In a recent court case in British Columbia called Klyn v Pentax Canada Inc., 2024 BCSC 372, an employee named Mr. Klyn was successful in a wrongful dismissal claim against his former employer, Pentax. Specifically, the employee claimed that the employer breached their employment contract by failing to pay him his full compensation following his wrongful dismissal as part of his severance package. Ultimately, the court found the employer’s failure to pay commissions was a repudiation of its obligations under the termination clause of its own employment contract, entitling the employee to a fair and reasonable severance package consisting of 18 months’ of pay in lieu of reasonable notice after working for the company for 21 years.
Facts
Mr. Klyn began working for Pentax in 2001 as an independent contractor. In 2007, he was then hired on as a permanent employee working in a sales role in British Columbia. As a result, he was asked to sign an employment contract, which provided that his income was 100% commission-based, along with other employee health benefits plans. Additionally, it included the following termination of employment clause:
TERMINATION ON NOTICE
In the event that the Company must terminate your employment for reasons other than Just Cause, the Company may do so upon providing you with, (in addition to payments pursuant to this Agreement that are owed to you up to and including the date of termination) working notice or payment in lieu of notice, (and statutory severance pay if applicable), limited to the greater of:
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- a) Your minimum entitlements pursuant to the Employment Standards Actonly or;
- b) 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 CanadaInc. to a maximum of 18 months. The Company will continue only your Compensation during the applicable notice period hereunder in equal regular payroll instalments, or provide to you the equivalent pay in lieu of notice as a “salary continuation” and subject to your duty to mitigate.
For the purpose of this Termination on Notice section only, Compensation is defined as: the average of the commission payments paid or payable to you in the two (2) fiscal years completed (or part fiscal years) immediately before the date that your employment is terminated.
In February 2014, Pentax informed Mr. Klyn in writing of pending changes to his compensation structure. Subsequently, starting in September 1, 2014, his compensation changed from 100% commission to a base salary of $100,000, and imposing new commission rates. Mr. Klein was required to sign an acknowledgement and was paid a “signing bonus” of $1,000.00 for the new employment contract.
On April 4, 2022, Pentax terminated Mr. Klyn’s employment in writing on a without cause basis. The termination letter attempt to place a number of conditions on payments the company would provide in his severance package, including a duty to report mitigation (re-employment) efforts monthly and details of all job offers received. On April 29, 2022, Pentaxsent a further email warning that failure to comply with the mitigation reporting requirements could result in payments ceasing. Following the date of his wrongful dismissal, Pentax had paid only the employee his base salary portion until July 8, 2022, when it ceased payments altogether.
Court Decision on Employer’s Repudiation of Employment Contract
The court began by discussing a concept in employment law called “repudiation of employment contract” (or fundamental breach). This occurs when either the employer or employee causes a significant change to the employment contract. For example, it could include an employee engaging in conduct incompatible with the obligations, such as refusing to perform an essential part of their job duties and responsibilities in the future, without justification. In that case, an employer is entitled to accept the repudiation and treat the employment relationship as terminated because the parties no longer agree on the fundamental terms of the contract (Roden v. Toronto Humane Society, 2005 CanLII 33578 (ON CA)). In other words, rather than finding a wrongful dismissal, a court could find that the employer had the right to accept the employee’s’ repudiation of employment contract and to treat the employment contracts as terminated. As it was the employee who effectively caused the employment relationship to come to an end, they are not entitled to damages for wrongful dismissal.
To support his case, Mr. Klyn claimed that the employer committed various breaches of its obligations that amounted to a repudiation of employment contract. Although Pentax made some payments to him between April and July, the payments only included salary and not commissions as required by the contract. For its part, the employer could not provide a satisfactory explanation for its failure to pay the employee his commissions during that period, apart from making a rather vague statement that there was a disagreement about the amount owed.
Moreover, the court also found that the employer ceased making termination-related payments in July 2022, presumably because the employee did not comply with its demand to report mitigation efforts. While confirming the employee had a common law duty to mitigate his wrongful dismissal damages by seeking new employment, the requirement to “report” his mitigation efforts was not an obligation he agreed to either in the employment contract or otherwise.
As a result of these findings, the court held that the employer’s failure to comply with its own understanding of its obligations was a clear and unequivocal breach of the contract.
After the court reviewed the severance package, it found that the employer’s requirement that the employee “sign a Full and Final Release within 7 days in order to accept the above offer” was improper, because it wrongly implied that the employee’s entitlements under the termination clause of the employment contract were contingent on the signing of the release. The court specifically held that this was “oppressive” and “designed to leverage the uncertainty an employee would feel in the circumstances in an attempt to extract concessions.”
As a result, the court awarded $25,000 in punitive damages to the employee because of the employer’s conduct in deliberately failing to pay his commissions understanding of the (repudiation), which was a rather egregious violation of its duty of good faith and honest performance in the termination of a long-term employee. Specifically, the court stated:
“sending of a termination letter with terms so transparently in the employer’s interest couched in language that, at the very least, seeks to give the terminated employee the impression their entitlements depend on the acceptance of those terms is oppressive. The termination of a long-term employee without notice would almost invariably present a significant change to their financial situation. I find the letter was clearly designed to leverage the uncertainty an employee would feel in the circumstances in an attempt to extract concessions to the sole benefit of the employer. In those circumstances, I find the implicit threat to withhold payments to which the employee was legally entitled is not only oppressive but reprehensible.”
Speak to a Wrongful Dismissal Lawyer
Dealing with a termination of employment, wrongful dismissal claims and negotiating a severance package can be stressful, overwhelming and confusing. If you are an employee who requires a consultation with an Ontario wrongful dismissal lawyer to review your severance package or a wrongful dismissal claim, to better understand your legal rights as an employee, Bune Law, Toronto Employment Lawyer, can help.
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