Terminating an employment relationship has always been fraught with risk for an employer, particularly when terminating for just cause.
An issue that comes up from time to time is what damages an employee is entitled to when the employer terminates for just cause, is wrong about its assertion of just cause, but has an otherwise enforceable termination without cause provision in the employment contract?
This was the issue before the Alberta Court of King’s Bench in Singh v Clark Builders, 2025 ABKB 3.
In that case, the employer terminated the employee for just cause. The employee sued for wrongful dismissal and the employer defended its decision on the basis of just cause and, in the alternative, relied on the without cause termination provision in the employment contract to limit the employee’s damages in the event that the court found the employer did not have just cause.
Counsel for the employee relied on Perretta v Rand A Technology Corporation, 2021 ONSC 2111 and Klyn v Pentax Canada Inc, 2024 BCSC 372, for the proposition that an employer who fails to unconditionally pay an employee the pay in lieu of notice to which they are contractually entitled demonstrates an intention to no longer be bound by the contract and as such repudiates the employment contract and cannot rely on the termination without cause provisions to limit the employee’s damages.
The court disagreed, finding that just cause was a live issue between the parties and effectively the parties disputed what amount, if any, was contractually required to be paid.
Preferring the approach taken by the British Columbia Court of Appeal in Egan v Harbour Air Seaplanes LLP, 2024 BCCA 222 at para 78
… An employer’s failure to comply with a contractual notice requirement does not render a termination clause unenforceable, it constitutes a breach of contract. What flows from that is not a finding that the contract is void but rather a measure of damages for the breach.
The court found that the employer’s failure to pay the employee pay in lieu of notice under the employment contract was not a repudiation of the employment contract because the employer had a good faith belief that there was just cause for dismissal and that once the employee filed the Statement of Claim, the employer was entitled to wait for the court’s determination on the enforceability of the termination provision.
The court found that the employer did not repudiate the employment contract and could rely on the without cause termination provision in the employment contract to limit the employee’s damages to the contracted for amount.
Bottom line: This case stands for the proposition that, provided the employer did not “repudiate” the employment contract, the termination without cause provisions of the employment contract should limit the employee’s damages to the contractual amount.
Caution: There is however always the risk that a court will find that the employer did repudiate the contract, particularly if it finds the employer acted in bad faith in alleging and relying on just cause for termination.