Release cannot displace employee’s rights under Canada Labour Code

Even if a settlement is reached, the employee may still pursue an unjust dismissal complaint within 90 days

Release cannot displace employee’s rights under Canada Labour Code
Brittany Taylor

Earlier this year, the Federal Court of Appeal released its decision in Bank of Montreal v Li, imparting a very important reminder for federally regulated employers and employees about the enforceability of a settlement agreement purporting to resolve complaints of unjust dismissal.

In Bank of Montreal, the court reiterated a crucial legal concept: An employee and an employer cannot contract out of the rights and entitlements set out in Part III of the Canada Labour Code (CLC). This should not really be surprising, as the purpose of employment standards legislation is to set certain minimum entitlements for employees in stone.

However, Part III of the CLC does not deal solely with hours of work, wages, vacations, etcetra — it also sets out an inspection and adjudication regime for dealing with complaints of unjust dismissal from dismissed, non-unionized employees.

As the right to pursue an unjust dismissal complaint under Section 240 of the CLC is enshrined in Part III, an employee cannot agree to give up that right — even in a settlement agreement or release. As a result, a release signed within 90 days of the cessation of the employee’s employment — the time limit within which unjust dismissal complaints must be brought — will not act as a shield against an employee’s unjust dismissal complaint.


In this case, the employee had been employed by the bank for nearly six years when her employment was terminated due to performance deficiencies. At the time of her dismissal, Yanping Li signed a settlement agreement with the bank whereby she received a lump-sum payment in exchange for releasing the bank from any and all claims arising out of the termination of her employment.

Despite having signed the settlement agreement, Li filed an unjust dismissal complaint under the CLC. That complaint proceeded to adjudication, where the bank argued that the arbitrator lacked jurisdiction to hear the complaint, given the settlement agreement. The arbitrator disagreed, relying on the Federal Court’s decision in National Bank of Canada v Canada (Minister of Labour).

In National Bank, the court found that section 168(1) of the CLC clearly indicates that the requirements of Part III will apply notwithstanding any contract to the contrary, unless the contract is more favourable to the employee. For this reason, it was not possible for an employee to waive their right to bring an unjust dismissal complaint within 90 days of their dismissal as part of a settlement agreement.

BMO sought judicial review of the arbitrator’s decision, arguing that National Bank should no longer be followed. Among other things, the bank pointed out that removing the ability for employers and employees to enter into binding settlement agreements within the 90-day period following an employee’s dismissal would have a “chilling effect” on potential settlement discussions.

At trial, the court found that BMO’s argument was “grounded in policy rather than law” and did not provide a basis for the court to depart from National Bank. As a result, the court upheld the arbitrator’s decision.

Decision of the Federal Court of Appeal

On Appeal, the bank made the same argument, again without success. In rejecting the bank’s submissions, the Federal Court of Appeal noted: “There is no doubt that settlement agreements are to be encouraged, and that employers may be tempted to provide no more than the minimum entitlements in the first 90 days following termination. But these are policy choices that are best left to Parliament.”

In other words, the court acknowledged that while the concerns raised by BMO may be legitimate, the court was bound to follow the legislative framework clearly set out in the CLC.

BMO sought leave to appeal this matter to the Supreme Court of Canada. The application was denied on Sept. 24, 2020.


The Bank of Montreal decision is an important reminder for federally regulated employers that a dismissed employee cannot contract out of their right to pursue a complaint of unjust dismissal under the CLC. As a result, even in cases where a settlement has been reached, the employee may still pursue an unjust dismissal complaint within 90 days from the date of dismissal.

However, while employers should keep this in mind, it should also not deter employers from entering into settlements with employees where it is reasonable to do so. Although employees cannot be prevented from bringing unjust dismissal complaints, a settlement agreement may still be considered by an adjudicator when determining the appropriate remedy in cases where an arbitrator finds that an employee was unjustly dismissed.

Federally regulated employees need to be aware of the very brief 90-day window in which they may pursue a complaint of unjust dismissal. It is also important for employees to understand that, within this window, they can pursue such a complaint even where they have signed a release in favour of their employer.

However, employees should not do so with the expectation that they will be awarded “double recovery” in terms of damages. As noted above, the adjudicator will take into account any monies received by the employee when determining the appropriate remedy should unjust dismissal be found. 

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