If you are a regular reader of our blog, you’ll already know that we’re big advocates of conducting regular audits on your employment contracts. There are many good reasons for conducting regular audits, along with your legal counsel, but as many employers now know, the termination provision is of particular importance. During this type of audit, lawyers typically focus on reviewing the drafted language in your termination-related provisions to determine if the language still stands up in light of our ever-evolving case law.
While this sort of review can never be undervalued, a recent case reminds us of another key review to undertake before terminating an employee–confirming the termination package aligns with the promises in the employment contract.
What Happened?
In this case, the employment contract promised that in the event the employee was terminated without cause, the employee would be provided with the greater of their minimum standards entitlements or three months of pay. Three years after entering into the contract the employer decided to terminate the employee on a without-cause basis.
Upon termination, and despite the contract promising the greater of minimum standards or three months of pay, the employer only offered the employee one week of pay. The employer offered to pay the remainder of the three months promised by the contract only if the employee signed a full and final release. Beyond limiting future claims, the full and final release also included terms requiring the employee to agree that they wouldn’t disclose the terms of the settlement or disparage the employer.
Ultimately, the Judge determined that in failing to provide the entitlements promised by the contract’s termination clause, the employer demonstrated that it no longer intended to be bound by the terms of the contract.
Why Does this Matter?
Ultimately, like the outcome in this case, when the employer has demonstrated that they no longer intend to be bound by the terms of the contract (at law we call this repudiation of a contract), they can no longer seek to rely on a term that limits the employees’ entitlements upon termination. Practically, this means that all that hard work you put into the contract in a bid to limit potentially significant entitlements is out the window…and all because of a failure to follow the very promises you made in the contract. As a result, the employee would be entitled to common law reasonable notice upon termination which is typically far more generous than minimum standards or whatever was initially promised in the contract.
The best way to avoid an outcome like the one in this case is to check the terms of the contract before terminating and ensure that you a) understand those promises and b) are actually delivering on those promises. To be sure that you deliver on your promises, we recommend that you reach out.
