Employment contracts play a crucial role in defining the terms of employment, including salary, job responsibilities, and termination conditions. When an employment contract is repudiated, it essentially means that the contract has been cancelled, either by mutual agreement or due to a breach by one of the parties. This blog explores the concept of repudiation in employment contracts, its legal implications, and a recent case that illustrates how courts handle such disputes.
What Is Repudiation of an Employment Contract?
Repudiation of a contract (including an employment contract) occurs when one party demonstrates, through words or actions, that they no longer intend to be bound by the contract. This can happen in two primary ways:
- Mutual Agreement – Both parties agree to release each other from their contractual obligations.
- Unilateral Breach – One party violates the contract, effectively allowing the other party to consider the contract void.
A notable example of repudiation in employment law can be found in the recent case of Timmins v. Artisan Cells, which involved the termination of an employee and the employer’s refusal to honour the terms of the employment agreement.
Employee Terminated Without Cause After Three Years’ Employment
In the Timmins case, the plaintiff employee, who had worked for the employer (Artisan Cells) since 2019, was terminated without cause after three years of service. Initially hired as Vice President of Cell Technologies, the employee was later promoted to Executive Vice President and then Chief Development Officer. His compensation included an annual salary of approximately $476,000 CAD, stock options, an annual bonus, benefits, and insurance.
His employment agreement contained specific provisions regarding termination. If terminated without cause, he was entitled to the greater of either:
- Three months’ salary; or
- His statutory entitlements under Ontario’s Employment Standards Act, 2000 (ESA), which in his case amounted to three weeks’ notice/termination pay.
Employer Fails to Honour Termination Clause of Employment Agreement
On March 3, 2023, the employer terminated the employee’s employment and provided a termination letter stating that he would receive only one week’s severance pay. Additionally, the employer stipulated that the remaining severance payment would only be made if the employee signed a full and final release waiving any future claims against the company.
Faced with this ultimatum, the employee refused to accept the offer and sought legal counsel.
Dismissed Employee Asserts Repudiation of Employment Contract by Employer
The employee argued that the employer’s failure to pay the full severance outlined in the employment contract constituted a fundamental breach. By conditioning the payment on signing a broad release, the employer effectively indicated that it did not intend to be bound by the contract’s severance provisions.
The employee contended that this amounted to a repudiation of the employment agreement, rendering it null and void. Consequently, he argued that his damages should be assessed based on reasonable notice rather than the contractual three-month notice period.
Proving Repudiation of an Employment Contract
To establish repudiation, a party must demonstrate that the other party’s actions indicate an unwillingness to be bound by the contract. Courts assess repudiation using an objective test, considering:
- The nature of the contract;
- The circumstances surrounding the alleged breach; and
- The motives behind the breaching party’s actions.
In employment law, courts have consistently held that an employer’s refusal to pay contractual severance unless a release is signed constitutes anticipatory repudiation—a type of breach in which one party demonstrates, before performance is due, that they will not fulfill their contractual obligations.
Employment Contract Repudiated; Employee Awarded 9 Months of Reasonable Notice
In Timmins, the Ontario Superior Court ruled in favour of the employee, concluding the employer had repudiated the employment contract by failing to pay the agreed severance. The Court denounced the employer’s attempt to force the plaintiff into signing a broad release as a condition of payment as an unfair bargaining tactic. By its words and actions, the employer had repudiated the employment contract, rendering it void.
With the contract having been declared void, the Court determined the employee’s damages should be assessed based on common law reasonable notice rather than the contractual three-month period. As a result, the plaintiff was awarded nine months’ salary as reasonable notice, totalling $456,908.82.
Key Takeaways for Ontario Employers & Employees
Timmins v. Artisan Cells demonstrates essential lessons for both employers and employees in Ontario. For employers, the case underlines the importance of honouring employment agreements, particularly when terminating an employee. Employers should avoid unilaterally altering or withholding payments. Additionally, conditioning a severance payment on signing an extensive release may constitute anticipatory repudiation, leading to the contract being rendered void and a larger reasonable notice period than initially agreed.
Employees presented with a severance package that appears to contradict the terms of their employment contract should obtain legal advice immediately before signing any documents. Ensuring an offered severance package accords with their employment agreement and Ontario’s employment laws is critical for preserving an employee’s rights.
Contact Haynes Law Firm in Toronto for Top-Tier Advice on Employment Contracts
At Haynes Law Firm, we review employees’ termination packages to ensure they receive the compensation they’re entitled to and don’t leave anything on the table. We also work with employers across a broad range of industries to ensure terminations are conducted fairly and in a manner that reduces the risk of wrongful dismissal claims and other issues.
Paulette Haynes, founder and managing officer of Haynes Law Firm, is a trusted lawyer and advisor. She has dedicated her career to achieving the best outcomes for both employees and employers through practical, results-driven solutions. To schedule a confidential consultation, please contact us online or call 416-593-2731.
