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Mutual release set aside due to fraudulent misrepresentation

fraudulent misrepresentation

In Markicevic v York University (2018 ONCA 813), the Ontario Court of Appeal upheld the lower court’s decision to set aside a settlement with its ex-employee to whom they had paid 36 months severance pay only to find out later that he had actually ripped them off for a million dollars.

As part of the deal the parties signed a mutual release.

York first became aware of the accusations of the Plaintiff’s dishonesty before they terminated him and before they settled. Even though they had sworn statements from other employees about this dishonesty, they said they believed the Plaintiff when he denied the accusations. The Court held that his protestations of innocence constituted a fraudulent misrepresentation. The York representative said that if he had known the true story at that time, he never would have paid the 36 month severance package.

After York paid the Plaintiff his huge severance they investigated the allegations and found them to be true.

The Court said:

A contracting party who is induced to enter into a contract as a result of a fraudulent misrepresentation is entitled to rescission, and restoration of the benefits conferred on the other party to the contract. The question of whether a contracting party did in fact rely on the misrepresentation, at least in part, to enter into the contract is a question of fact to be inferred from all the circumstances of the case and evidence at the trial.”

“The trial judge’s finding that York was induced to enter into the severance agreement by the appellant’s fraudulent misrepresentation that he was innocent of any financial dishonesty is supported by the evidence and no palpable or overriding error has been shown. It is difficult to imagine circumstances in which an employer acting responsibly would pay three years severance pay to an employee it knew had misappropriated large sums of money from it.”

I have a lot of concerns about this case.

First of all why did York give a mutual release?

In most wrongful dismissal actions only the plaintiff releases the defendant. Only where there is a potential of a counterclaim is a mutual release used. In other words only where there is a real concern by the plaintiff that the employer may have a claim against him does the plaintiff have the right to ask for a mutual release.

In this case therefore, by agreeing to sign a mutual release, York should or must have known that the Plaintiff was concerned that the employer may have a claim against him and thus would want that claim extinguished.

Secondly, in my 40 years of practice, I have rarely seen an employee accused of fraud do anything other than deny it when confronted by their employer. Only a complete idiot would admit to such a thing and only a fool would rely on this claim of innocence without first conducting a thorough investigation before, not after, the settlement.

Thirdly, this was an extremely sophisticated employer, containing  the best law schools in Canada (I went to OHLS). The fact that for some inexplicable reason York decided to pay this guy way more than any Court would ever order (36 months severance!!!!) should not give them an out because they later determined that it was a dumb decision.

In my opinion this case will lessen the willingness of parties to settle actions because it takes away the certainty of a release. The whole point of a settlement  is that, having done their due diligence, both parties have agreed to stop looking to the past and focus only on the future.

Anything that deviates from that sacred principle will only harm the important societal interest in settling disputes.

Barry B. Fisher LL.B.

Barry B. Fisher LL.B. is a mediator and arbitrator of both employment and labour relations matters . He offers three forms of ADR based on the clients’ needs: Mediation, Arbitration and Med/Arb. Barry is from the evaluative school of mediation and brings his over 30 years experience as an employment lawyer and legal author to the dispute. In addition to his knowledge of the legal issues involved in these disputes , he also has a deep understanding of the psychological factors that motivate both employees and employers. By combining these two skills, Barry is able to achieve a settlement rate of over 80% of the disputes that he mediates.
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