Employers Rejoice: A Principled Approach to Contractual Interpretation

Employers Rejoice: A Principled Approach to Contractual Interpretation

In the recent decision of Singh v Clark Builders, 2025 ABKB 3, the Court of King's Bench of Alberta held that failing to successfully establish a just cause defence will not preclude an employer from later relying on an otherwise enforceable without cause termination clause.

Background

The relevant facts of the case were as follows:

  • The Plaintiff, Jamey Singh, was initially approached by the Defendant, Clark Builders (“Clark”), in November 2012 to join Clark.
  • Over the next year, Clark repeatedly approached Mr. Singh with various offers of employment, but the parties were unable to agree on terms.
  • In September 2013, Mr. Singh ultimately accepted an offer of employment made by Clark. Following which, Clark issued Mr. Singh a formal employment contract. Upon reviewing the proposed employment contract, Mr. Singh requested various amendments, which were all subsequently agreed to by Clark.
  • In early 2019, Clark’s new President broached termination with Mr. Singh, and the parties agreed Mr. Singh's last day of employment would be September 30, 2019.
  • In December 2019, Mr. Singh initiated litigation against Clark in respect of the termination of his employment. In Clark’s filed defence, it took the position that it had just cause for Mr. Singh’s dismissal; however, these allegations were ultimately removed from its defence in July 2020.

Court Decision

Several issues were before the Court, including whether the termination provision in Mr. Singh’s employment contract was enforceable, and if so, whether Clark had repudiated the employment contract by either alleging just cause in bad faith or by failing to provide Mr. Singh his contractual entitlements after his termination.

In reviewing the termination provision, the Court concluded that it was sufficiently clear and unambiguous to displace the implied term requiring Clark to provide reasonable common law notice of dismissal. In doing so, the Court also held that even if there was ambiguity, the principle of contra proferentem would not apply as Mr. Singh was a knowledgeable and sophisticated executive who had managed to negotiate various changes to Clark’s proposed terms of employment, including specifically the termination provision itself (and there was no power imbalance or inequality in bargaining power between the parties).

Having rejected Mr. Singh’s argument that the termination provision was ambiguous, the Court then assessed whether Clark had repudiated the employment contract by either alleging just cause in bad faith or failing to pay Mr. Singh his 90-day contractual termination entitlements after his termination. In response, the Court provided a comprehensive overview of the related case law and held as follows:

[92] An employer’s failure to establish just cause will not disentitle the employer from enforcing an otherwise valid without cause termination provision provided the allegations of just cause are made in good faith: Simpson v Global Warranty, 2014 ONSC 6916 at para 8.

[93] In my reading of the authorities surveyed in Humphrey, provided there is a good faith basis for the employer to allege just cause, both at termination and during litigation, an employer who subsequently decides not to pursue just cause or is unable to prove just cause, is not precluded from relying on a without cause termination provision.

[94] The good faith requirement means the allegation of just cause cannot be brought dishonestly or for an improper, dishonest, or fraudulent purpose.

Accordingly, the Court held that although Clark failed to establish that it had just cause to dismiss Mr. Singh, its just cause allegations and defence had not been advanced improperly or in bad faith. As such, it was not precluded from relying on the enforceable termination provision in Mr. Singh’s employment contract to limit his termination entitlements at trial. To this end, the Court capped Mr. Singh’s award for pay in lieu of notice to 90 days.

Takeaways

This decision is helpful as affirming the proposition that a failed just cause defence will not automatically prevent an employer from relying on an otherwise valid without cause termination provision.

This decision also serves as a reminder that where individuals actively negotiate the terms of their employment agreement with an employer, particularly where they can be characterized as being “knowledgeable and sophisticated,” such activity helps reduce the likelihood of the contra proferentem principle applying. That concept interprets ambiguities against the interests of the contract drafter. It is often applied to give employees the benefit of the doubt when interpreting any ambiguous provisions.

Finally, this decision reminds employers of the need to act with good faith when claiming just cause for termination.

If you have questions about the topic discussed above, or any other employment matters, please connect with our Labour and Employment team.