A settlement agreement can be valid even if the paperwork's not signed
By Jeffrey R. Smith
Is your word your bond? How about your company’s? Is it good enough for a termination settlement agreement before anyone has signed on the dotted line? According to a recent Ontario court decision, it can be.
Verbal agreements can be tricky — that’s why it’s always a good idea to get everything in a contract written down. And once it’s written down, it should be signed by everyone involved. That way, there’s little chance of confusion and there is evidence in case one party tries to breach the contract.
Written, signed agreements are usually the advisable way to go. But this doesn’t mean a verbal agreement or a written but unsigned agreement can’t be valid if it’s clear that both sides agreed to it.
Four years ago, Bombardier terminated the employment of three Ontario employees, offering a termination package to each of them including a release stating they couldn’t take any further legal action if they agreed to the package. The three employees, who had the same lawyer, responded that they were prepared to accept the termination packages if the company paid their legal costs — an additional $2,500 each. Bombardier agreed to the terms and sent the paperwork, including the release, for the termination packages in April 2016.
However, the employees didn’t sign or return the paperwork for the packages. Two months later, all three of them sued for wrongful dismissal. Bombardier tried to get the lawsuit dismissed on the basis that the termination package released it from any further legal responsibility, but a motions judge found that the revised offer that included coverage of the employees’ legal fees amounted to a new termination agreement that the employees hadn’t accepted.
Bombardier appealed and the Ontario Divisional Court found in favour of the company. The revised paperwork wasn’t a new settlement offer; rather, it was the original offer with the added perk of covering legal costs that the employees had requested. Despite the fact the employees didn’t sign and return the paperwork, they had made it clear they accepted Bombardier’s offer as long as it provided the extra condition, which the company did, said the court in dismissing the wrongful dismissal suit: See Shete, Lada, and Chung v. Bombardier Inc., 2019 ONSC 4083 (Ont. Div. Ct.).
Obtaining signatures from all parties involved is an important aspect of reaching valid and binding agreements. But if both sides have already agreed to the terms, the agreement is good, right? The Ontario Divisional Court thought so. Would other courts agree?
At what point should an agreement be considered valid? A verbal agreement? A handshake? Many would say it’s not final until it’s signed — the signature is the official agreement by each party. But if signatures aren’t yet jotted down or the fine points still have to be worked out, it’s sometimes cautiously referred to as “preliminary agreement” with the recognition that it’s not final.
In the case above, some might say Bombardier had a preliminary agreement that wasn’t yet official. But others might say — as the court did — the company and the dismissed employees had reached an agreement on the essential details and the intention was to resolve the matter, which was good enough to seal the deal.
Getting that signature is the best way to make a settlement agreement official, but sometimes having both sides just say “yes” will do the trick as well.