Most employers are familiar with the idea that employees can “quit” or be “fired.” But what’s less obvious and more risky is when an employer unintentionally repudiates the employment contract.
Repudiation happens when one party fundamentally breaches or shows they no longer intend to be bound by the contract. In employment law, this can be a bit messy. Unlike other commercial contracts, the employment relationship is dynamic and based heavily on trust, fairness, and ongoing obligations.
When an employer repudiates a contract, the employee can treat the relationship as terminated and potentially bring a wrongful dismissal claim even if you didn’t “fire” them in the traditional sense.
Here’s what you need to watch for.
Changing Key Terms Without Consent
Unilaterally changing core terms of the employment contract is a common trigger for repudiation.
This includes:
- Reducing salary or commission
- Demoting the employee or materially changing job duties
- Changing hours or work location in a way that impacts the employee significantly
Even if the employment agreement gives you some flexibility (e.g. “duties as assigned”), the change can’t fundamentally alter the nature of the job. If you impose changes without the employee’s clear agreement, you’re risking constructive dismissal, which courts consider a form of repudiation.
Tip: Always get a clear, written agreement for any significant change. Ideally, offer something in exchange (like a bonus or temporary benefit) to make the change binding.
Toxic Work Environment or Harassment
Employers have a duty to provide a safe and respectful work environment. If an employee is subject to ongoing harassment, bullying, or a toxic workplace—and the employer doesn’t address it—this can be seen as a breach of the implied duty of good faith and fair dealing.
This isn’t just a moral obligation. Courts treat these situations seriously and may find that the employer’s failure to act repudiated the employment contract. This gives the employee the right to walk away and sue for damages.
Reminder: A failure to investigate harassment complaints or apply your workplace policies fairly can carry real legal risks. If in doubt, pause and review your obligations under the Occupational Health and Safety Act and the Human Rights Code.
Placing Employees on “Suspension” Without Cause
Unless your employment agreement explicitly allows it, suspending an employee without pay—especially when there’s no misconduct—can be seen as repudiation.
Even paid suspensions can raise issues if they are:
- Unreasonably long
- Not based on clear, communicated policies
- Done without an investigation or explanation
If the employee can show that the suspension was arbitrary or handled unfairly, courts may find that the employer broke the contract, even if there was no termination letter.
There is growing case law that tells us that even an unfair Performance Improvement Plan (“PIP”)can be sufficient to destroy the trust necessary in an employment relationship.
Solution: Build clear suspension language into your employment agreements. Include your right to suspend with or without pay and ensure policies are followed consistently. Ensure that any PIP is justified and fair, do not use a PIP as a disciplinary tool.
Failing to Pay Wages or Commissions On Time
Failing to pay agreed wages, commissions, or bonuses—even once—can be seen as undermining the contract. If the employee feels they can’t rely on being paid properly, they may be justified in claiming constructive dismissal.
This includes situations where:
- Commission structures are changed without notice
- Bonus plans are revoked or delayed after work has been completed
- Payroll errors go unresolved for long periods
The Employment Standards Act sets minimum standards—but even if you’re meeting those, the employment contract might promise more. Breaking those promises can be enough for repudiation.
Bad Faith Conduct or Eroding Trust
Sometimes, it’s not one big event—but a series of smaller actions that damage the relationship enough to constitute repudiation. Examples:
- Micromanaging or targeting an employee unfairly
- Repeatedly criticizing in public or creating a hostile dynamic
- Undermining authority or excluding the employee from key meetings
If the trust at the core of the relationship is broken—especially if it’s deliberate or sustained—it may amount to a constructive dismissal.
Final Thought: Clarity and Communication Are Your Best Risk Controls
For employers and HR professionals in a busy business, it’s easy to miss these issues while trying to keep everything running. But even small missteps can add up to big liability if an employee walks and claims constructive dismissal based on your actions.
Before making any big changes to an employee’s role, pay, or work environment, pause and ask:
- Do we have their written consent?
- Are we acting in a way that maintains trust and fairness?
- Have we documented everything?
If the answer to any of those is “not really,” that’s your signal to slow down and get legal advice.
