Can an employer require that an employee being terminated seek legal advice before signing a release?
Question: Can an employer require that an employee being terminated seek legal advice or take a few days before signing a release, even if the employee wants to sign it immediately?
Will this help ensure the release is valid?
The release of claims is an agreement between an employer and an employee whose employment has been terminated. Employees typically sign the document in return for a severance package. The release is meant to limit potential litigation for reasons such as discrimination or wrongful dismissal. For employers, it is common practice to insist on a release before a severance package or payment is remitted to the former employee, because it is one of the most effective ways an employer can minimize its legal risk when terminating an employee.
An employer cannot rely on a release, however, where its execution would be unconscionable, where the release was induced by fraud or misrepresentation or where there are other contract issues, such as a lack of consideration or a mistake.
The Alberta Court of Appeal in Cain v. Clarica Life Insurance Co. specifically considered what conduct would be considered unconscionable and concluded that there are four elements necessary to prove unconscionability. These elements are:
• A grossly unfair and improvident transaction
• The signatory’s lack of independent legal advice or other suitable advice
• Overwhelming imbalance in bargaining power caused by victim’s ignorance of business, illiteracy, ignorance of the language of the bargain, blindness, deafness, illness, senility or similar disability
• Other parties knowingly taking advantage of this vulnerability.
Recent decisions from the lower courts of Alberta have clarified that the employer is not required to provide employees with legal advice before they sign a release. Instead, the employer simply has an obligation to provide an opportunity for the employee to obtain independent legal advice: Cicalese v. Saipem Canada Inc. Even where an employee does not receive legal advice, however, a release may still be found valid if the three other unconscionability conditions are absent: LaChance v. Transwest Financial Services Corp.
The courts have not specifically considered whether an employer would be allowed to require an employee to seek legal advice. While this practice could be beneficial for ensuring validity, it would very likely be found unenforceable, as it would require the employee to incur legal costs.
In order to create valid and enforceable releases, we generally recommend that employers ensure that:
• The release is drafted in clear and simple language so that the employee understands what is being signed, and why
• The release includes all relevant information so that the employee is fully aware of what rights they were giving up by accepting its terms
• The amount of the settlement is fair in the circumstances so as to nullify any potential argument that there was an inequality of bargaining power between the employer and employee
• The employee freely consents to signing the release so as to prevent the employee from claiming that they were unduly influenced or coerced by the employer
• The employee is given opportunity to seek independent legal advice (5-7 business days)
• The employee must not be in a state of duress while signing the release
• The employee is aware that they might have recourse under human rights legislation at the time of signing the release, so as to prevent the employee from subsequently arguing that they were unaware of those rights.
For more information see:
• Cain v. Clarica Life Insurance Co., 2005 ABCA 437 (Alta. C.A.).
• Cicalese v. Saipem Canada Inc, 2018 ABQB 835 (Alta. Q.B.).
• LaChance v. Transwest Financial Services Corp., 2008 ABQB 402 (Alta. Q.B.).
Tim Mitchell practises management-side labour and employment law with McLennan Ross LLP in Calgary. He can be reached at (403) 303-1791 or [email protected]