract, the employee had not agreed to sign a release. The two weeks’ additional compensation was guaranteed to the employee automatically upon being dismissed without cause. As such, the employer’s attempt to force the employee to sign a release before obtaining the additional two weeks’ compensation was an attempt to change the original contract it had signed with the employee.

The employee responded to the employer’s demand by retaining a lawyer. After receiving a letter from the employee’s lawyer, the employer apologized for attempting to require the employee to sign a release and transferred to her the two weeks’ additional compensation. The employee, recognizing that the employer’s conduct had essentially repudiated the contract, filed an application against the employer in Small Claims Court to obtain reasonable notice at common law. The Small Claims Court found that, by attempting to withhold the employee’s full termination compensation, the employer had committed a wrongful dismissal and awarded her six months’ compensation.

The employer’s repudiation of its contract

An employer can be found to have repudiated a contract when its conduct suggests it has an intention not to be bound by the contract. In layman’s terms, this means that an employer has said or done something which shows it is planning to break its promise to an employee-a promise to which it agreed to be legally bound to in a formal contract.

An employer thus does not need to actually breach a term of an employment contract to be found to have breached the contract. It is enough that an employer’s conduct shows that it intends to not follow through with its promises under the contract. By showing that it intends to breach the contract, the employer repudiates the contract. The rules of employment thus prevent employers from using their position of power over an employee to gain advantages that were not part of their original agreement.

In Perretta, the employer repudiated its contract with its employee on April 7, 2020. This date was important because on that day the employer withheld the employee’s wages for her alleged failure to comply with the new term it had forced upon her. By enforcing this new term, the employer showed its intent not to be bound by the original contract and thus repudiated the contract. The conduct which led to the employer’s repudiation, in other words, was its attempt to force the employee to comply with a new term that she had not agreed to. By trying to force the employee to be bound by a promise which was not included in her contract, the employer showed its intention not to respect the employment contract. By showing this intention not to be bound, the employer repudiated its employment contract.

Furthermore, the employer failed in its attempt to retract its repudiation of the contract. At some point, the employer realized it had exposed itself to liability and attempted to backtrack by apologizing and showing it was willing to respect its promises to the employee. Although the employer apologized to the employee and paid her amounts owed in accordance with the original contract, these actions did not cancel or “cure” the fact that it had repudiated the contract. Once the employer had shown that it did not intend to be bound by its employment contract, the contract itself no longer existed and could not be brought back to life by any sort of atonement or retractions by the employer.

Entitlement to reasonable notice at common law

All employees are entitled to reasonable notice at common law unless an employment contract legally restricts the amount of compensation they are entitled to upon dismissal. The employee in Perretta was entitled to reasonable notice because her employment contract’s attempt to limit her entitlement to reasonable notice failed. The employer failed to limit the employee’s entitlement to reasonable notice because it had in fact destroyed the contract by repudiating it through its conduct.

The legal consequences of words and actions

The reason that the employer in Perretta could not undo its repudiation of the contract relates to a principle that has guided many decisions which have enforced penalties against employers who have breached the rules of the Employment Standards Act, 2000. The rules of employment in Ontario are constructed around the principle that employers are to be proactively discouraged from breaching their obligations to employees.

One manifestation of this principle is the inability of employers to simply “undo” or “take back” conduct which has been found to be a repudiation of a contract. Instead, employers who breach a contract by repudiation are required to compensate or otherwise remedy the damage caused by their decision to repudiate the contract. Without some type of penalty enforced for choosing to ignore obligations to a contract, employers would essentially be free to breach a contract on a whim, knowing the worst-case scenario would merely be a requirement to fulfill their existing obligations. The rules of employment in Ontario require employers to stick with their decision to repudiate a contract, thus actively preventing employers from breaching their employment contracts and therefore encouraging employer compliance with the Employment Standards Act, 2000.