Court awards dismissed employee $25,000 in punitive damages based on employer’s termination letter purporting to withhold entitlements unless employee signed a waiver

March 4, 2025, eAlert No. 602

A British Columbia judge held that an employee who was dismissed without cause was entitled to common law damages for failure to give reasonable notice as the employer had repudiated the employment contract by failing to make contractually obligated payments following the dismissal, thereby rendering the contract unenforceable. In addition to awarding the employee damages based on a reasonable notice period of 18 months, totaling more than $300,000, the judge also awarded $25,000 in punitive damages, given the implication in the termination letter that the employee’s entitlements under the contract were contingent on his signing a release.

The Facts:

When he was dismissed without cause, an employee brought an action seeking damages related to his dismissal.

Brad Klyn started working with Pentax in June 2001 as an independent contractor, subsequently becoming an employee in January 2007 as a territory manager responsible for developing sales of Pentax’s medical equipment, endoscopic devices, and other products in British Columbia. Under his employment contract dated November 29, 2006, Klyn’s compensation was 100 percent commission-based, plus benefits. The contract included a “termination without cause” provision stating:

TERMINATION ON NOTICE

In the event that the Company must terminate your employment for reasons other than Just Cause, the Company may do so upon providing you with, (in addition to payments pursuant to this Agreement that are owed to you up to and including the date of termination) working notice or payment in lieu of notice, (and statutory severance pay if applicable), limited to the greater of:

Your minimum entitlements pursuant to the Employment Standards Act only or;

4 weeks per completed year of service prior to the signing of this Agreement, plus 4 weeks under this Agreement as an employee of Pentax Canada Inc. to a maximum of 18 months. The Company will continue only your Compensation during the applicable notice period hereunder in equal regular payroll instalments, or provide to you the equivalent pay in lieu of notice as a “salary continuation” and subject to your duty to mitigate.

For the purpose of this Termination on Notice section only, Compensation is defined as: the average of the commission payments paid or payable to you in the two (2) fiscal years completed (or part fiscal years) immediately before the date that your employment is terminated

On April 4, 2022, Klyn’s employment was terminated in writing on a “without cause” basis. The termination letter set out Klyn’s entitlements and purported to place several conditions on post-termination payments, including a duty to report his mitigation efforts on a monthly basis detailing all job offers he had received and a reminder of the non-solicitation clause in his employment contract. The letter also included a requirement to sign a “Full and Final Release Agreement” within seven days “in order to accept the above offer,” which included an assertion that all monies owed “have or will have been paid.” Klyn did not sign the release.

On April 29, 2022, Pentax sent Klyn an e-mail warning him that not sending in the mitigation reports could result in the termination of his payments. From the time of his dismissal, Pentax paid only the salary portion of Klyn’s pay. On July 8, 2022, it ceased all payments.

Klyn brought an action for damages arising from the termination of his employment and moved for summary judgment. He obtained new employment in February 2023.

The Arguments:

Klyn argued that Pentax had repudiated the employment contract through its post-termination conduct, including failing to pay him commission and ceasing all payments after July 2022. He submitted that, in addition to damages for common law reasonable notice, he was entitled to punitive damages, given Pentax’s conduct including requiring him to sign a release in order to access his contractual entitlements.

Pentax indicated that it had not paid commission amounts post-termination because there was a disagreement about the amount owed. It acknowledged calling for Klyn to sign the release, but submitted that punitive damages were not warranted, as it had not ceased payments as a result of his failure to sign it.

The Decision:

Justice Peter Edelmann of the B.C. Supreme Court held that Pentax repudiated the employment contract, and awarded Klyn damages for failure to give reasonable notice as well as punitive damages.

Citing Potter v. New Brunswick (Legal Aid Services Commission), 2015 SCC 10 (CanLII), Lancaster’s Supreme Court Decisions, May 26, 2015, Edelmann began by setting out the law on repudiation, noting that “[r]epudiation is a breach of contract by one party giving rise to the right of the other party to terminate the contract and pursue the available remedies for the breach,” and that “[a] breach is a repudiation of the contract if it is a breach of a contractual condition or of some other sufficiently important term of the contract so that there is a substantial failure of performance.”

Observing that, even if there was some dispute over the amount of commission owed under the contract, he “fail[ed] to understand why Pentax [would not] have at least paid the amount it considered to be required under the contract, in compliance with its understanding of its own obligations,” Edelmann determined that Pentax’s failure to make the payments required under the termination clause was a “clear and unequivocal breach of a central term of the contract,” amounting to repudiation and entitling Klyn to damages based on the common law.

With respect to the quantum of damages, Edelmann accepted the reasonable notice period of 18 months agreed to by the parties, and held that Klyn’s income should be calculated based on an average of Klyn’s T4 income over the past two years, less his mitigation earnings, totaling $326,095.78, to be reduced by the amount Pentax had already paid. Edelmann also found that Klyn was entitled to 78 days of unused vacation time, despite a new company policy that had been introduced by Pentax in 2019 limiting carryover, finding that Pentax had failed to notify Klyn of his available vacation days as required by the policy and thus could not “selectively apply a policy it unilaterally imposed while completely disregarding its own obligations under the same policy.”

Addressing the issue of punitive damages, and citing Bhasin v. Hrynew, 2014 SCC 71 (CanLII) (reported in Lancaster’s Wrongful Dismissal and Employment Law, eAlert No. 384, February 4, 2015), Edelmann noted that an employer has “an overriding duty of good faith and honest performance of the terms of employment,” which includes “the manner in which the employer terminates an employee.” Identifying the objectives of punitive damages as to “punish, deter, and denounce misconduct that is, among other things, malicious, oppressive, harsh, vindictive, and reprehensible such that it undermines the notion of decency within the justice system,” as set out by the Supreme Court of Canada in Whiten v. Pilot Insurance Co, 2002 SCC 18 (CanLII), Edelmann held that Pentax’s actions in purporting to make Klyn’s termination payments conditional on signing a waiver met this threshold, warranting $25,000 in punitive damages. In Edelmann’s view:

… [T]he sending of a termination letter with terms so transparently in the employer’s interest couched in language that, at the very least, seeks to give the terminated employee the impression their entitlements depend on the acceptance of those terms is oppressive. The [dismissal] of a long-term employee without notice would almost invariably present a significant change to their financial situation. … [T]he letter was clearly designed to leverage the uncertainty an employee would feel in the circumstances in an attempt to extract concessions to the sole benefit of the employer. In those circumstances, … the implicit threat to withhold payments to which the employee was legally entitled is not only oppressive but reprehensible.

Moreover,… Pentax’s conduct in deliberately failing to compensate a [dismissed] employee according to even its own understanding of the terms of the contract warrants rebuke.

In the result, holding that Pentax had repudiated the employment contract, Justice Edelmann awarded Klyn $326,095.78 in damages for failure to give reasonable notice, less amounts paid by Pentax, as well as $25,000 in punitive damages, citing the “rather egregious failures to [meet] the obligations of good faith and honest performance in the [dismissal] of a long-term employee.”

Comment:

In its decision in Potter, cited in the instant case, the Supreme Court of Canada reviewed the key principles of repudiation in contract law, stating that it “refers to the situation in which a breach of contract by one party gives rise to the right of the other party to terminate the contract and pursue the available remedies for breach. … This occurs when one party actually breaches the contract in some very important respect and is said to thereby repudiate the contract.”

Thus, in Perretta v. Rand A Technology Corporation, 2021 ONSC 2111 (CanLII), reported in Lancaster’s Wrongful Dismissal and Employment Law, eAlert No. 541, October 20, 2021, Ontario Superior Court judge Andrew Sanfilippo similarly held that an employer repudiated an employee’s employment contract by refusing to make a contractually-obligated payment of two weeks’ pay plus the statutory minimum notice to her unless she first signed a full and final release. Although the employer later apologized for what it claimed was a mistake and paid the employee everything she was contractually entitled to, the judge held that the employer’s actions were in breach of contract and that an objective assessment would lead a reasonable person to conclude that it no longer intended to be bound by the agreement. As a result, the employee was awarded damages based on a reasonable notice period of six months, less the amounts he had already received, totalling almost $17,000.

As well, in Humphrey v. Mene, 2021 ONSC 2539 (CanLII), reported in Lancaster’s Wrongful Dismissal and Employment Law, eAlert No. 552, May 3, 2022, Ontario Superior Court judge Eugenia Papageorgiou held that an employee was wrongfully dismissed and awarded her 11 months’ pay in lieu of notice, as well as $50,000 in aggravated damages and $25,000 in punitive damages. In addition to holding that the “without cause” termination provision relied on by the employer was void for want of a quid pro quo, i.e. consideration, Papageorgiou also held that the employer’s conduct, including suspending the employee based on trivial and baseless allegations and initially asserting cause for dismissal only to withdraw the allegation after litigation, constituted a significant repudiation of the employment contract that precluded it from relying on the otherwise enforceable “without cause” termination provision. Although acknowledging that “merely terminating an employment agreement or constructively dismissing an employee is not necessarily a repudiation [that] disentitles an employer from relying [on] a negotiated without cause termination provision,” Papageorgiou held that, in certain circumstances it may amount to repudiation:

[T]here are some breaches or acts of repudiation [that] are so significant, or of such an order of magnitude, that they render a without cause termination provision unenforceable.… 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’s agreement to accept terms [that] significantly impact on the employee’s 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 … 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.

Of note, the award of punitive damages to sanction and deter employers from engaging in conduct aimed at depriving employees of their negotiated entitlements, or threatening to do so without a signed release, is consistent with other recent awards. See for example, Wilds v. 1959612 Ontario Inc, 2024 ONSC 3452 (CanLII), reported in Lancaster’s Wrongful Dismissal and Employment Law, eAlert No. 600, January 17, 2025, in which Ontario Superior Court judge Marie-Andrée Vermette ordered an employer to pay a wrongfully-dismissed employee two months’ pay in lieu of notice and $10,000 in punitive damages, due to its illegal conduct following a decision to dismiss the employee without cause. Determining that the termination provisions in the employee’s employment agreement were unenforceable because they violated the provincial Employment Standards Act (ESA), Vermette held that the employee was entitled to damages for failure to give reasonable notice of two months, as well as $10,000 in punitive damages because of the employer’s “flagrant,” “reprehensible,” and “egregious” failure to pay the employee her entitlements under the ESA. See also: Giacomodonato v. PearTree Securities Inc., 2024 ONCA 437 (CanLII), reported in Lancaster’s Wrongful Dismissal and Employment Law, eAlert No. 601, February 5, 2025, in which the Ontario Court of Appeal upheld a trial judge’s ruling that, although a banking executive was bound by the terms of a second employment contract he signed a few months after his initial employment contract, which imposed more restrictive limitations on his compensation upon termination, he was also entitled to $10,000 in punitive damages due to the employer’s failure to pay him the amounts outstanding under his employment contract unless he signed a certificate of compliance with other restrictive covenants (non-competition and non-solicitation clauses which the court found to be unenforceable) which had also been inserted into his contract; and Pohl v. Hudson’s Bay Company, 2022 ONSC 5230 (CanLII), reviewed in Lancaster’s Wrongful Dismissal and Employment Law, eAlert No. 575, June 27, 2023, in which Ontario Superior Court judge Robert Centa ordered Hudson’s Bay Company to pay a wrongfully dismissed employee 24 months’ pay in lieu of notice, as well as $45,000 in aggravated damages and $10,000 in punitive damages, due to its wrongful conduct at the time of and following the dismissal, including paying his statutory termination and severance pay in instalments instead of a lump sum as required, and failing to provide a timely and correct Record of Employment (ROE).

For further discussion of punitive damages, see Chapter 10.7 in Lancaster’s Wrongful Dismissal & Employment Law eText.

Klyn v. Pentax Canada Inc.

British Columbia

B.C. Supreme Court

Peter Edelmann

March 4, 2024

2024 BCSC 372 (CanLII)