Recent case shows why settlement agreements have real consequences
Exclusive to Canadian HR Reporter from Rudner Law.
Suppose your company enters into a settlement with a dismissed employee. Under the agreement, the employee is entitled to salary continuation for a specified period, unless they find new employment before that period ends.
What happens if the employee secures a new job and simply fails to inform the company, despite a clear contractual obligation to do so?
The recent Ontario Superior Court decision in Cross v. Cooling Tower Maintenance Inc. is a cautionary tale for employers and HR professionals. While the employer ultimately avoided paying salary continuation after the employee’s re-employment, the court still enforced a substantial lump-sum payment in the employee’s favour, even though the employee intentionally failed to disclose his new job for months.
The case underscores an important lesson: to ensure meaningful protection, settlement agreements must clearly spell out the consequences of non-disclosure, and they should be prepared by employment lawyers who are well-versed in the law. If the agreement does not clearly set out these consequences, employees may have little incentive to comply.
Settlement agreement for long-service employee
Mitchell Cross was a long-service employee with 26.5 years at Cooling Tower Maintenance. After his without-cause termination, the parties entered into a settlement agreement providing for salary continuation over a 24-month period, with an important caveat: payments would cease if Cross obtained new employment.
If re-employment occurred, Cross was required to immediately notify the employer. In exchange, Cooling Tower agreed to pay him a lump sum equal to 50% of the remaining payments.
Critically, the agreement also included a reimbursement clause stating that if Cross failed to disclose new employment, he would be required to repay any amounts paid after the start of the new job.
Cross started a new position in February 2024. He did not tell Cooling Tower. For nearly four months, he collected both his new salary and ongoing settlement payments. Only after Cooling Tower made inquiries did he confirm his re-employment.
Cooling Tower responded by stopping payments entirely and taking the position that Cross had repudiated the settlement agreement. Litigation followed.
No repudiation despite non-disclosure
The court had little difficulty finding that Cross intentionally failed to disclose his new employment. The judge rejected any suggestion that this was a mere oversight, noting that it “defies logic and common sense” that a senior employee could forget he was being paid twice for months.
However, intent alone was not enough.
Repudiation is an “exceptional remedy,” particularly in the context of settlement agreements. Courts are reluctant to find repudiation unless the breach undermines the entire foundation of the contract. Here, the court concluded that it did not.
Cooling Tower still received the core benefit of the settlement: finality. Cross released his wrongful dismissal claims, maintained confidentiality, and did not denigrate the company. The failure to disclose re-employment, while serious, did not deprive the employer of “substantially the whole benefit” of the bargain.
As a result, the settlement agreement remained enforceable.
Where was the incentive to disclose?
This is where the decision becomes especially relevant for HR professionals.
Under the agreement, if Cross had promptly disclosed his new job, Cooling Tower would have owed him a lump sum of roughly $161,000. By failing to disclose, his worst-case outcome was… exactly the same payment, minus reimbursement of the overpaid amounts.
In other words, the agreement did not impose any meaningful downside for non-disclosure beyond repayment of money he was never entitled to receive in the first place.
The reimbursement clause allowed Cooling Tower to claw back overpayments, but it did not state that the lump-sum entitlement would be forfeited, reduced, or suspended. Nor did the agreement say that failure to disclose would constitute repudiation.
Absent clear language, the court was not prepared to imply those consequences.
The result: Cooling Tower was ordered to pay the full 50% lump sum, while Cross was required to repay only the excess amounts he had improperly received.
Had the settlement agreement clearly specified that the penalty for non-disclosure was the forfeiture of the remaining payments, the court’s decision likely would have been very different.
Key takeaways for employers and HR
This decision emphasizes that disclosure obligations need teeth. Simply requiring “immediate disclosure” is not enough. If there is no real penalty, employees may delay disclosure with little risk.
It is important that your lawyer drafting the settlement agreement spells out the consequences clearly. If a failure to disclose is intended to result in forfeiture of a lump sum, suspension of payments, liquidated damages, or termination of the agreement, the contract must say so explicitly.
As can be seen in this decision, courts can be reluctant to find repudiation of settlement agreements, even where the employee’s conduct is intentional and improper.
Best practice for settlement agreements
Cross v. Cooling Tower Maintenance Inc. is a reminder that settlement agreements must be drafted with human behaviour in mind. If an employee can breach a disclosure obligation, repay the overpayment and still receive the full benefit of the deal, the agreement may be legally sound but commercially flawed.
For employers and HR professionals, the lesson is clear: if disclosure matters, the consequences of non-disclosure must be unmistakable. Achieving this requires careful drafting by employment lawyers who understand the law and the practical realities of enforcement. Consulting legal counsel when structuring these types of settlements is essential to ensure the agreement not only protects the company but also provides real incentives for compliance.
Alex Minkin is an associate lawyer at Rudner Law in Toronto. He can be reached at (416) 864-8500 or [email protected].
