Seeking repayment when dismissed employee ignores release

If a terminated employee signs a release in exchange for an additional severance payment and then begins legal action against the employer anyway, can the employer try to get that payment back?

Seeking repayment when dismissed employee ignores release
Stuart Rudner

Question: If a terminated employee signs a release in exchange for an additional severance payment and then begins legal action against the employer anyway, can the employer try to get that payment back?

Answer: Regular readers know that the reason for obtaining a full and final release at the time of or after dismissal is to prevent litigation. That is why it is often advisable to offer the employee more than they are legally entitled to in order to provide legal consideration for the release.

It is relatively rare to see an employee commence a claim for wrongful dismissal or some other claim related to their employment or the termination of their employment after they have negotiated a severance package that includes a full and final release. However, it does happen occasionally, either where the employee has had second thoughts or where they did not understand what they were signing.

In those situations, the typical question is whether the employer can move swiftly to shut the claim down. Generally speaking, a release should preclude subsequent claims for the same subject matter. However, an employee may be able to pursue a claim despite signing a release if, for example:

  • The scope of the release was not properly defined
  • There was insufficient consideration
  • The employee can show that they signed under duress or without a reasonable opportunity to seek independent legal advice
  • The agreement was unconscionable.

It is important to note that the case law requires very specific wording in order to prevent subsequent claims for alleged violations of human rights legislation. As a result, a release may preclude a wrongful dismissal claim but the employee may still be permitted to pursue a human rights claim.

This reader raises the interesting question of whether the employer could try to get the money that they paid back. Usually, the employer will prefer to shut the claim down rather than get their money back, but if that is not possible, or if they prefer to defend the claim for strategic reasons, then in theory they could seek to have the money repaid. That would be based on the premise that the employee repudiated the agreement. Effectively, the parties would proceed as if the release, which is a legal contract, had never occurred; neither party would get the benefit that they bargained for, so the employee would have to return any money or consideration they received, but they could pursue claims that would otherwise be precluded by the release.

Obviously, in most cases, the employer will be better off seeking to enforce the release and avoid defending claims against them, rather than recovering the money they paid. If that wasn’t true, then why pay for the release in the first place?

Stuart Rudner is the founder of Rudner Law, an employment law firm in Toronto. He can be reached at [email protected] or (416) 864-8500.

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