Humphrey v Mene, 2021 ONSC 2539 is a new Ontario Superior Court of Justice decision where the court found that an employer could not rely on a termination clause because the relevant employment contract was not valid (no consideration).
However, my summary and commentary focuses on the court’s findings in obiter that there were other reasons to ignore the termination clause:
- The employer could not utilize the clause because it had breached the employment contract through its harsh and disingenuous actions in terminating the plaintiff’s employment, including its claim that it had just cause for termination;
- The clause itself did not contemplate the exact circumstances of termination, so it was unenforceable. The court arrived at this conclusion with reference to Matthews v Ocean Nutrition, 2020 SCC 26.
The plaintiff employee was awarded a very high reasonable notice severance award, plus aggravated damages in the amount of $50,000 and punitive damages in the amount of $50,000.
Facts
The key facts in this case pertaining to my summary are as follows:
- The plaintiff had worked for the employer for a relatively short period of about 3 years
- Sometime after starting employment, the plaintiff had signed an employment contract which contained a termination clause which purported to limit how much reasonable notice severance she would be entitled to on termination of her employment without cause
- During the plaintiff’s employment, the employer was increasingly hostile, rude and aggressive towards her
- The plaintiff had been promoted to COO shortly before the employer suspended her;
- When the employer suspended the plaintiff, it advised the staff of this, creating the implication of misconduct
- Shortly after this, the employer terminated the plaintiff’s employment. The employer advised the board of directors that the reason for the termination was extensive conversations with the plaintiff’s team-mates and an increasing number of complaints about her from team-mates, executives and third parties. The employer’s ultimate evidence respecting these allegations contained disingenuous and vague allegations
- The court found that the employer’s stated reasons were disingenuous, and that the actual reason the employer terminated the plaintiff’s employment was because she asked for a raise, or some other improper motivations
- The court found that the harsh manner of dismissal caused the plaintiff humiliation
Analysis / Conclusion
The court found at para 55 that the “cumulative impact of the toxic workplace, the imminent demotion, and the concurrent negative communications with [the employer’s] clients and staff about Ms. Humphrey when she was suspended constitute constructive dismissal (or repudiation)”.
The court then went on to consider whether the employer’s repudiation (serious breach) of the employment agreement prevented the employer from relying on the termination clause. The principles it relied on to make its decision on this point were as follows:
[120] Constructive dismissal is an example of repudiation. […] … at least in the employment context, conduct that constitutes repudiation can fall well short of an explicit statement from the employer that he or she no longer intends to be bound by the contract and may be determined based upon a reasonable person’s determination which can be inferred from the defendant’s course of conduct.
[121] However, merely terminating an employment agreement or constructively dismissing an employee is not necessarily a repudiation which disentitles an employer from relying a negotiated without cause termination provision. […]
[…]
[136] In my view, the following principles emerge from the above cases:
Where an employer alleges cause and fails, or withdraws its cause allegation, or repudiates an employment agreement through acts which constitute constructive dismissal, the employer is not precluded from subsequently invoking a without cause termination provision for the purpose of calculating the employee’s damages: Roden, Moore, Simpson
However, in all cases, it is a question of construction of the without cause termination provision before the Court as to whether, properly construed, the without cause termination provision applies. Such clauses are subject to strict construction: Ebert,
Even if the contract, properly construed, permits an employer to terminate without cause after a failed for cause termination, there are some breaches or acts of repudiation which are so significant, or of such an order of magnitude, that they render a without cause termination provision unenforceable: Dixon. […] All employment agreements are negotiated and agreed to on the basis of certain implied minimum expectations as to how the employer will conduct itself, the duty of good faith being one. An employee’s agreement to accept terms which significantly impact on the employee’s common law rights must be taken to be made in the expectation that the employer will comply with these minimum implied expectations. Where the employer significantly departs from such expectations, in my view, the employee should not be held to extremely disadvantageous provisions which he, she or they agreed to. This is not rewriting the contract but giving effect to what the parties must reasonably have intended. [underline added]
However, minor or technical mistakes made in good faith by the employer will not constitute a repudiation sufficient to prevent the employer from relying upon the without cause termination provision: Amberer,
The court concluded that based on the above principles that the employer’s conduct demonstrated an intention to no longer be bound by the employment contract, thus repudiating it, and that the repudiation (breaches) were “of such magnitude” that the employer was “disentitled from relying on” the clause.
The court went on to use the Matthews case to find that the termination clause was inapplicable in any event because it did not contemplate exactly what actually happened in this case, reasoning as follows:
[141] Finally, although it is a minor point, in my view the Without Cause Termination Provision does not expressly apply to all of the acts of constructive dismissal which I have found. While it specifies that it applies regardless of her position within the organization and as such would apply if the sole act of constructive dismissal were her demotion, it does not say that it applies if she is constructively dismissed because of a toxic workplace, or because she is embarrassed and humiliated before Menē’s clients and her co-workers as I have found. [underline added]
[142] Following a strict construction of the Without Cause Termination Provision as well as the direction in Matthews that clauses which limit an employee’s common law entitlements must cover the exact situation which has arisen, I find that the Without Cause Termination Provision does not apply even if not void for want of consideration and even if the repudiation does not rise to the level required. I note that I requested submissions from both parties on this issue and they both disagreed with me, but I still think it is the correct interpretation of the Without Cause Termination Provision given the decision in Matthews.
Finally, the court went on to award both aggravated and punitive damages. Very significantly, the court did not just consider the moment of termination itself, but considered the employer’s conduct during the employment relationship in its determination that the plaintiff was entitled to aggravated and punitive damages. This also was on the basis of Matthews (SCC).
The judgment in this case was for 12 months reasonable notice severance (reduced to 11 months for failure to mitigate), plus $50,000 in aggravated damages and $25,000 in punitive damages.
My Take
This decision is quite favorable to plaintiff employees in almost every respect. The case should serve as a warning to employers that engage in brutal and dishonest tactics in an attempt to assert just cause: courts have quite a bit of discretion, and that is a bad thing for you if you are the “bad guy”.
This case is also potentially much more significant than it might appear at first glance. The most significant points in my view were:
- The court ignored a termination notice clause in part on the basis that the employer had breached the contract so significantly. The caselaw is not entirely clear on the point, but some cases have found that an employer would still be able to rely on the contract if it breached it – even a major breach
- The court applied the principle from Matthews about strict interpretation of a bonus plan to a termination clause, and indicated that it did not cover the exact situation which transpired, so it did not limit severance. The court even suggested this was a “minor point”. In my view, this is anything but minor: this reasoning could be used to get around almost any termination clause in the right situation
- The court used Matthews again to look at a large portion of the employment relationship in determining aggravated damages. This is also significant and many prior cases have declined to do this, instead confining the analysis to the termination of employment itself.
It remains to be seen if this case will be followed or politely disregarded. It also remains to be seen whether Alberta courts are willing to go as far as the Ontario court went in this case. It should be interesting.
Bow River Law
Joel Fairbrother is an employment lawyer serving Alberta. He is an employment lawyer and partner at Bow River Law LLP, based in Calgary, Alberta.
Bow River Law is an Alberta employment law firm, specializing in Alberta employment law, Alberta human rights (discrimination) and Alberta labour law.
A published copy of Humphrey v Mene can be found at the following link: https://www.canlii.org/en/on/onsc/doc/2021/2021onsc2539/2021onsc2539.html?searchUrlHash=AAAAAQAOMjAyMSBPTlNDIDI1MzkAAAAAAQ&resultIndex=4
