Cutting loose from legal claims

Good faith helps a release stand up to scrutiny

Cutting loose from legal claims

Termination of the employment relationship can be messy. Most people probably don’t want it to be, but it can be hard to avoid. There can also be hard feelings if termination notice or pay is limited to only statutory minimums by a termination clause, so offering a little more than that can help smooth things over, especially if it’s accompanied by the employee signing a release of any future claims.

Having employees sign a release can keep things smooth following the termination and ease any worry about legal action. Similar to employment agreements, employees generally should be given time to review them and seek legal advice, but as long as they’re clear and legally sound, they can help employers avoid legal headaches.

And it’s usually a good idea to offer some incentive for an outgoing employee to sign it, such as additional termination pay.

Release of all claims, including human rights

A good release can absolve an employer from liability for any kind of legal action, be it related to employment standards, wrongful dismissal, or human rights complaints. One Ontario employer recently successfully fended off a discrimination complaint because of a release it had a terminated employee sign that covered any future claims, including any arising under the Ontario Human Rights Code. The worker received an additional payment for signing the release about a week after receiving it.

The worker felt that her health issues contributed to her dismissal and filed a disability discrimination complaint, but the Ontario Human Rights Tribunal found that the worker understood the release and had time to seek advice. There was no economic or psychological pressure to sign it, so there was no reason to scrap it.

The tribunal dismissed the complaint as an abuse of process.

Wording determines scope

Another Ontario demonstrated how the wording of a release can determine its scope. An employee settled a wrongful dismissal suit in 2011 and as part of the settlement, they signed a mutual agreement resolving “all claims, complaints, actions, disputes, etc. between them arising out of the employment relationship or the termination of that employment.”

However, four years later, an investigation found that the employee had been sexually harassed by a co-worker. She sued the employer and the co-worker for damages and reached a settlement with the employer.

The co-worker tried to have the claim dismissed based on the 2011 release, but the court found that the sexual harassment did not arise out of the employment relationship and permitted the claim to proceed.

Health and safety complaint

Can releases cover health and safety complaints? A decade ago, a Saskatchewan long-term care worker signed a release in exchange for severance pay after her dismissal. She then filed a health and safety complaint claiming that she had raised safety issues about bullying and unsafe staffing levels, which was dismissed because of the release, which stated that she wouldn’t bring any claims against the employer. The worker appealed, arguing that workplace safety issues couldn’t be waived.

The Saskatchewan Court of Appeal dismissed the complaint, finding that her complaint related to personal issues. However, the court noted that if her complaint had concerned a systemic workplace issue, it would have been allowed to proceed.

So how can you be sure that a release will stand up? As previously mentioned, the employee should be given reasonable time to review it and seek advice without undue pressure. In 2019 the Ontario Court of Appeal outlined the factors that must be met to overturn a release as unfair and unconscionable – a grossly unfair and improvident transaction, a lack of legal or suitable advice, an overwhelming imbalance in bargaining power caused by the employee’s inability to understand it through various reasons, and the employer knowingly taking advantage of such an inability to understand. In that decision, the Court of Appeal overturned a decision voiding the release of LTD claims as unfair based on a lack of the lower court’s analysis based on those factors.

The purpose of a release should be to settle things for once and for all between a terminated employee and the employer. That’s why it’s important to follow the principles of fairness and good faith when drafting a release and asking an employee to sign it – if it’s not done right, it won’t be much of a release after all.

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