The value of a paper shield: why releases for dismissed employees are worth the effort
When dismissing an employee, many employers will request that the departing individual sign a full and final release. Such releases can serve a number of useful functions. That said, they are primarily designed to limit the employer’s exposure to future liability arising from the employment relationship.
The fundamental value of having departing employees execute a release was recently emphasized in Hostick v. Great West Life Assurance Company, 2014 HRTO 1207 (CanLII), a 2014 decision of the Human Rights Tribunal of Ontario (the “Tribunal”). The case involved Mr. Daniel Hostick, whom had been employed by Great West Life (“GWL”) as a Regional Director prior to his dismissal.
During the dismissal process, Mr. Hostick agreed a severance package and executed a full and final release with the assistance of his own legal counsel. Subsequently, GWL issued an internal communication advising that Mr. Hostick had retired and a retirement party took place. From the company’s perspective, everything seemed to have been resolved.
Unfortunately, Mr. Hostick relied upon the characterization of his exit as a “retirement” as evidence that the decision to end his employment was tainted by age discrimination. He then retained a lawyer and commenced a proceeding at the Tribunal seeking damages in the amount of $1.5 million. Unsurprisingly, GWL objected. Further the company sought that the matter be dismissed in light of the fact that Mr. Hostick had given up his right to commence legal proceedings related to his prior employment by virtue of executing a release.
The Tribunal noted that while the execution of a release does not automatically preclude an individual from subsequently bringing an application, cases amounting to an abuse of process can be dismissed pursuant to section 23(1) of the Statutory Powers and Procedures Act (“SPPA”). Acting in accordance with its authority under the SPPA, the Tribunal determined that the release freely entered into by Mr. Hostick contained an explicit agreement to not make a claim under the Code. As such, he was prohibited from now proceeding at the Tribunal.
This decision serves as a useful reminder to employers and employees alike, as to the utility of releases and the implications of executing such a document.
Employers should always follow the following five steps to ensure that any release they issue will be enforceable:
- Provide consideration to the employee
A release is a type of contract. As such, in order for it to be binding and enforceable, the individual employee must receive something in exchange for agreeing to abide by its terms. For a simple example, this consideration could be an additional $2,000.00 (on top of employer provided severance) in exchange for giving up any future right to seek damages for human rights or wrongful dismissal.
- Reasonable protection of interests
A properly-drafted release should not reach beyond what is necessary. For example, it would be overbroad, and potentially unreasonable, to require that an individual execute a release that prevents him or her from bringing a claim against the employer for any reason, no matter when the claim may arise. The goal should be to protect the company from claims arising out of the employment relationship; not preventing a hypothetical slip and fall claim 20 years from now.
- Clear and unambiguous terms
If an employer-drafted release is ever challenged and its contents are found to be unclear or ambiguous, the benefit of the doubt will be decided in favour of the employee. As such, imprecision and lack of clarity in a release is a sure-fire way to have the document be struck down.
- No duress to sign
An employer could follow each of the steps listed above, and still be exposed to liability if the employee does not have a reasonable opportunity to review the content of the release before execution. In any circumstance where an individual is placed under pressure to execute the release, the validity of the resulting agreement may well be questionable.
- Encourage seeking independent advice
This final point goes hand-in-hand with ensuring that an individual is not subject to duress. Employers should ensure that a release explicitly provides the individual with an opportunity to receive independent legal advice before execution of the document. This additional step re-affirms that the individual entered into the contract freely and had ample opportunity to question or seek revision to any terms that he or she believed to be prejudicial to their interests.
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