Savvy employers will ask an employee to sign a release in exchange for a severance package when ending an employment relationship.
This practice ensures that all potential lawsuits and claims the employee might have against the company are resolved. Occasionally employees who have signed a release will later try to challenge the document’s enforceability so that they can make a claim against their former employer. Courts and tribunals are willing to set aside a release if it is unconscionable (i.e., significantly unfair to the employee). The potential impact of a release being set aside is troubling: former employees can bring any kind of claim against their employer as if they had signed nothing.
How can you avoid this trap?
By following the guidelines outlined below, you can help ensure that your release is binding and enforceable.
First, remember that to have a binding contract, you must give something in order to get something in return.
In the termination context, this means that you must provide more than the amount of notice or pay in lieu of notice set out in the Employment Standards Act and/or written employment contract. If you have employees sign a release but are giving them only what they are already entitled to receive, a court or tribunal will readily find that the agreement is unenforceable and that they have a right to bring a claim.
Next, make sure your release is clear and understandable.
If your document is so complex that you need a law degree to make sense of it, your departing employee might be able to make a case that it is unenforceable. In a recent decision, a court found that a settlement agreement was unenforceable in part because the release was written in overly complicated “legalese.” The employer’s representatives admitted in cross-examination that they did not understand the document. Before you use your release, read it through and see if you can decipher its meaning. If you cannot, swap it out for a version that uses plain and simple language.
Giving your employee enough time to make a rational and informed decision is also critical to ensure your release is enforceable.
While it might be tempting to want to get it wrapped up as soon as possible, courts frown on employees being time-pressured in the termination process. Some employers that have encouraged an individual to sign off on an offer in the termination meeting have later found the release to be unenforceable, even when the employee said that he or she was ready to make a decision. Generally, you should give employees at least a few days, and ideally a week, to decide whether they will accept your offer and sign the release.
Don’t forget to encourage employees to get legal advice about the package you are offering. Legal advice helps to level the inherent power imbalance between employer and employee in the termination context. Your release will always be stronger and less susceptible to attack if employees have been informed of their legal rights and entitlements prior to signing. While you of course cannot force employees to see a lawyer, you should always tell them that they have the option to do so.
Finally, carefully consider any extenuating circumstances employees might be facing and how they might be affecting their decision-making.
Are you aware that the employee is heavily in debt and desperate for money? Is English the employee’s second language, and you doubt he or she will fully understand the settlement documents?
While there is never a “right” time to terminate an employee, and it is common to have challenging personal circumstances of one kind or another, if you knowingly take advantage of an employee’s vulnerabilities in the termination process you may find yourself faced with a finding that the release was secured unfairly and should be set aside. A release’s finality is valuable to employers when they are parting ways with an employee. Thoughtfully considering these guidelines will help ensure that your release is enforceable and that the employee’s claims are resolved once and for all. •
Maggie Campbell is a lawyer at Roper Greyell LLP.
