Last week, Ted Flett, partner at ZFL Law, presented at the Law Society of Ontario’s annual continuing professional development meeting for lawyers focused on drafting and enforcing employment agreements. Ted co-presented with Emily Cohen-Gallant of Fasken Martineau DuMoulin LLP and the two published a paper on the topics of repudiation and wilful misconduct. ZFL’s Daniel Hassell and Ashna Gakhar also contributed to the paper.

Some of the prickly questions addressed in the presentation and paper included:

• • • What missteps can cause employees to lose entitlements after being provided with inadequate ‘working notice’ of the termination of their employment?
    • What are some of the costly oversights employers make when preparing termination packages?
    • What happens when the conditions of a severance package are breached by a former employee or employer?

The paper, below, provides insights into the technical nature of the law surrounding these questions.

Thorny Issues: Repudiation and Wilful Misconduct

By Emily Cohen-Gallant and Ted Flett

With special thanks to Daniel Hassell and Ashna Gakhar

Recent caselaw has highlighted some of the complexities surrounding the concept of repudiation of contract in several respects. Employment lawyers drafting employment contracts and settlement agreements or advising clients about working notice periods and constructive dismissal should be wary when navigating ‘thorny’ issues concerning repudiation of contract.

This paper is a supplement to the panel discussion at the Law Society of Ontario’s annual CPD program, “The Employment Law Agreement: Key Clauses 2026”, regarding these ‘thorny’ issues and the meaning of wilful misconduct pursuant to the Employment Standards Act, 2000 (the “ESA”.)

Repudiation of Contract

In general, repudiation of an employment contract by an employer occurs when an employer evinces an intention to no longer be bound by the terms of the employment contract. It may amount to a constructive dismissal. In that case, the employee can elect to either (a) consent or acquiesce to the employer’s conduct or changes or (b) treat the employer’s conduct or changes as a reputation of the employment contract and commence an action for wrongful dismissal (Potter v New Brunswick Legal Aid Services Commission, 2015 SCC 10 (CanLII), [2015] 1 SCR 500 [Potter], at paras 35 to 43.)

Broadly, repudiation of an employment contract by an employee occurs where an employee prospectively refuses to perform an essential part of their duties, in which case the employer can elect to either (a) ‘accept’ the repudiation and treat the employment as terminated or (b) permit the employment contract to continue (Roden v Toronto Humane Society, 2005 CanLII 33578 (ON CA) [Roden], at para 46.)

Repudiation of settlement agreements follows a different analysis than that of an employment contract.

Wilful Misconduct

Repudiation of an employment contract by an employee is distinct from termination of employment for just cause or wilful misconduct. The Court of Appeal for Ontario described the distinction as follows:

[46] However, there is a crucial distinction between dismissal for misconduct and termination for repudiation. When an employer claims to have dismissed an employee for cause based on serious misconduct, the employer must point to conduct that took place prior to dismissal. It is then for the courts to determine whether the conduct was sufficiently serious so as to constitute cause. Repudiation, on the other hand, takes place when an employee refuses to perform an essential part of his or her job duties in the future. In such a situation, the employer is entitled to accept the repudiation and treat the employment relationship as terminated because the parties no longer agree on the fundamental terms of the contract (Roden, at para 46.)

Overview

A discussion of ‘thorny’ issues arising from recent cases concerning the following scenarios and concepts is set out below:

1. Repudiation of an employment contract by an employer generally;
2. Repudiation of an employment contract by an employer in presenting an employee with a new employment agreement;
3. Repudiation of an employment contract by an employer when terminating the employment relationship;
4. Repudiation of an employment contract by an employee after receiving working notice of dismissal;
5. Repudiation of settlement agreements; and
6. The meaning of “wilful misconduct”.

A. Repudiation of Employment Contracts by Employers Generally

The courts have characterized employment contracts as being dynamic in comparison with commercial contracts and have, consequently, taken a flexible approach to determine whether an employer’s conduct has evinced an intention no longer to be bound by the contract (Potter, at paras 32-33.) The Supreme Court of Canada addressed the test for an employer’s repudiation of contract amounting to constructive dismissal as follows:

[32] Given that employment contracts are dynamic in comparison with commercial contracts, courts have properly taken a flexible approach in determining whether the employer’s conduct evinced an intention no longer to be bound by the contract. There are two branches of the test that have emerged. Most often, the court must first identify an express or implied contract term that has been breached, and then determine whether that breach was sufficiently serious to constitute constructive dismissal: J. R. Sproat, Wrongful Dismissal Handbook (6th ed. 2012), at p. 5-5; P. Barnacle, Employment Law in Canada (4th ed. (loose-leaf)), at §§13.36 and 13.70. Typically, the breach in question involves changes to the employee’s compensation, work assignments or place of work that are both unilateral and substantial: see, e.g., G. England, Individual Employment Law (2nd ed. 2008), at pp. 348-56. In the words of McCardie J. in Rubel Bronze, at p. 323, “The question is ever one of degree.”

[33] However, an employer’s conduct will also constitute constructive dismissal if it more generally shows that the employer intended not to be bound by the contract. In applying Farber, courts have held that an employee can be found to have been constructively dismissed without identifying a specific term that was breached if the employer’s treatment of the employee made continued employment intolerable: see, e.g., Shah v. Xerox Canada Ltd. (2000), 2000 CanLII 2317 (ON CA), 131 O.A.C. 44; Whiting v. Winnipeg River Brokenhead Community Futures Development Corp. (1998), 1998 CanLII 19422 (MB CA), 159 D.L.R. (4th) 18 (Man. C.A.). This approach is necessarily retrospective, as it requires consideration of the cumulative effect of past acts by the employer and the determination of whether those acts evinced an intention no longer to be bound by the contract.

Drafting Takeaways

Employment lawyers drafting employment contracts are faced with a difficult question of how to address potential repudiation scenarios. Drafters should consider whether to include clauses allowing employers to make changes to employees’ titles, roles, reporting relationships, and work locations—which are common examples of changes that, if made in practice, may give rise to a constructive dismissal claim. However, any provisions touching on termination-related entitlements require special care, particularly in Ontario considering the decision in Waksdale. This can create tension when drafting flexibility clauses that permit changes to aspects of the employment contract. While such clauses may be commercially useful, they require careful drafting to avoid language that could be interpreted as limiting or excluding constructive dismissal provisions under the ESA. Although “constructive dismissal” is not defined in the ESA, it is treated as a termination for ESA purposes. Accordingly, drafters should take care to avoid language that could be interpreted as limiting or excluding ESA entitlements in a constructive dismissal scenario.

Perhaps drafters could take into account the following provisions of the Termination and Severance of Employment, O Reg 288/01, s 2(1)5 and s 9(1)4, which provide that an employee whose employment is terminated/severed “after refusing an offer of reasonable alternative employment with the employer” are prescribed, for the purposes of s 55 of the ESA, as employees who are not entitled to notice of termination or termination pay and severance pay, respectively.  Employer counsel should be careful when drafting using the word “reasonable” in the context of termination provisions, as it could be interpreted as a reference to common law “reasonable notice” potentially resulting in ambiguity.

B. Repudiation by Employer attempting to Implement New Employment Contract

In Timothy Comeau v Valcom Consulting Ltd, 2025 NBKB 253, the employee (plaintiff) and employer (defendant) were negotiating terms of employment beyond the end of a fixed term of employment. The negotiation occurred in the context of an approximately fifteen-year working relationship, in which the plaintiff was a senior product manager, initially engaged by the defendant as an independent contractor and subsequently as an employee pursuant to a series of fixed-term employment contracts. Nearing the end of the most-recent fixed term of employment, the plaintiff refused to sign an employment contract because it did not reflect the plaintiff’s anticipated salary increase. The parties did not communicate further with one another and the employment relationship came to an end as the fixed term elapsed soon after discussions broke down. The employment contract proposed to the plaintiff also included restrictive termination, suspension and lay-off provisions.

The court was left with the impression that the parties engaged in something of a ‘Game of Chicken’ with one another. In the outcome, the court held that the plaintiff was constructively dismissed and therefore did not abandon his employment.

Drafting Takeaways

Employers should be cautioned about introducing new employment agreements, even in the context of a fixed-term employment contract elapsing. Employers ought to provide fresh consideration and/or sufficient notice suited to the changes to the terms of employment. If an employee rejects new terms of employment, the employer may respond by terminating the employment contract with proper notice and offering re-employment based on the new terms (Wronko v Western Inventory Service Ltd, 2008 ONCA 327 (CanLII), at para 36.)

C. Repudiation of Employment Contracts by Employers upon Termination of Employment

Courts have recognized that repudiation can arise not only during the employment relationship, but also in the manner in which termination is carried out. Employers ought to be carefully advised that they must not repudiate the employment contract when terminating the employment relationship. The courts recognize that employees are most vulnerable at the time of the termination of employment and in need of protection. As such, employers ought to take care when presenting employees with severance packages.

In the context of severance negotiations, courts have found that requiring an employee to sign a release in exchange for their contractual entitlements will constitute a repudiation of the employment contract, where the contract does not explicitly include the release as a condition. The court has explained a rationale for doing so as follows:

41 … if the only consequence to Rand for its imposition of new demands at the time of termination that deprived its employee of the benefit of the contract is to apologize and pay the amount that it was lawfully required to pay, there would be little or no incentive to comply with its termination provision (Perretta v Rand A Technology Corporation, 2021 ONSC 2111 (CanLII).)

In Timmins v Artisan Cells, 2025 CanLII 2387 (ON SC), the defendant insisted on the plaintiff executing a broad release in exchange for a severance package based on three months. When the plaintiff declined, the defendant failed to pay the plaintiff even the minimum statutory entitlements of three weeks’ termination pay. In the outcome, the plaintiff was entitled to damages based on a common law reasonable notice period of nine months.

Drafting Takeaways

Termination clauses in employment agreements and termination documentation should be carefully prepared to distinguish between unconditional statutory minimum entitlements and “conditional” payments offered in addition to the statutory minimums and clearly state the conditions of that enhanced offer. Given the heightened scrutiny of termination provisions in Ontario (including post-Waksdale), it is strongly recommended that termination clauses be drafted and/or reviewed by experienced employment counsel.

D. Repudiation of Employment Contract by Employee during Working Notice Period

Adrain v Agricom International Inc, 2025 BCSC 1842 (CanLII) (“Adrain v Agricom”) is a recent case addressing the question of repudiation of an employment contract, not only by the employer but also by an employee. In Adrain v Agricom:

• • • • The employee (plaintiff) had been employed by the defendant for approximately 30 years when the employment relationship ruptured.
      • On April 8, 2025, the employer (Agricom’s founder) met with the employee to discuss winding down the business and offered her the option to buy the company for one dollar or otherwise remain employed until operations ended.
      • The plaintiff, through her lawyer, sent a demand letter to the employer stating she was willing to continue working but asserting she was entitled to 24 months’ notice of the termination of her employment.
      • On April 29, 2025, the employer responded by providing formal notice of termination effective May 31, 2026, essentially providing her with 13 months’ working notice.
      • The employee followed the notice of termination with another demand letter from her lawyer, stating that while the employee was willing to continue working, she might reconsider continuing to work during the working notice period and suggested the possibility of litigation.
      • The employer did not respond to the second demand letter.
      • On May 14, 2025, the employee filed a civil claim for wrongful dismissal against Agricom.
      • On June 17, 2025, the employer gave the employee a letter stating that it was taking the position that the employee had repudiated her employment and engaged in conduct that constitutes just cause for dismissal.
      • The defendant argued that there was just cause for the plaintiff’s dismissal because the plaintiff arranged for her lawyer to send two demand letters to her employer, threatened litigation and then made good on her threat by starting an action for wrongful dismissal. The defendant’s argument on just cause failed and the Court found that there was no just cause to terminate the plaintiff’s employment.
      • The Court, however, accepted the defendant’s alternative argument that the plaintiff had repudiated the employment contract by instructing her lawyer to send two demand letters, commencing a lawsuit and the position taken by the plaintiff in the pleadings.
      • The British Columbia Superior Court considered cases in BC (referenced below) addressing circumstances where an employee started a wrongful dismissal action after the employer had provided notice of termination.
      • The court held that the plaintiff was entitled to a common law notice period of 24 months reduced due to repudiation by the plaintiff by choosing to file and serve a wrongful dismissal claim on the defendant while the working notice period was still in effect.
      • Although the calculation of damages is somewhat unclear, the plaintiff was still entitled to damages for wrongful dismissal for a period of 12.5 months (representing 24 months’ reasonable notice less 11.5 months from the plaintiff’s repudiation to the end of what would have otherwise been the working-notice period.

In Adrain v Agricom, the court considered the following BC cases concerning whether an employee’s act of suing an employer after receiving notice of dismissal constitutes contractual repudiation by the employee:

(1) Suleman v British Columbia Research Council, 1990 CanLII 746 (BC CA);

(2) Zaraweh v Hermon, Bunbury & Oke, 2001 BCCA 524; and

(3) Giza v Sechelt School Bus Service Ltd, 2012 BCCA 18.

In each of the above cases, the employee (plaintiff) was held to have repudiated the employment contract.  The above BC cases apply to specific fact scenarios and may differ from the cases in Ontario (See Dechene v Dr Khurrum Ashraf Dentistry, 2012 ONSC 4594 (Div Ct) (CanLII)). In addition, if the employee can demonstrate that the employer had already constructively dismissed the employee or repudiated the employment contract first, then the employee would not be considered to have committed an unjustified repudiation of the employment contract (Adrain v Agricom, at para 62.)

As an aside, the employer’s argument regarding the demand letters raises an interesting issue regarding settlement privilege and whether demand letters ought to be considered by the court (See Kearns v Nickel, 2025 ONSC 6742 (CanLII).)

Adrain v Agricom, stands in contrast to Reid v Allied Plumbing Heating & Air Conditioning Ltd, 2025 BCSC 1679 (CanLII), at para 72) where the employer provided the employee – who had worked as a controller for over eight years – with approximately eight months’ working notice of termination. The employee started to fulfill the working notice obligation, then the employer changed the circumstances of the employment during the working notice period. The employee subsequently asserted constructive dismissal ending the employment relationship approximately five months into the working notice period and commenced an action for wrongful dismissal. Allied argued that Reid condoned the eight-month notice period provided to him by failing to object to the sufficiency of it within a reasonable timeframe. In the outcome, the Court found that the employee’s course of conduct was not unreasonable; he had been constructively dismissed and was entitled to a notice period of fifteen months.

Notably, in Adrain v Agricom, the plaintiff did not plead or otherwise argue that she was constructively dismissed or that the defendant somehow repudiated the employment agreement first (Adrain v Agricom, at para 65.)  That begs the question: did the defendant repudiate the employment contract by providing the plaintiff with short notice of the plaintiff’s dismissal?

Drafting Takeaways:

• Drafters should consider whether to address potential scenarios of constructive dismissal in employment agreements to attempt to provide that they would not constitute repudiation.
• Employer clients should be advised that their conduct may undermine otherwise enforceable provisions in an employment agreement
• Employee clients should be advised that they must carefully consider their options and entitlements before electing to refuse to continue to perform their role or file a claim during a ‘working notice’ period.

E.    Repudiation of Settlement Agreement

Cross v Cooling Tower Maintenance Inc, 2025 ONSC 7203 (CanLII) (“Cross v Cooling Tower”) is a recent case perhaps demonstrating how rare it is for conduct following a settlement agreement to amount to a repudiation. The Court was faced with a ‘thorny’ issue concerning the following question: did the plaintiff repudiate the settlement agreement by his delay in advising the defendant that he had obtained new employment?

The Court reviewed the law concerning repudiation of settlement agreements. In summary:

[40]        It will be rare for conduct subsequent to a settlement agreement to amount to repudiation: Remedy Drug Store Co. Inc. v. Farnham, 2015 ONCA 576, at para. 66.

[41]       A breach that allows the non-repudiating party to elect to put an end to all unperformed obligations of the parties is an exceptional remedy that is available only in circumstances where the entire foundation of the contract has been undermined, that is, where the very thing bargained for has not been provided: Place Concorde East Limited Partnership v. Shelter Corporation of Canada, 2006 CanLII 16346 (ON CA), at para. 51.

[42]       The onus rests on the party claiming repudiation: Cellular Rental Systems Inc. v. Bell Mobility Cellular Inc., (1995) O.J. No. 721 23, at p. 16.

[43]       In determining if a repudiatory breach has occurred, the Court will consider whether one party acts in a way that evinces an intention to no longer be bound by the contract: Jedfro Investments (U.S.A.) Ltd. v. Jacyk, 2007 SCC 55, [2007] 3 S.C.R. 679, at para. 20.

[44]       Simply ignoring the terms of an agreement does not equate to repudiation of an agreement. More is required to establish repudiation: Jedfro, at para. 21.

[45]       A breach which has material consequences does not necessarily rise to the level of one that has deprived the innocent party of substantially the whole benefit of the contract: Spirent Communications of Ottawa Limited v. Quake Technologies (Canada) Inc., 2008 ONCA 92, at para. 38.

[46]       Repudiation is not to be lightly inferred from a party’s conduct, especially when that party repeats their intention to carry out the contract: Bates v. Island Cove Development Ltd., 2003 CanLII 28795 (ON SC), at para. 30.

[47]        In Stayside Corporation Inc. v. Cyndric Group Inc., 2024 ONCA 708, at para. 9, the Court of Appeal provided five factors that the Court must consider in determining if the actions of one of the parties created a fundamental breach of the agreement:

1. The ratio of the party’s obligations not performed to their obligations as a whole;
2. The seriousness of the breach to the innocent party;
3. The likelihood of the repetition of such a breach;
4. The seriousness of the consequences of the breach; and
5. The relationship of the part of the obligation performed to the whole obligation.

In the case of Cross v Cooling Tower, a long-term employee alleged wrongful dismissal and reached a settlement agreement with their former employer, which included a salary replacement for 24 months. The settlement agreement included a common salary continuance arrangement typical of many wrongful-dismissal settlements. More specifically, the plaintiff would receive a salary continuance, which would cease if the plaintiff obtained new employment and trigger a lump-sum payment equivalent to fifty percent of the balance of the salary continuance payments. The terms of settlement also included an ordinary requirement that the plaintiff must immediately advise the defendant if the plaintiff were to obtain new employment or become self employed.

Around two months later, in late December, the plaintiff obtained an offer of new employment (to commence in late February) but failed to immediately notify the defendant. Four months later, in June, the defendant made inquiries resulting in the plaintiff confirming that the plaintiff had started new employment. The defendant immediately ceased all salary continuance payments to the plaintiff and did not pay fifty percent of the remaining salary continuance.

The Court held that the plaintiff’s conduct was a breach of the settlement agreement, although it was not a repudiation of the settlement agreement.

In the outcome, the defendant was obliged to pay the plaintiff the balance of a lump-sum payment equivalent to fifty percent of the remaining salary continuance from the date when the plaintiff started new employment, less amounts already paid to the employee during the four-month period of undisclosed re-employment.

Drafting Takeaways:

Those drafting settlement agreements with ‘mitigation’ clauses should consider whether to include language to (a) emphasize the importance of the mitigation disclosure to the term of salary continuance, (b) state that a failure to promptly advise the former employer amounts to a repudiation of the settlement and (c) set out the consequences for the former employee’s failure to promptly inform the former employer when they have secured and/or commenced new employment.

F.    Meaning of Willful Misconduct

The concept of repudiation of an employment contract by an employee is distinct from just cause, as we learned in Adrain v Agricom. Similarly, Wilful Misconduct (defined below) is also distinct from just cause although adjudicators will also carry out a contextual analysis of the circumstances. The ESA provides that prescribed employees are not entitled to statutory notice of termination or termination pay and severance pay, including: “An employee who has been guilty of wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer” (“Wilful Misconduct”).

In accordance with the rule of liberal interpretation, the statutory provisions must be interpreted as being remedial and must be “given such fair, large and liberal interpretation as best ensures the attainment of its objects” (Legislation Act, 2006, SO 2006, c 21, Sch F, s 64.) The courts have recognized that the remedial purpose of the ESA is, of course, to protect the interests of employees (Machtinger v HOJ Industries Ltd, 1992 CanLII 102 (SCC), [1992] 1 SCR 986, at p 1003.) As a result, the above exception to statutory termination and severance entitlements must be given a narrow interpretation.

It is well established that “Wilful Misconduct” under the ESA is a separate concept than “just cause” under the common law. Recent caselaw concerning enforceability of termination clauses has addressed that distinction ad nauseam (See, for example, Dufault v Ignace (Township), 2024 ONCA 915 (CanLII), at para 17. It is trite to state that just cause at common law is broader than “Wilful Misconduct”. The Court of Appeal for Ontario has described the “wilful” element of Wilful Misconduct as “being bad on purpose” (Rahman v Cannon Design Architecture Inc, 2022 ONCA 451 (CanLII), at para 28.)

[28]      The wilful misconduct standard requires evidence that the employee was “being bad on purpose”: Render v. ThyssenKrupp Elevator (Canada) Limited, 2022 ONCA 310, at para. 79, citing Plester v. Polyone Canada Inc., 2011 ONSC 6068, 2012 C.L.L.C. 210-022, aff’d 2013 ONCA 47, 2013 C.L.L.C. 210-015. For example, in Oosterbosch v. FAG Aerospace Inc., 2011 ONSC 1538, 2011 C.L.L.C. 210-019, the court awarded damages for ESA notice and severance after holding that the employer had just cause to terminate the employee for persistent carelessness that did not meet the wilful misconduct standard.

The following are rare cases with fact scenarios in which an employer met the onus to prove that an employee’s conduct amounted to just cause at common law but failed to establish that the employee’s conduct amounted to Wilful Misconduct:

• Oosterbosch v FAG Aerospace Inc, 2011 ONSC 1538 (CanLII)
• Render v ThyssenKrupp Elevator (Canada) Limited, 2022 ONCA 310 (CanLII)

The phrase “guilty of” seems to impute a high standard on employers attempting to demonstrate that an employee’s conduct amounted to Wilful Misconduct; however, the civil standard of proof – a balance of probabilities – will apply.

The jurisprudence on Wilful Misconduct discussed here is limited to employment relationships governed by the laws of the Province of Ontario. The concept of “Wilful Misconduct” does not apply to federally-regulated employment relationships, as the Canada Labour Code provides for “just cause”. Similar language to Ontario’s Wilful Misconduct standard can also be found in Nova Scotia’s Labour Standards Code

Section 72(1) of the Labour Standards Code, RSNS 1989, c 246 (“LSC”), provides that subject to certain other provisions of the LSC (ss 71(3) and 71), “an employer shall not discharge, suspend or lay off an employee, unless the employee has been guilty of wilful misconduct or disobedience or neglect of duty that has not been condoned by the employer …”

and Newfoundland and Labrador’s Labour Standards Act.

Section 53(1)(a) of the Labour Standards Act, RSNL 1990, c L-2 provides that certain notice provisions and provisions (s 52) and provisions relating to redundancy (s 57(2)): do not apply where “the employee has wilfully refused to obey a lawful instruction of the employer, or has committed misconduct or been so neglectful of duty that the interest of the employer is adversely affected, or has otherwise been in breach of a material condition of the contract of service that in the opinion of the director or the Labour Relations Board considering and deciding a complaint made under this Act warrants summary dismissal”.

Drafting Takeaways:

Drafters should take care to identify the correct jurisdiction governing the employment relationship. For employment agreements governed by the laws of Ontario, it is important to be aware of the distinction between just cause and Wilful Misconduct (and possibly agreements in Nova Scotia and Newfoundland and Labrador as well as). Conflating the two concepts can render the termination provisions in an employment agreement unenforceable.