The provincial Courts in Canada continue to release decisions which interpret termination provisions and provide further guidance on the enforceability of these provisions. In the recent case of Humphrey v. Mene, 2021 ONSC 2539, the employer, Mene Inc. (“Mene”), attempted to rely on the “without cause” termination provision in the Plaintiff’s employment agreement after originally terminating her for cause and then withdrawing the allegation.

The Plaintiff had been working for the Defendant and/or a related company since July 2016. At the time of her termination, she was in the role of Chief Operating Officer (“COO”). In December 2018, Humphrey signed a new employment agreement that included a termination provision. She was subsequently terminated in February 2019 for cause, as further outlined below. After withdrawing their “with cause’ termination, Mene tried to rely on the “without cause” termination provision.

In proposing the new employment agreement during the course of her employment, Humphrey was not offered any compensation, such as a raise, or any benefit in exchange for her signing it. The court found that the termination provision was void for lack of consideration.

Despite this finding, the court went on to consider whether Mene’s conduct constituted repudiation which would preclude them from relying on the termination provision contained in the new employment agreement.

In January 2019, Humphrey asked for a review of her salary. In response, Mene questioned her dedication to the business. After following up, she was removed from her position and provided a letter suspending her with pay for two weeks while they decided whether they would demote or terminate her. Mene engaged in other problematic conduct, such as telling other employees and clients that she no longer worked there and/or was suspended and restricted Humphrey’s access to her business accounts. The court found that the workplace was toxic and that Humphrey was mistreated based on Mene’s conduct which they considered “hostile, belittling and controlling” and due to Mene’s abusive communications.

In the court’s eyes, Humphrey’s suspension alone amounted to a fundamental change to the terms of her employment and Humphrey was constructively dismissed when she was given the suspension letter. The court also found that there was evidence that Mene’s conduct breached the “fundamental and implied term of any employment relationship…that the employer will treat the employee with civility, decency, respect and dignity”.

In February 2019, Mene formally terminated Humphrey “with cause”. This allegation was revoked after Mene advised that the documentation related to her termination was destroyed. Mene had found out that the documentation no longer existed in July 2019, but failed to tell Humphrey until January 2020. The court found that Mene had been looking for evidence to support a “for cause” termination where cause did not in fact exist, which was consistent with their past behaviour, and was penalizing her for asking for a raise.

The court found that Mene’s conduct demonstrated that Mene no longer intended to be bound by the employment agreement and therefore repudiated it. This conduct included the toxic work environment, humiliation and embarrassment, exaggerating issues in support of the termination, and alleging cause when it knew or should have known there was none. As such, Mene could not rely on the “without cause” termination provision.

The court also noted that, in any event, the “without cause” termination provision would not apply. This is because the termination provision did not contemplate situations where the employee was constructively dismissed because of a toxic workplace or embarrassment and humiliation. The court relied on Matthews v. Ocean Nutrition Canada Ltd., 2020 SCC 26 in outlining that the termination provision must cover the exact situation that arose on the termination.

Humphrey was awarded a reasonable notice period of 12 months, reduced to 11 months after taking into account her mitigation efforts. Despite only being 32 years old, employed for approximately three years and earning $90,000 a year, the court found that being terminated for cause six months after being promoted to COO would be difficult to explain to potential employers. Further, the court found that it was difficult for women, especially of that age, to find senior executive positions.

Humphrey was also awarded $50,000 for aggravated damages and $25,000 for punitive damages.

Take Aways

Given the ever-growing law on termination provisions, it is important that employers keep their employment agreements up to date. In having any current employees sign new or updated employment agreements, they must ensure that some form of consideration is provided as the contract, including any termination provision, would likely be unenforceable without it. Further, the Humphrey’s case suggests that an employer may be able to rely on a “without cause” termination provision even after originally alleging cause. However, caution is advised because an employer’s conduct may be used by the court to justify voiding the employment contract based on repudiation. Such conduct could include alleging “just cause” when the employer knew or should have known that just cause did not exist.