Can an employer change its contractual obligations after termination?

B.C. Supreme Court decides on employer's decision to withhold commissions

Can an employer change its contractual obligations after termination?

The Supreme Court of British Columbia recently decided on a worker’s claim that his employer changed the payments that were owed to him under their contract after he was dismissed.

An employment dispute between the parties escalated into legal action, as the worker sought damages for his termination.

The dispute centred around alleged breaches of the employment contract and disagreements over compensation following the worker’s exit from the company.

Brad Klyn, who started as an independent contractor in 2001 and transitioned to an employee in 2007, had a contract with Pentax that outlined compensation structures and termination conditions.

However, in 2014, Pentax made significant changes to his compensation, shifting from a 100% commission-based structure to a base salary plus commission.

Following his termination in 2022, Klyn alleged that Pentax breached the terms of their contract by failing to pay him the commissions owed and imposing additional conditions on his payments, including reporting requirements that were not part of the original agreement.

Repudiation of contract?

The court said that “repudiation 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.”

“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,” it added.

Klyn alleged a number of breaches of the contract upon his termination. He said that “although Pentax made some payments to him between April and July, the payments only included salary and not commissions as required by the contract.”

“Pentax has not provided a satisfactory explanation for the failure to pay commissions during that period, simply making a rather vague statement that there was a disagreement about the amount owed,” the court said.

Conditions ‘not found’ in contract

The court found in favour of Klyn, ruling that Pentax's actions constituted a repudiation of the employment contract. This ruling was based on Pentax's failure to fulfill its obligations, including the cessation of payments without a satisfactory explanation and the imposition of additional conditions not specified in the contract.

The court proceeded to calculate the damages owed to Klyn based on common law principles. Considering his past earnings and mitigating factors, including his efforts to find alternative employment, the court determined the amount of compensation owed to be $326,095, which would be reduced by any payments made by Pentax during the relevant period.

In addition to compensation issues, Klyn and Pentax also disagreed on his vacation entitlement. Despite provisions in his contract and company policies regarding vacation accrual, Pentax disputed the extent of Klyn's accrued vacation days at the time of termination.

The court criticized Pentax for selectively applying its vacation policy, alleging that the company did not ensure Klyn took his accrued vacation days as required by the policy.

Furthermore, there was no evidence that Pentax notified Klyn of his annual vacation entitlement as stipulated in the policy.

Court awards damages to worker

The court sided with Klyn, ruling that he should be compensated for 78 days of unused vacation time, as he claimed. The court emphasized Pentax's failure to fulfill its obligations under the vacation policy and rejected its selective application to Klyn's detriment.

In addition to compensatory damages, the court awarded punitive damages against Pentax for its misconduct during Klyn's termination. This included delays in providing access to Klyn's Deferred Profit Sharing Plan and the imposition of onerous conditions in the termination letter, such as requiring a Full and Final Release Agreement.

The court said Pentax's conduct was oppressive and reprehensible, particularly for attempting to leverage Klyn's uncertainty during termination to extract concessions beneficial only to the company. Considering the overall circumstances, the court awarded $25,000 in punitive damages.

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