The Anatomy of Breach of Employment Agreement: Legal Boundaries and Remedies

What is Breach of an Employment Agreement?

A breach of an employment agreement is not defined in the Employment Standards Act, 2000 (the "ESA"). However, a breach of an employment agreement commonly occurs when the employer makes a unilateral change to one or more terms of the contract of employment without the employee’s consent. Under such circumstances, in order to be effective, the employer should obtain an employee’s written, informed consent to the change, otherwise, such action may constitute constructive dismissal.
The unilateral change may involve a reduction of the employee’s compensation, such as salary, bonuses and benefits, or a substantial change in the duties of the position, such as demotion in position or title. A unilateral change can also involve a harassment complaint or initiation of a grievance process, without the employee’s consent. Harassment or discrimination complaints filed without the employee’s consent have also been found to constitute a unilateral change in the employment agreement. A significant reduction in work hours is also a potential breach of the employment agreement.
A wrongful dismissal may also involve a breach of an employment agreement. A wrongful dismissal is a situation whereby an employer does not comply with the terms of the employee’s contract of employment. It is possible that the employer may terminate the employee for reasonable cause without providing notice or working notice of termination of employment. In such a case , the employer must have evidence of the misconduct and that the misconduct amounts to just cause for the dismissal of the employee. If the employer does not have sufficient evidence or a clear record of the employee’s misconduct, the dismissal may be viewed as a breach of the agreement. For example, in the case of McKinley v. BC Tel., 2001 SCC 38, the Supreme Court of Canada held that, at the time of dismissal, the employer did not have reasonable cause to conclude that the employee was unable to perform the duties of his present position:
He had never been disciplined with respect to his work performance; he had received many positive comments from his supervisors, and his most recent performance appraisal had concluded that he was performing competently in his lower-level position and had the potential to progress to higher-level management. The latter appraisal, completed contemporaneously with the supervisor’s assessment of incapacity, is significant evidence that the employer did not have reasonable cause to dismiss the employee when it did.

Employment Agreements: The Top Triggers of a Breach

Employment agreements are valid and binding as per the laws of the land, and hence they carry as much weight and legal protection as other kinds of contracts. The moment there is a breach of terms, the aggrieved party has the right to initiate legal proceedings against the other party. There is a common misconception that only an employer can be liable in case of a breach of agreement against the employee, whereas this goes on both sides. In simple terms, if either of the parties breaks the contractual terms, they are liable for any kind of legal action initiated by the other party.
Several causes lead to a breach of the employment agreement. A few of them are:
(a) Salary not paid even upon completion of duties as per contract: A failure to compensate an employee for duties and responsibilities for which he/she has been hired can result in liability against the employer. It is also irrelevant whether the employer was capable to make such payments or not. Always keep in mind that under any circumstance, an employee must not be made to suffer for the actions of the company.
(b) Breach of confidentiality: It is a serious offense for the employer to disclose or leak any confidential information to the outsiders. Confidential and proprietary information of the company must be kept in the best interest of the organization. However, such confidential information may be disclosed to third parties who have been authorized to use such information. In such a situation, when the employer discloses confidential information to a competitor, it becomes a legal issue.
(c) Violating the restrictions of contract: People often sign non-compete contracts with their employer which restrict them from functioning in the same industry or directly competing with the organization after the employment gets terminated. Any breach of this can legally bind a person in liability, if it can be proved that the employee is competing with his previous employer in the market, rooming around the clients and using all the resources which belonged to the previous employer.
(d) Unreasonable firing: An employer cannot fire an employee without a reasonable cause. As there is no specific law regarding termination of employment, a breach of agreement is caused if the employer fires an employee without just and reasonable cause. A person cannot be thrown out of the company without providing a certain notice period or failing to pay the dues of the remaining days.
Most of the employment agreement breaches occur due to a lack of knowledge and ignorance about the clauses contained in the agreement. But if one has entered into a contract, it is a mandate to act according to the guidelines set in the contract. If both the parties do not fulfill the obligations created under the agreement, it results in a breach of contract.

The Repercussions of Breaching an Employment Agreement

The legal consequences of breach of an employment agreement are quite simple and quite harsh. An employer who is proven to have breached an employment contract with an employee will be liable to pay damages either to compensate the employee for his or her losses caused by the breach, or to punish (and deter) the employer from such breaches in the future. These damages can amount to tens or even hundreds of thousands of dollars.
Specific Performance / Injunctive Relief Under very limited circumstances, the Labour Relations Board (the "Board") has the ability to identify the breach of an employment agreement as an unfair labour practice and make a specific order instructing the employer to perform the duties under the employment agreement. Given the extraordinary nature of this remedy, it is rarely granted, but an injunction requiring that the employer specifically perform its obligations from the agreement may also be available through the courts in instances where damage awards will not suffice (for example, in cases of parasitic competitors).
Attempts to Limit Liability through a Termination Clause Many employers attempt to limit their liability from breach of an employment agreement by including a termination clause in each contract. There are two main approaches to this clause:
While the second approach – known as the "O’Reilly" approach – is still permissible in some jurisdictions in Canada (see Zambito v. Toronto International Centre, 2018 ONSC 776.), on August 31, 2018, the Supreme Court of Canada (the "SCC") released seven important decisions (Rules of Court) relating to the enforcement of termination clauses in employment agreements. One of these decisions – Honda Canada Inc. v. Keays – was a lengthy and controversial decision that has been discussed at length in a number of articles on employment law blogs. The Rule in Keays, which was unanimously adopted by the Court and gave an employee the right to unlimited damages for any violation of human rights by the employer, has been relied upon by the Board and the SCC in ordering damages for breach of these types of termination clauses. In other words, employers beware: an employee’s right to unlimited damages for any violation of the human rights provisions of the Code can result in any limitation you tried to impose in the contract being unenforceable in its entirety.
Limitations Period for Filing a Complaint To file a complaint with the Board alleging a breach of an employment agreement, an employee must do so within six months of the alleged breach having occurred. However, should that breach also amount to an unfair labour practice under the Act, a complaint can still be filed within six months, but may also rely upon events that occurred up to one year prior to the filing.

Dealing with a Breach of Employment Agreement: The Legal Aspect

Breach of employment contract is a serious matter whether you are an employee or an employer. When an employee violates your employment contract, it can leave your business vulnerable. If you fail to adequately protect your intellectual property and are unable to find new work, it can have dire consequences on your financial future and security. As a result, you may wonder what steps you must take to properly address the breach of contract. There are several avenues to explore.
Documenting the Breach
The first step you should take when faced with a violation of your employment contract is to document exactly what the breach was and how it affects your business and employment. For example, if you hired an employee that was aware of confidential information, took an oath to not disclose that confidential information, and your business goes under because the employee disclosed it, you will need to document how the employee breached the contract, how they knew the information was confidential, and the damages caused to the company by the breach. Proper documentation is vital to any civil case as it is evidence that can be presented in court or arbitration.
Seek Legal Advice
After making sure you properly document the contract breach, you should speak with a qualified employment lawyer. They will be able to provide you with quality legal advice on how to best address the issues you are facing. Without the proper legal guidance, you may make a costly mistake that makes things even worse for you in the long run. Additionally, your attorney may suggest you sue the employee for violating the contract, or they may advise you to sit down with the employee to come to a resolution without going to court.
Mediation and Litigation
If the employees acknowledges the breach, then you can resolve the issue in several ways including mediation and litigation. In addition, your lawyer may recommend an injunction that prevents the employee from doing anything else that violates your contract with them. Not every breach results in the need for a lawsuit, but a qualified attorney can provide you with valuable legal advice when it comes to filing civil action against the offending employee. Once the issue is properly resolved, you can rest easy knowing that your business is safe from any further legal issues.

How to Avoid Breaks in Employment Contract: Preventative Strategies for Employers and Employees Alike

Both parties to an employment agreement would be well advised to take proactive steps to ensure that the terms of the contract are followed and that litigation is avoided. Clearly, mutual compliance with the terms of an agreement is the best way to avoid breaches. In this regard, the efforts of an employee to comply with the terms of an employment agreement must be matched by the employer’s actions in observing its side of the agreement. The employer should limit its business operations to the scope of what was agreed upon particularly as to any post-termination ongoing business relationships with former customers or clients, and refrain from any actions which might be interpreted as unfair competition. Foreclosure of opportunities even where not specifically proscribed may bespeak a deliberate attempt to sabotage the business of the former employer.
Both parties should remain attuned to any possible changes in the law or contractual provisions that might affect their obligations under the contract and to the ways statutory and common law are evolving to construe such provisions . As a practical matter, because the enforceability of restrictive covenant agreements is something of an evolving area as states seek to balance the protection of employers with employees’ rights to engage in their chosen professions, an agreement acceptable now may be unenforceable several years or decades into the future.
There may be a temptation to rely on the contract language as the contract approaches or after its expiration, particularly where ongoing post-termination obligations subsist. While in some instances, the non-breaching party may elect to enforce a contract even after it has expired, this is a risky approach. In California for example, the courts have held that where the contract has expired, there is no breach unless there is an affirmative act to sustain it. Accordingly, when a contract containing provisions such as non-solicitation of customers and confidentiality provisions is about to expire after five or seven years, the employer must be clear it knows what its ongoing obligations are and that they are no longer imposed by the underlying contract but by the statutory and common law in effect at the time of termination of employment. All such factors must be taken into account and the agreement must be regularly reviewed.

Breach of Employment Agreement: Case Examples

L. Pungowiyo & Sons v MEC: Transport, KwaZulu-Natal: 2006 (5) SCA 350
The SERP (Special Early Retirement Provision) scheme was a voluntary redundancy programme for public service employees which entitled an employee to a substantial salary package on the condition that the employee "retire" from the public service sphere. Pungowiyo applied and was approved for the SERP scheme in 2002. After retiring, he found out that many employees who had not applied for or received approval for the scheme were still employed. Pungowiyo’s application and consent to the scheme was a specific waiver of his rights in respect of future employment which limited his future employment and entitlements. Pungowiyo argued that his consent was obtained by virtue of misrepresentation and he sought a refund. He was successful in the high court, however the SCA held that he had been informed of the true position at the time of application so the high court should not have found that he had been misled.
Gavin Varejes v Power Soccer SA (Gauteng Local Division, Pretoria: 2000/7480)
A judgement of Davis J in the Gauteng High Court reiterates the common law position that a contract of employment is only enforceable for the period of the contract and the employee has no claim to continued employment after expiration of such a period. The applicant was employed by the respondent as an independent sales representative and the agreement was for a minimum period of three years. Before the three year period had expired, the respondent dissolved the applicant’s job. The court found that the respondent had fulfilled its obligations in terms of the employment agreement by completing the three year period. Davis J held that there was no legal instrument or even a market discipline that would prevent employers from acting with commercial expediency and terminating contracts in the pursuit of maximum profits. The applicant was unsuccessful in his attempts to hold the respondent to the agreement.
Apollo Tyres SA (Pty) Ltd v CCMA & others (Gauteng Local Division, Pretoria: 2005/9490)
An employee, whose employment had been terminated, was found guilty of gross misconduct by the CCMA. The CCMA review application was dismissed. The employee was dismissed for committing gross misconduct in breach of his employment contract. The CCMA found that the employee’s actions were not gross misconduct constituting a breach of contract and therefore not a valid ground for dismissal. The employer challenged this finding in the high court and the court found that the CCMA arbitrator misconstrued the term gross misconduct and his decision was unreasonable and thus susceptible to review. The court ordered the CCMA to arbitrate afresh and substitute a penalty of re-instatement instead of the three month suspension.
Khan v City of Ekurhuleni Metropolitan Municipality (Gauteng Local Division, Pretoria: 2011/14552)
The high court found that when a particular post was abolished, the incumbent could either be retrenched or be transferred to a post of the same level. The employee was dismissed after the abolition of his post. The employee argued that the abolition of his post constituted a repudiation of the contract of employment and he had accepted the repudiation and elected to sue for damages. The court found that the employee was not entitled to choose between being retrenched and being transferred. The court held that the employer had complied with its duty to offer the employee alternative employment and it was entitled to terminate the employment relationship. The employee was unfairly dismissed.

Employment Contract and The Evolving Role of Technology

As technology continues to advance at an unprecedented rate, so too have the different ways in which employees can breach their employment agreements. Many standard employment agreements are now being drafted in a way to address modern technological issues like the confidentiality of information on a laptop or steps that should be taken with an employee’s social media accounts once the employee has left the company.
For example, every employee who has access to confidential information should have an employment agreement that requires them to return any and all information they may have still in their possession upon the termination or resignation of their employment. Companies should also require their employees to return all electronic devices that were used during the course of their employment. In this day and age where we can communicate using many different applications on our phones, companies should also require their employees to send all information from those applications in any format that may exist. These requirements can be included in a number of different sections of an employment agreement including definitions, work and conduct standards, and return of company property provisions. Moreover, if there are other social media or other online accounts that belong to the company that the employee may have used to communicate with clients or run the company’s business, an employer would be well-advised to ensure that it is clearly delineated in the agreement that these accounts will remain the company’s property and must be returned in the event of a termination of the employee’s employment.
Depending on the employee’s role and the industry in which they work , companies should also consider requiring their employees to give notice of their termination or resignation in a communication plan. This could dictate when the employee sends their notice of resignation (e.g. after two weeks of notice, the employee agrees not to communicate with any suppliers or customers in any way). We have seen in recent years companies sue former employees for continuing to deal with their clients even if they do not directly solicit them or try to interfere with the company’s contract with those clients. In these situations, if the former employee has agreed to adhere to a communication strategy, it may be much easier to establish that there has been a breach. A breach of a communication strategy can give rise to damages for the period of time that the employee breached the strategy.
In terms of remote work agreements, we are increasingly seeing agreements that require employees to reside in a certain province or country in order to perform certain work. This is especially concerning in terms of employment agreements for international companies because of issues surrounding taxation, job protections, and discrimination laws. Employers should ensure that their employment agreement delineates the employee’s place of work and that if the employee moves to another province or country, that the employer can terminate the employment agreement on notice without cause. This allows the employer to terminate the existing employment agreement and sign a new employment agreement with the employee in their new province or country.