Cutting the ties of employment and liability

Valid releases need certain key elements to truly protect employers from legal liability

Cutting the ties of employment and liability

Many employers have dismissed employees sign releases on their way out the door as a way of protecting themselves from future liability and providing fixed, known costs associated with the employee’s termination. Releases can be a useful tool towards these ends, but there are certain legal requirements for them to be valid.

Like employment contracts, releases can’t contract out of statutory entitlements. Employees have to be given the opportunity to read them and seek legal advice before signing them, and they must sign them willingly and without coercion. Without these basic elements, it’s unlikely a release will stand up to a legal challenge.

A key element of the legal advice element is that it doesn’t necessarily hinge on whether the employee receives legal advice, but rather that they are given the opportunity to do so. This issue arose in a 2019 B.C. Human Rights Tribunal decision, where an employer gave an outgoing employee two weeks to consider a release of all legal and human rights claims in exchange for $7,000.

The employee said that he had received legal advice and believed that age was a factor in his dismissal, so he wanted to negotiate. The employer upped its offer to $8,900 and the employee signed the release four days later. He later filed a human rights complaint and claimed that he hadn’t actually sought legal advice and hadn’t fully understood the terms of the release.

The tribunal dismissed the claim, finding that there was no evidence the settlement was unfair or the employee lacked the capacity to sign it, and he had plenty of opportunity to seek legal advice — it didn’t matter whether the employee had taken advantage of the opportunity or not: see Dumitrache v. Glenlyon-Norfolk School Society, 2019 BCHRT 68 (B.C. Human Rights Trib.).

In 2017, the B.C. Human Rights Tribunal dismissed an employer’s attempt to get an employee’s sexual harassment complaint thrown out because the employee had signed an agreement to drop the complaint in exchange for $800. The tribunal acknowledged that there was “an unequal power dynamic” between the employer and the employee, who was a young, single mother. It found that she had received some legal advice but hadn’t been able to review the agreement or possible remedies under the B.C. Human Rights Code.

In addition, the tribunal found the $800 was “substantially unfair” and much less than what the worker would likely receive from a successful human rights complaint: see The Employee v. The Company and the Owner, 2017 CarswellBC 3445 (B.C. Human Rights Trib.).

Sometimes, signing a release doesn’t mean physically putting pen to paper. The Ontario Divisional Court upheld a release in 2019 where three dismissed employees didn’t actually sign it. The employees stated, through their shared lawyer, that they were prepared to accept termination packages that included a release if the company sweetened the deal by covering their legal costs. The employer agreed and sent the paperwork. The employees didn’t sign or return the paperwork, sued for wrongful dismissal, and a motions judge found the revised paperwork constituted a new termination package.

However, the Divisional Court disagreed and found that the employees had made it clear that they accepted the original package as long as it included the added condition of legal costs, which the employer provided: see Shete, Lada, and Chung v. Bombardier Inc., 2019 ONSC 4083 (Ont. Div. Ct.).

Releases are binding

More recently, in 2020, the Ontario Human Rights Tribunal supported the enforceability of releases and settlement agreements, stating that such agreements should be “given effect unless there are compelling reasons to set it aside.” It made this assertion in dismissing a complaint from a worker who signed a release but claimed she had done so under duress while locked in a hearing room for seven hours.

The evidence was that the worker had three union representatives with her and she had made three calls on her cellphone during that time. There was also no medical evidence to support the worker’s claims that she was sleep-deprived and suffering from depression and anxiety to the point where she couldn’t understand what was happening: see Graham v. New Horizon System Solutions, 2020 HRTO 49 (Ont. Human Rights Trib.).

Once releases are agreed to, the parties are bound to the terms — that’s the point. For example, most releases include a confidentiality agreement. If a dismissed employee violates it, any entitlement that’s dependent on the release is lost. This happened several years ago when an Ontario newspaper columnist reached a mediated settlement of a dismissal grievance that included a payment to the columnist of more than $200,000.

The settlement agreement contained a confidentiality clause and a provision stating that if the columnist breached that clause, she would have to repay the settlement funds. A few years after the agreement was signed, the columnist published a book in which she referred to being “paid a pile of money to go away” along with other references to the settlement. An arbitrator — and the Ontario Divisional Court on appeal — ruled that the employee had violated the confidentiality clause and ordered her to repay the money: see Wong v. Globe and Mail Inc., 2014 CarswellOnt 15512 (Ont. Div. Ct.).

Releases are a popular tool for employers and can bring certainty for both sides during the difficult process of employment termination. However, getting to the point of signing requires a careful process, or else the only things getting released will be the hounds of litigation.

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