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While not required at law, written employment contracts are common. These contracts can take all kinds of forms, from short introductory letters to lengthy contracts that address a wide range of employment matters, from salary to resignation, termination, and details of bonus plans.

But what happens when an employer does not respect the terms of the contract? The following addresses what happens under the law when an employer does not respect the terms of the contract, and what recourse an employee has to rectify the situation.

You have Options in Pursuing Your Rights

The courts have made it clear that when an employer does not abide by the terms of a contract, the employee has options on how to respond. Employees specifically have the right to choose from the following two options:

  1. To insist that the employer follow through on the contract; or
  2. To ask the court to determine that the contract is void on the basis of the employer’s actions.

Under the first option above, the employee can insist that the contract be enforced upon and, accordingly, that any related payments be paid. If the court were to agree, the employee would be entitled to any amounts determined to have been triggered under the contract.

Under the second option, the employee can ask the court to determine that the contract is void because the employer acted in a way that demonstrated a rejection of its terms. If a judge were to agree, then the employee’s entitlements would be determined without the contract (under the common law and any related statutes), combined with an analysis of the specific facts.

Which option an employee chooses will depend on a range of factors, including the following:

  • Whether the employee would be entitled to more without the constraints of the contract; and
  • An assessment of the cost and risk associated with the litigation.

When Does an Employer’s Behaviour Void the Contract?

Whether an employer’s actions invalidate a contract will depend on the specific facts of the case. There are however court decisions that help to assess whether a case will result in a finding that a contract is invalid.

An example is the recent Ontario decision, Perretta v. Rand A Technology Corporation (“Perretta”). The case involved an employee who had a contract that provided detailed amounts owing on termination of employment.

The employee had been working for approximately 5.5 years and agreed to a contract that would have provided him with the minimum amounts owing under the Employment Standards Act, plus two weeks of pay.

The contract did not include any requirement for the employee to release the employer from liability associated with their employment in exchange for the contract amounts. Despite this, the employer refused to pay out the amounts on the basis that a release was required.

The court reviewed that, to determine that an employer has rejected the contract, it requires assessing the impact of the employer’s conduct. Specifically, a court must be determined that the employee has been denied the whole benefit of the contract.

The court found that, because the contract did not have any specific requirement for a release, and that this was a significant denial of the full rights of the contract. The court further found that the employer’s denial of the contractual amounts, combined with the insistence on the release, constituted a rejection of the contract.

The court, therefore, found that the employee was entitled to termination pay under the common law (not restricted by contract). In the end, he was provided 6 months of pay, rather than 7 weeks.

The case is a good example of an employee receiving significantly more than what they would have received under the contract, precisely because the employer did not respect the terms of employment.

The employer was therefore punished in two ways, being (1) needing to pay over 300% more than what the contract provided for and (2) to compensate the employee for costs associated with needing to go to court (including legal fees).

The case, therefore, demonstrates the seriousness with which a court takes an employer’s disrespect of the terms of an employment contract. Employees can therefore pursue their rights within the contract.

Can I Receive Additional Compensation for Bad Treatment?

In short, yes. The law is clear that an employee must be treated with respect and dignity throughout their employment. This includes freedom from harassment and other inappropriate treatment.

The protection against bad faith behaviour applies at all stages of employment including hiring, employment, and termination of employment, whether a result of resignation or being fired.

While abandoned in Perretta, employers that act in a manner that is considered bad faith can be liable to provide employees with compensation for related damages.

If you believe that you have been wrongfully or unjustly dismissed and/or are seeking advice in relation to a contract that has not been respected, please contact Toronto employment lawyers, Sultan Lawyers, at 416-214-5111 or via email at mlahert@sultanlawyers.com.


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