Perretta v Rand A Technology Corporation, 2021 ONSC 2111
This past March, the Ontario Superior Court of Justice released a sensational decision invalidating the termination provisions in an employee’s employment contract on the basis of the employer’s mistaken insistence that an employee sign a Release when it terminated her employment.
In this case, the employer validly terminated the employment of one of its salespersons, Ms. Perretta, on a ‘without cause’ basis. Pursuant to the termination clause in her employment contract she was entitled to only statutory termination pay, which in her case amounted to only two weeks’ pay-in-lieu of notice.
As a condition to paying Ms. Perretta those two weeks of termination pay, the employer’s HR representative insisted that she first sign a Full and Final Release, releasing the company, and its officers, from any additional potential claims that she might have.
Ms. Perretta’s lawyer thereupon correctly pointed out to the employer that pursuant to her employment contract, Ms. Perretta was lawfully entitled to be paid the two weeks of termination pay regardless of whether or not she signed any Release.
As soon as this was pointed out, the employer acknowledged its mistake, withdrew its initial demand that Ms. Perretta sign the Release, and immediately paid her the two weeks of termination pay that was owed to her pursuant to the termination clause.
After pocketing those two weeks of termination pay, Ms. Perretta then proceeded to sue her employer for additional common law pay-in-lieu of notice on the grounds that the employer’s initial, mistaken, insistence that she sign a Release had invalidated the termination clause in her employment contract. Her lawyer argued that the HR representative’s initial, mistaken, insistence on her signing a Release, constituted a temporary, but fundamental, breach of the employment contract. He further argued that this breach invalidated the contract, including the termination clause, thereby entitling Ms. Perretta to full common law pay-in-lieu of notice, rather than merely the two weeks of termination pay prescribed by that clause.
In court, the employer’s lawyers argued that the company’s HR representative’s initial insistence on a Release had been an innocent mistake, which had been quickly rectified, as soon as it had been pointed out, such that the contract and termination clause were still legally enforceable.
To the employer’s dismay, the Ontario Superior Court rejected the employer’s argument and ruled that its initial, mistaken, insistence that its employee provide it with a signed Release effectively constituted a fatal repudiation of the employment contract, thereby permanently invalidating the termination clause, and entitling the employee to full common law notice in the amount of six months salary. The Court reasoned that regardless of it being an innocent mistake, as soon as the contract had been breached, there was no turning back such as to save the contract, and its termination clause.
The upshot was that the initial, mistaken, actions of the employer’s HR representative, in wrongfully insisting on a signed Release, resulted in the employer being forced to pay its employee 13 times more money than required pursuant to the termination clause (namely 26 weeks of salary rather than merely the two weeks prescribed in the termination clause).
This decision contains two key messages for Ontario employers. First, it is big mistake to insist on an employee signing a Release as a condition to paying her what she is lawfully owed pursuant to her contract and the Employment Standards Act. Secondly, an employer’s honest mistake – or ignorance of the law – is no excuse and will not save the employer from the legal consequences of its actions. Before terminating an employee, a wise employer will consult with its employment lawyers to ensure that it fully understands its legal obligations to that employee, and then not stray from those obligations.