Employees signing a release should expect to be bound

Employees forced to leave their employment are often provided with a payment in lieu of working notice, also known as a "severance package". The employer will often demand that, as a condition of making that payment, the employee must sign a form of release.

 

The purpose of a release is to provide the employer with comfort that the individual will not commence any future court actions or complaints relating to the employment. Typically, an employment-related release is intended to protect the employer against all manner of civil actions (such as wrongful dismissal) as well as administrative complaints under statutes relating to human rights, employment standards, and personal information.

 

The release usually applies to all circumstances relating to the employment (and the cessation thereof) regardless of whether those circumstances are presently known to the individual. The release will often compel the individual to keep the terms of the settlement confidential.

 

A release is intended to be a binding, contractual document and should not be entered into lightly. Its impact on the individual can be significant and careful consideration, including obtaining legal advice, is highly recommended. That is because, once signed, a release can be extremely difficult to overturn.

 

In Ontario, a recent decision of the Superior Court of Justice exemplifies how difficult it can be for an individual to escape the impact of a release. Barr's employment as a territory sales manager with Pennzoil-Quaker State Canada Inc. was terminated after almost 15 years. Barr was offered, and accepted, a severance package and in the course of doing so he executed a full general release.

 

The severance package included 1 year of base salary as a lump sum, the continuation of benefits for 2 months, payout of accrued vacation pay, and access to career counseling services. Barr was given 2 weeks to consider the proposal and to obtain financial and legal advice as he saw fit.

 

Ultimately, Barr signed the release without questioning any aspect of the severance package. Subsequently, he sued Pennzoil-Quaker State for wrongful dismissal, seeking greater pay in lieu of notice of his dismissal.

 

The Ontario Court began its reasons for judgment by emphasizing that courts will be slow to set aside a release and settlement agreement between parties where valuable consideration has been exchanged. 

 

The Court found that, in accepting the terms of the release, Barr had not been subject to duress (or coercion of the will). Although he was subject to economic pressure, he did not protest and had alternate steps available to him. He obtained financial advice but made his own decision not to get independent legal advice.

 

On the topic of unconscionability, the Court assumed (without making any factual findings) that Pennzoil-Quaker State had effectively threatened Barr when it told him he would get nothing if he didn't accept their offer. The Court characterized this conduct as especially unconscientious in that it was used as an incentive to get Barr to sign the release.

 

Nonetheless, the Court upheld the release because the severance package was within the range of what was acceptable in Barr's circumstances. Although the severance package was at the low end of the spectrum, it was not sufficiently divergent from community standards of commercial morality that it should be set aside.

 

The Court concluded its reasons by stating the policy considerations in favour of upholding releases. It said that, once minutes of settlement are executed, it is virtually impossible to resile from them, especially after settlement monies have been paid and the parties have got on with their lives and businesses. 

 

It concluded that Barr, with two full weeks to consider Pennzoil-Quaker State's offer, had sought the advice he felt was appropriate and then signed off. Although the settlement, viewed in hindsight, was less that what he might have obtained, it was not so bad that it crossed the threshold into the unconscionable.

 

The lesson to be learned by employees is that they must assume they will be bound by any release they sign. Only in extraordinary circumstances will they be able to avoid the contents of a duly executed release. The lesson for employers is that there is substantial value in ensuring departing employees sign a release as a condition of being paid any form of severance.