Bad Faith Conduct by Employer can Repudiate Termination Clause

In the case of Humphrey v Mene, 2021 ONSC 2539, the Ontario Supreme Court held that egregious conduct by an employer can amount to repudiation of the employment agreement, such that the employer could not rely on the without cause termination provision in the agreement.

Facts

Ms. Humphrey started working for Mene Inc. (“Mene”) in 2017 pursuant to a consulting agreement.  She became Chief Operating Officer (“COO”) in mid-2018, amending the consulting agreement.   In December 2018, she received an employment agreement with the same role and pay as COO.  That agreement included a termination provision (the “Without Cause Termination Provision”) that indicated if she was terminated without cause, she would only be entitled to statutory minimums under the Employment Standards Act,.

Throughout her time at Mene, Ms. Humphrey was subjected to bullying, harassment, and other actions that constituted a toxic workplace. In January 2019, Ms. Humphrey wrote to her supervisor requesting a raise in her salary.  Her supervisor responded by questioning her dedication to the business and citing her shortfalls. The next month, Ms. Humphrey followed up with her supervisor regarding the salary increase request.  Two days later she was notified that she would no longer serve as COO, and she was suspended immediately.  

Following the suspension, Ms. Humphrey received a memo from Mene which notified her that she was being terminated with cause.  After a wrongful dismissal action was commenced, Mene became aware that it lost the documentation it was planning to rely on to prove Ms. Humphrey was terminated with cause. Five months after this realization, Mene abandoned its allegation of just cause and relied on the Without Cause Termination Provision to pay Ms. Humphrey the statutory minimum amount.  

Issues

The main issue in this case was whether the Without Cause Termination Provision was enforceable to limit Ms. Humphrey’s entitlement.

Analysis

For many reasons, it was held that Mene could not rely on the Without Cause Termination Provision.  

The court held there was no fresh consideration provided to Ms. Humphrey when she signed the new agreement in December 2018.  Her pay and position were the same in that contract. 

The court also held that Mene repudiated the employment agreement.  Mene’s actions of subjecting Ms. Humphrey to a toxic workplace, embarrassing her before co-workers and clients, and significantly exaggerating performance issues, showed that Mene was not complying with its obligation of good faith dealing.  

Further, the court held that Mene alleged cause for termination when it knew or ought to have known it did not have cause.   

The court held that the conduct of the employer was so egregious in this case that the employer could not rely on the Without Cause Termination Provision to limit Ms. Humphrey’s entitlement to payment in lieu of notice. 

Outcome

Ms. Humphrey was 32 years old and had approximately 3 years of service.  In spite of these factors, Ms. Humphrey was awarded 11 months’ payment in lieu of notice. 

Ms. Humphrey was also awarded aggravated damages of $50,000 and punitive damages of $25,000.  The court commented on some of Mene’s litigation tactics in making these findings. 

Takeaways

Typically, if an employer is not successful in opposing a constructive dismissal argument, or if an employer is unsuccessful in proving “just cause”, the employer will rely on its without cause termination provision to limit its exposure for payment in lieu of notice.  The Humphrey case is unique because the court held that an employer’s egregious conduct could prevent it from relying on its without cause termination provision in these circumstances. 

Of course, employers can avoid the risks raised in this case by treating their employees fairly in the workplace and in their investigations, termination decisions, and litigation conduct. 

This update was authored by Harper Grey lawyer, Scott Marcinkow and summer student, Arjun Dhaliwal. Have questions regarding the topic discussed? Contact Scott at [email protected] or anyone else listed on the authors page.