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<\/a><\/div>\nA knowingly false allegation of \u201ccause\u201d can void an otherwise valid termination provision.<\/p>\n
In Dixon v British Columbia Transit<\/em>, [1995] BCJ No 1892 (BC SC), the British Columbia Supreme Court held that an employer could not rely on its contractual termination provision to limit its severance obligation because the contract did not provide for a measure of liquidated damages in the event of wrongful dismissal; the contract only provided for compensation in lieu of notice if dismissal was pursuant to the employer’s lawful right to dismiss in the absence of cause.<\/p>\n <\/p>\n The plaintiff was president of British Columbia Transit. His employment was terminated after only seven months on the job. BCT at first claimed that the plaintiff was fired for cause. Shortly before trial, BCT admitted that he was dismissed without cause but sought to limit his damages to one year\u2019s salary plus benefits, as provided in the plaintiff\u2019s employment contract.<\/p>\n No cause for dismissal existed at the time of the dismissal, nor was any found later. The Board of Directors knew when they dismissed the plaintiff that they had no cause. They therefore knew that they were deliberately breaching the contract they had made with the plaintiff.<\/p>\n One of the legal questions presented by that case was whether an employer could rely on a contractual termination provision to limit its severance obligations following its unsubstantiated allegations of cause.<\/p>\n In allowing the plaintiff\u2019s claims for wrongful dismissal damages, Justice Hamilton of the BC Supreme Court reasoned as follows:<\/p>\n [84] Dealing first with the assessment of general damages, the contract of employment provides for only two exigencies in the event of termination, one, in the event of dismissal for cause, and the other, for dismissal without cause. The contract makes no provision for what happens if Dixon is dismissed for cause in circumstances where Transit knows there was no cause. That is, the contract does not provide for a measure of liquidated damages in the event of wrongful dismissal. The contract only provides for compensation in lieu of notice if dismissal is pursuant to the employer’s lawful right to dismiss in the absence of cause.<\/b><\/p>\n [85] In the circumstances here I find that Transit cannot limit its liability to one year’s salary plus benefits when after Dixon has been unemployed for 16 months Transit amends its defence to admit it had no cause. The fact it knew from the outset that it did not have cause was never admitted and came out only at the trial through the evidence of directors \u2026\n<\/p>\n<\/blockquote>\n While dated, the BC Supreme Court\u2019s decision is consistent with more recent Ontario decisions, such as that of Humphrey v. Mene<\/em>, 2021 ONSC 2539, about which I wrote in my post Employer\u2019s Conduct Repudiated Contractual Termination Provision: ONSC <\/a>.<\/p>\n Effectively, the employer\u2019s actions serve to repudiate the employment contract. Repudiation of a contract, whether an employment contract or otherwise, \u201coccurs by the words or conduct of one party to a contract that show an intention not to be bound by the contract\u201d: Remedy Drug Store Co. v. Farnham, 2015 ONCA 576, 389 D.L.R. (4th) 671, at para. 42, citing Guarantee Co. of North America v. Gordon Capital Corp., [1999] 3 S.C.R. 423, at para. 40; Potter v. New Brunswick (Legal Aid Services Commission), 2015 SCC 10, [2015] 1 S.C.R. 500, at para. 149; Roden v. The Toronto Humane Society (2005), 259 D.L.R. (4th) 89, at para. 50.<\/p>\n As Gillese J.A. wrote for the Court of Appeal for Ontario in Spirent Communications of Ottawa Ltd. v. Quake Technologies (Canada) Inc., 2008 ONCA 92, 88 O.R. (3d) 721, at para. 37: “To assess whether the party in breach has evinced such an intention [to repudiate the contract], the court is to ask whether a reasonable person would conclude that the breaching party no longer intends to be bound by it.”<\/p>\n While I am yet to find a succinct statement of law to which I can point, in my own opinion, there must be an implied duty that an employer will not falsely allege cause. The Supreme Court of Canada observed that not only is work fundamental to an individual’s identity, but also that the manner in which employment can be terminated is equally important: Machtinger v. HOJ Industries Ltd.<\/p>\n In my assessment, the situation is similar to issues of improperly drafted termination provisions. Recall Justice Laskin\u2019s oft-cited observation in Machtinger, at p. 1004, \u201cIf the only consequence employers suffer for drafting a termination clause that fails to comply with the ESA is an order that they comply, then they will have little or no incentive to draft a lawful termination clause at the beginning of the employment relationship.\u201d<\/p>\n If the only consequence an employer suffers for knowingly alleging cause for termination is an order that it comply with its contractual termination provision, which acts to limit and curtail its severance obligations, then they will have little or no incentive to abstain from making such false allegations. And, yes, I recognize that the false allegation of cause may also attract aggravated and punitive damages, but those issues require separate analysis. Here, I am focusing on core principles of contract law.<\/p>\n Dixon v. British Columbia Transit<\/em> appears to affirm that thinking. <\/p>\n Justice Papageorgiou comes very near to an outright adoption of Dixon, and the arguments presented above, in paragraph 136(c) of her reasons for decision in Mene<\/em>:\n<\/p>\n \nEven 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 v. British Columbia Transit, [1995] B.C.J. No. 2465]. Although Dixon has not specifically been considered and accepted by appellate courts I find the reasoning compelling. 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\u2019s agreement to accept terms which significantly impact on the employee\u2019s 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.\n<\/p><\/blockquote>\n The takeaway for employers should be clear: Employers should only allege cause where they reasonably believe, in good faith, that it exists. Alleging cause for termination where you know it does not exist can prove costly \u2013 not only may such act attract significant extraordinary damages, but it can also serve to void what may have otherwise been an enforceable termination provision. Moreover, the allegation of cause will almost always incent the employee to challenge the dismissal, increasing transaction costs.<\/p>\n If you are an employer and if you believe that you may have cause to terminate an employee\u2019s employment, let\u2019s discuss strategies and approaches to address the situation. The solicitation of legal advice can be a step to demonstrate that any decision made was made in good faith.<\/p>\n The takeaway for employees is that if your employer has alleged \u201ccause\u201d for the termination of your employment, then you may have more rights and remedies than you might have if your employer simply terminated your employment \u201cwithout cause.\u201d<\/p>\n The word \u201ccause\u201d has a specific legal definition in Ontario. It can be difficult for an employer to prove \u201ccause.\u201d Before you agree to a severance package offered to you by your former employer and certainly before you concede defeat and simply walk away with nothing, let\u2019s discuss to what you may actually be entitled.<\/p>\nFacts<\/h3>\n<\/p>\n
Decision of the BC Supreme Court<\/h3>\n<\/p>\n
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Commentary<\/h3>\n<\/p>\n
Takeaways for Employers<\/h3>\n<\/p>\n
Takeaways for Employees<\/h3>\n<\/p>\n
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