A case from the British Columbia Supreme Court, Klyn v. Pentax Canada Inc., 2024 BCSC 372, has reaffirmed the principle that bad faith conduct on the part of the employer may invalidate the termination provisions in an employee’s contract of employment.
An earlier Ontario case, Perretta v. Rand A Technology Corporation, 2021 ONSC 2111, establishes that where an employer does not abide by its own termination clause, they cannot later rely on enforcement of that clause.
What Happened in Klyn v Pentax?
At the time of termination, Mr. Klyn’s compensation consisted of a base salary and commission, among other benefits. The termination clause in his employment agreement stated that if he was terminated without cause, gave him the greater of (i) the minimum entitlements under the British Columbia Employment Standards Act, or (ii) 4 weeks per completed year of service prior to the signing of this Agreement, plus 4 weeks under this Agreement as an employee of Pentax Canada Inc. to a maximum of 18 months.
It was specified in the agreement that the compensation he would be owed under either of these options would include his salary and his average commission, calculated by the last two years’ earnings.
When Mr. Klyn was terminated, the termination letter put a number of additional conditions on the payments to be made in lieu of notice. Pentax only paid the salary portion of Mr. Klyn’s compensation, not the commission he was owed under the contract. They also only paid him for three months when he was owed 18 months, because he secured new employment.
What the Court Decided
Repudiation is a breach by one party to a sufficiently important term of the contract, which would amount to substantial failure of performance (e.g., refusing to perform the employee duties, or refusing to pay). This gives the other party the right to terminate the contract and pursue the available remedies for the breach.
When Pentax refused to pay the entirety of the pay in lieu of notice, namely the commission portion, it breached the obligations of its own contract. It was clear in the termination clause of the employment agreement that compensation for the purposes of the termination clause included commission earnings.
The reason Pentax provided for stopping the payments after three months was that Mr. Klyn had not complied with the mitigation conditions it imposed upon termination. He had, in fact, complied with the terms set out in the employment agreement. An employer cannot unilaterally impose a condition to payments which the employee is legally entitled to under contract. The failure to make the payments was a clear and unequivocal breach of the contract.
Pentax’s conduct repudiated the contract by breaching the termination provisions in the contract. The judge ordered the employer to pay wrongful dismissal damages based on common law standards. Additionally, the court ordered the employer to pay $25,000 of punitive damages for failing to act in good faith in the manner of dismissal.
If you are an employee who has been dismissed, JPak Employment Lawyers can help inform you of your rights and advise you of the compensation you are owed.
If you are an employer, it is important to review you contractual and statutory obligations to minimize the risk of having to pay additional damages.
Contact us for information about your rights and obligations.
Authors: Jonquille Pak and Ava Clarke
Date: June 11, 2024
