'If you have a contract and comply with it, you don't need a release': says lawyer discussing recent case
“If you demand that a [terminated employee] sign a release to get their ESA minimums, that's contracting out of the ESA, and if you demand that somebody sign a
release in exchange for a contractual severance, that's repudiation of the contract.”
So says Barry Fisher of Barry Fisher Arbitration and Mediation in Toronto, after the Ontario Superior Court of Justice awarded a worker nearly half-a-million dollars in wrongful dismissal damages after his employer demanded he sign a release before receiving the termination pay outlined in his employment contract.
The worker, 46, joined Artisan Development Labs (ADL) - an immune cell engineering company - in November 2019 as its vice-president, cell technologies and entrepreneur in residence. His employment agreement included a termination provision with a clause providing for severance pay of the greater of three months’ pay or the minimum requirements under Ontario’s Employment Standards Act, 2000 (ESA), if he was terminated without cause.
There was also a clause allowing ADL to terminate the worker’s employment with cause “at any time” without statutory notice or severance pay for conduct constituting just cause.
The termination clauses also included the statement that “should any part of this clause provide entitlements to you that are less than your entitlements under the ESA, the minimum entitlements under the ESA shall prevail.”
In March 2021, ADL appointed the worker to the role of executive vice-president and he started the company’s Toronto-based team and expanded the Canadian operation, forming Artisan Cell Labs (ACL), a subsidiary of ADL.
A few months later, in August 2021, ADL promoted the worker to chief development officer, in which he oversaw the Canadian operations and managed a team of 19 employees. His compensation package included a base salary, stock options, an annual bonus, employer contributions to his RRSP, a cellphone reimbursement, and group benefits.
Termination without cause
On March 3, 2023, ADL terminated the worker’s employment without cause. Although his statutory minimum entitlement for three years of service was three weeks, the company only gave him one week’s termination pay. The termination letter stated that the rest of the termination pay would be withheld unless the worker signed a full and final release, which included a release of other claims beyond the severance payment, a non-disclosure clause, and a non-disparagement clause.
The worker advised ADL that he considered the employment contract to be repudiated and sued for wrongful dismissal. ADL initially defended the action, but it withdrew its statement of defense prior to trial.
The court found that ADL didn’t provide the worker with his contractual severance entitlements as provided for in his employment agreement – which should have been three months’ salary and benefits, which at the time was greater than the statutory minimum of three weeks. In fact, ADL didn’t even provide the statutory minimum and therefore breached the ESA, the court said.
“What got the judge the angriest was that ADL didn't even pay the ESA minimums,” says Fisher. “Sometimes you'll see agreements that say, ‘Obviously, we’ll pay the ESA and then we'll pay you extra if you sign a release’ - but here they just didn’t even pay the [ESA minimum] or the contractual amount.”
The court determined that ADL’s failure to pay the worker his contractual entitlements would lead a reasonable person to conclude that the company didn’t intend to be bound by the termination clauses of the employment agreement. This was a repudiation of the employment agreement, rendering the termination clauses unenforceable and leaving the worker entitled to common law reasonable notice, said the court.
Signed release before termination pay
Employers can't make signing a release a condition for receiving statutory termination pay or contractually agreed-to amounts, says Fisher.
“I think you could only [make such a condition] if you had a allegation that the worker quit or he was fired for willful misconduct, then I think you could compromise and say, ‘You’ll get the ESA minimum, but you have to sign a release,’ because there's at least a credible argument that you owe nothing, so you're not contracting out of the ESA,” he says. “But that's taking this analysis a little bit farther and this one's very straightforward - you have a contract, you pay what’s in the contract.”
The court also found that even if the release was an implied term of the agreement, it was too broad by including elements beyond a release for severance amounts and would have provided ADL with “a benefit from the release which it was not entitled to under the employment agreement” and would deprive the worker of “the only remaining benefit to his employment agreement.”
The court determined that nine months’ notice was appropriate, given the worker’s seniority, niche industry expertise, high compensation, and limited job opportunities in the gene therapy sector in Canada. After deducting the one week’s pay the worker already received, the court ordered ADL to pay the worker a total damage award of $456,908.82 – including salary, RRSP contributions, health and dental benefits, an annual bonus, and the cellphone reimbursement for the nine-month notice period – plus costs on a partial indemnity scale.
The court found both ADL and its subsidiary, ACL, jointly liable for the damages. Evidence showed the two entities operated interchangeably, and ACL actively participated in the termination and subsequent negotiations.
Repudiation
The worker’s request for $50,000 in punitive damages was denied. While the company’s actions in withholding statutory entitlements were improper, the court concluded that the compensatory damages served as sufficient deterrence.
Even if ADL hadn’t repudiated the employment agreement, it’s possible the clause on with-cause termination could have been problematic, according to Fisher.
“The clause saying the company has a right ‘at any time’ to terminate the worker for cause - that's the Dufault problem [Dufault v. The Corporation of the Township of Ignace, 2024 ONSC 1029] - terminating employment without notice or severance under the ESA,” he says. “They're trying to say without notice or severance pay if you're guilty of willful misconduct, but I'm not sure that's good enough now - I would have attacked that part of the clause too, because this is very common.”
Employers are now drawing up three-part termination clauses with careful language, says Fisher.
“You get nothing if it's willful misconduct, but if it's just cause you get ESA minimum only, and if it's neither [without cause], then we'll give you a little extra - that's becoming a very common way to arrange severances in light of Waksdale, because employers don't want to pay out proper notice for someone who is guilty of common law just cause,” he says. “So they call it without-notice or other notice of payment, if your conduct is such to constitute just cause [but not willful misconduct].”
“But for employers, if you have a contract, just pay it - putting a release in the contract could be problematic, because you could easily create a situation where someone doesn’t understand the general principle that they can release you from events that haven't occurred yet,” adds Fisher. “That doesn't make sense, and I think the better argument is, if you have a contract and comply with it, you don't need a release.”
See Timmins v. Artisan Cells, 2024 ONSC 7123.
