By Stephen Dugandzic
In Klyn v Pentax Canada Inc, 2024 BCSC 372, the Supreme Court of British Columbia examined how an employer’s conduct during the termination process can invalidate an otherwise enforceable termination clause.
Background:
• Mr. Klyn began working with Pentax as an independent contractor in 2001 and became an employee in 2007.
• His employment contract included a termination clause entitling him to the greater of the minimum standards under the British Columbia Employment Standards Act or four weeks per completed year of service prior to signing the contract, plus an additional four weeks under the contract, up to a maximum of 18 months.
• The contract stipulated that termination compensation would be based on the average of commission earnings over the previous two years.
Key Legal Principles:
1. Repudiation of Contract:
• Repudiation occurs when one party breaches a fundamental term of the contract, allowing the other party to terminate the contract and seek remedies.
• The court found that Pentax repudiated the employment contract by failing to pay commissions as part of the termination payments and by ceasing payments altogether due to Mr. Klyn’s non-compliance with a reporting requirement that was not stipulated in the contract.
2. Employer Conduct and Termination Clauses:
• Even if a termination clause is enforceable, an employer’s conduct during the termination process can invalidate it.
• In this case, Pentax’s actions—such as failing to pay agreed-upon commissions and imposing additional conditions not outlined in the contract—demonstrated bad faith and led to the invalidation of the termination clause.
3. Duty to Mitigate and Reporting Requirements:
• While employees have a duty to mitigate damages after termination, imposing additional reporting obligations not specified in the contract can be deemed unreasonable.
• Pentax’s requirement for Mr. Klyn to report mitigation efforts, including job offers, was not part of the original contract and contributed to the finding of repudiation.
Outcome:
• The court held that due to Pentax’s repudiation of the contract, Mr. Klyn was entitled to common law reasonable notice rather than the contractual termination provisions.
• Additionally, the court awarded $25,000 in punitive damages to Mr. Klyn for Pentax’s conduct during the termination process.
Implications:
This case underscores the importance for employers to adhere strictly to the terms of employment contracts during termination and to act in good faith. Deviations or additional conditions not specified in the contract can lead to the invalidation of termination clauses and result in additional liabilities.
*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.