Court Strikes Down Release Signed on Termination of Employment
By: Landon Young & Jeremy Schwartz
A release of claims signed by an employee upon termination has been struck down by the Ontario Superior Court as unenforceable. Such releases are rarely struck down by the courts. This case could signal that the courts will hold employers to a higher standard than in the past in deciding whether or not such releases will be enforced.
Mr. Rubin was 63 years old when Home Depot terminated his employment after 20 years of service. In the termination meeting Mr. Rubin was provided with a termination letter that contained a severance package offer that was conditional on his signing a release of any claims arising out of the termination of his employment.
Mr. Rubin did not realize before that meeting that his employment was at risk and was caught off guard. There was no indication that Mr. Rubin was advised in the meeting that he could take a week to think about the offer. He signed the release, apparently not appreciating what rights he was signing away.
The package offered to Mr. Rubin in the termination letter exceeded his minimum and non-negotiable entitlements under the Employment Standards Act, 2000 (the “ESA”) by only two days. The letter said the payment would be made to him provided he signed the release. The letter did not say that he was entitled to receive his ESA termination and severance pay and minimum ESA benefits continuation even if he did not sign.
The judge struck down the release for the following reasons:
The notice offered was “grossly inadequate” in view of Mr. Rubin’s age and length of service;
The letter implied he would not be paid anything at all if he did not sign, which was not true as this would have violated his minimum rights under the ESA;
There was an imbalance in bargaining power between Mr. Rubin (who was not a high-level employee with professional training) and Home Depot. The judge considered the termination letter to be “ambiguous and misleading” and held that this exacerbated the problem; and
- Home Depot knowingly took advantage of Mr. Rubin’s vulnerability by not advising him what he would receive if he did not sign the release.
The judge went on to award Mr. Rubin 12 months pay in lieu of notice including the value of benefits for the notice period.
Tips for Employers
A release signed by a dismissed employee provides the employer with peace of mind that there will not be costly and protracted litigation. Most employers understand that a release and severance agreement that provides for less than the employee’s ESA entitlements will not be enforced. But this case demonstrates that employers cannot assume that all releases will automatically be enforced by the courts just because they provide more than the employee’s minimum entitlements under the ESA.
However, taking the following steps will help ensure that employers may have confidence that any release signed by a dismissed employee will be enforced:
Advise the employee to take some time after the termination meeting to consider the package offered and to obtain legal advice if the employee wishes to;
Offer a package that provides a payment or continuation of benefits that is superior to the ESA in a meaningful way;
Set out in the termination letter what the employee will receive under the ESA if he or she does not accept the package offered; and
- Draft the termination letter and the terms of any severance package offered in clear terms without ambiguity.
Given the complexity of the law as it applies to terminations of employees, it is always a good idea for employers to obtain some legal advice in regard to their obligations and the best manner of proceeding with the termination.