By Stephen Dugandzic
In Klyn v Pentax Canada Inc, 2024 BCSC 372, the British Columbia Supreme Court addressed the enforceability of a termination clause in an employment contract, emphasizing the impact of an employer’s conduct during the termination process.
Background:
• Employment History: Brad Klyn began working with Pentax in 2001 as an independent contractor and transitioned to an employee role in 2007.
• Compensation Structure: Initially, Klyn’s compensation was entirely commission-based. In 2014, Pentax altered this structure, introducing a base salary of $100,000 alongside new commission rates.
• Termination Clause: The employment contract stipulated that upon termination without cause, Klyn would receive the greater of:
• Minimum entitlements under the British Columbia Employment Standards Act (ESA), or
• Four weeks’ pay per completed year of service prior to signing the agreement, plus four weeks under the agreement, up to a maximum of 18 months.
• Termination: In April 2022, Pentax terminated Klyn’s employment without cause.
Employer’s Conduct Post-Termination:
• Payment Issues: Pentax made some payments between April and July 2022 but included only salary amounts, excluding commissions as required by the contract.
• Mitigation Reporting Requirement: Pentax imposed a condition that Klyn must report his job search efforts to continue receiving payments. This reporting requirement was not stipulated in the original employment contract.
• Cessation of Payments: In July 2022, Pentax ceased all payments, citing Klyn’s non-compliance with the newly imposed reporting requirement.
Court’s Findings:
• Repudiation of Contract: The court found that Pentax’s actions—failing to pay commissions and imposing unauthorized conditions—constituted a repudiation of the employment contract.
• Entitlement to Common Law Notice: Due to the repudiation, the termination clause was deemed unenforceable, and Klyn was entitled to common law reasonable notice.
• Punitive Damages: The court awarded Klyn $25,000 in punitive damages, highlighting Pentax’s bad faith conduct during the termination process.
Key Takeaways:
• Employer Conduct Matters: Even if a termination clause is otherwise enforceable, an employer’s conduct during termination can invalidate it.
• Good Faith Obligations: Employers must act in good faith and adhere strictly to contractual terms during the termination process.
• Consequences of Breach: Failing to honour contractual obligations can lead to increased liabilities, including common law notice entitlements and punitive damages.
This case underscores the importance for employers to meticulously follow contractual terms and maintain good faith during terminations to avoid legal repercussions.
*Always seek legal advice. The above is for information purposes only.
Stephen Dugandzic received his Juris Doctor degree from the University of Alberta in 2013 and is Calgary-based. He previously practised with Bennett Jones LLP and Taylor Janis LLP before founding YYC Employment Law Group in 2018.