Cross v Cooling Tower Maintenance Inc, 2025 ONSC 7203
As distinguished from a lump-sum severance amount, salary continuance is a common form of post-termination compensation where an employer continues to pay an employee’s regular salary (and often benefits) for a defined period after employment ends.
Salary continuance effectively bridges income while the employee looks for new work, often including clauses to encourage finding a new job faster.
Generally, salary continuance is conditional in many cases: The employer may stop or reduce payments if the employee:
- Finds new employment (mitigation), or
- Breaches post-termination obligations (e.g., confidentiality, non-disparagement), depending on the agreement.
Most settlement agreements contain a contractual clawback. A clawback provision is a contractual (settlement) term requiring the employee to inform the employer once new employment has been secured. Typically, this then triggers a lump-sum payment from the employer to the employee equal to 50% of the amount remaining to be paid under the settlement agreement.
In addition, many settlement agreements contain a provision dealing with repayment to the employer of any overpayments over the salary continuance period. This means that if the employee secures new work and double collects (i.e. new income AND salary continuance), the salary continuance amount is repayable to the employer.
In Cross v Cooling Tower Maintenance Inc, these issues were squarely before the Court:
Facts
- the employee entered into a settlement agreement with the employer, which provided for salary continuance plus a clawback provision.
- the employee found a new job and did not inform the employer, despite the requirement to do so under the settlement’s clawback provision.
- the employee worked in the new position for four months before the employer became aware.
- The employer alleged that the employee’s failure to advise it of the new employment was a repudiation of the settlement agreement and that the employee should forfeit the lump-sum payment equal to 50% of the remaining balance plus payback the overpayment amount of nearly $45,000 received from the employer over those four months.
Legal Issues
The case involved several contractual questions arising from the settlement agreement between the former employee (Cross) and the employer (Cooling Tower Maintenance). Key issues were:
- Repudiation: Whether the employee’s failure to disclose that he had obtained new employment amounted to a repudiation of the settlement agreement.
- Settlement Interpretation: Whether the employer’s cessation of periodic payments under the settlement agreement extinguished the employee’s entitlement to the pre-agreed 50% lump-sum payment.
Court’s Reasoning
On the repudiation issue, the Court applied the high threshold set by Remedy Drug Store Co Inc v Farnham (and related Ontario cases) – repudiation is an “exceptional” remedy requiring that the breach deprive the innocent party of substantially the whole benefit of the agreement. The judge found the employee’s nondisclosure of re-employment was intentional but did not nullify the settlement’s purpose. Consequently, the failure to disclose did not undermine the settlement as a whole and was not treated as repudiation.
On the lump-sum clause, the Court construed the language strictly. It held that the disputed clause dealt only with reimbursing any overpayments made under the agreement, not with forfeiting the lump-sum payment. Because the wording was not “sufficiently clear” to deny the lump-sum outright, the employer’s stopping of payments was simply a breach rather than a trigger for forfeiture. Thus the unpaid 50% lump-sum remained owed to the employee under the terms of the settlement, and the employer was ordered to pay it.
Ruling: The Court essentially upheld the employee’s position in full. The settlement was enforced: the employer was required to pay the remaining lump-sum under the agreement. The employee was required to repay the entire overpayment.
Implications
This decision reinforces several important principles for future cases:
- High Bar for Repudiation of Settlements: Repudiation remains “exceptional,” requiring virtually total deprivation of the agreement’s benefit. Mere nondisclosure of new employment did not destroy the settlement, underscoring that courts will not lightly void a settlement absent clear, substantial breach.
- Clarity in Settlement Clauses: Ambiguous language will not be read to penalize a party. The Court refused to construe the settlement clause as forfeiting the lump-sum absent explicit terms. Parties should draft settlement provisions clearly if they intend to tie benefits to ongoing obligations.
*Always seek legal advice. The above is for information purposes only.
Stephen Dugandzic received his Juris Doctor degree from the University of Alberta in 2013 and is Calgary-based. He previously practised with Bennett Jones LLP and Taylor Janis LLP before founding YYC Employment Law Group in 2018 and Evolution Legal in 2026.