By Alan Riddell
When terminating employees, should you always insist on their signing a Release, releasing your organization from potential claims? Probably not. In some cases, securing a Release may involve far more trouble than it is worth. Recognizing when, and when not, to demand a Release can be key to ensuring a smooth and successful termination.
I. WHEN SHOULD YOU NOT BOTHER WITH A RELEASE?
In some situations, a Release, even when signed, will either be legally unenforceable or, for all practical purposes, largely unnecessary. In other situations, as discussed below, asking for a Release can complicate the termination, reduce the chances of immediate settlement and – rather paradoxically – sometimes even increase, rather than decrease, the risk of a claim being filed against your organization.
(i) Situations where a signed Release will be legally unenforceable
As a general rule, you should never ask an employee to sign a Release unless you are prepared to provide him/her with more money than the law, and his/her employment contract, actually require you to provide. This is because no court will enforce a Release, even though duly signed by the employee, if all that was paid to that employee, on termination, was the severance and termination pay owing to him pursuant to the Employment Standards Act and/or the contractual termination clause in his/her employment contract. As stated by the Ontario Superior Court in Yanez v. Canac Kitchens 2004 CanLII 48176, no signed release is legally enforceable if it provides the terminated employee with nothing more than the payments to which the law already entitles him/her.
In order to later persuade a court to enforce the signed Release, such as to prevent future claims by the employee, you generally must first persuade the court that you paid that employee a sum that exceeded what the Act and the contract required you to pay.
Accordingly, if you are not prepared to pay the employee anything more than what you are legally obliged to pay, there is no point in trying to get him/her to sign a Release. Without that additional money, the Release, although signed by the employee, is not worth the paper on which it is written!
(ii) Situations where a signed Release would probably be unnecessary
Even when you might be willing to provide the employee with an extra financial payment to ensure future enforceability of the Release, there are some situations where doing so will likely be a waste of your organization’s money, namely:
- Where your employment contract with that employee contains no valid termination clause, and where you are therefore electing to provide the employee with continuation of his or her salary and benefits coverage for the entire period of applicable common law notice; and
- Conversely, where the contract does contain a valid termination clause that your lawyers have assured you is absolutely certain to be upheld if challenged in court.
In both these situations, there is no risk of your organization being successfully sued for additional severance pay or pay-in-lieu of notice, and consequently, any signed waiver of the employee’s ability to sue the organization for that additional pay/severance would be unnecessary.
(iii) Situations where securing a Release may complicate the termination, or even increase the risk of further claims:
Asking an employee to sign a Release sometimes suggests that you think that your organization may be at risk of being ordered to pay significantly more money than what has been offered in the proposed severance package. To some employees, your request for a Release may imply that you are either not entirely confident in the fairness of that package, or alternatively that you have reason to believe that they may have a potentially successful claim against you on some other issue.
When an employee suspects this to be so, he or she will often insist on your paying significantly more than what has been offered, thereby making settlement far more difficult.
Alternatively, your request for a signed Release may encourage the employee to believe there is a valid claim arising from the manner in which he or she was treated, even though – in reality – no valid claim actually exists.
Depending on the employee, your insistence on a signed Release might actually dissuade them from accepting the settlement package that you have offered. In some circumstances, your insistence on a signed Release may even strengthen the employee’s belief in the legitimacy of a potential claim that would otherwise never have been advanced, thereby increasing the likelihood of litigation later being commenced against your organization.
II. WHEN MUST YOU INSIST ON A RELEASE?
There are occasions when obtaining a Release from the dismissed employee will be vital to the protection of your organization. You should definitely require that a dismissed employee sign a Release in any and all of the following situations:
(i) Whenever there is any predictable risk of the Employee later advancing a claim for unpaid overtime, workplace harassment or breach of his human rights:
In many instances, employees do not think to advance such claims until after their employment has been terminated. Often they only do so once they have read the termination letter and have become aware of how little severance money you propose to pay to them, pursuant to the termination clause in their employment contract.
Potential claims for unpaid overtime, workplace harassment or breach of human rights should not be treated lightly. Such claims often amount to tens of thousands of dollars. Absent a signed Release waiving such claims, employees can bank their severance money, and then wait a year or more after their termination before advancing a large claim. Such claims often succeed with surprisingly little supporting evidence, other than the uncorroborated affirmation of the employee that he or she worked the overtime hours and/or was harassed.
For example, pursuant to the Employment Standards Act, most non-managerial employees are entitled to overtime pay, at time-and-a half, for all hours that they retroactively claim to have worked in excess of 44 hours a week, during the previous 24 months. In some instances, this claim for compensation for the past two years of unreported, and unauthorized, overtime work can amount to a great deal of money.
To the consternation of many employers, the courts of Ontario have interpreted the overtime provisions of the Act as requiring employers to compensate employees for all overtime hours that they have worked, even where that overtime work was unauthorized, and/or even actually forbidden by the employer. As stated by the Ontario Court of Appeal in Fresco v. Canadian Imperial Bank of Commerce 2012 ONCA 444:
“Employers cannot avoid liability for overtime by permitting employees to work overtime and then refusing to compensate them for such work by requiring prior approval of overtime”.
(ii) Whenever there is any doubt about the enforceability of the termination clause in the employee’s employment contract:
It is absolutely essential that you secure a signed Release whenever the termination clause in your organization’s employment contract with the dismissed employee might no longer be legally enforceable as a result of its incompatibility with employment standards legislation. If a court later declares that clause to be unenforceable, then in the absence of a signed Release, your organization will immediately be liable to pay the employee full common law pay in lieu of notice, often amounting to 1, 2 or even 3 months per year of service (rather than the roughly 1 or 2 weeks per year of service prescribed in the Employment Standards Act).
In such circumstances, it is imperative that you obtain a signed Release from the terminated employee so as to preclude that employee from suing you for that full common law notice, a year or two later, if he or she later discovers that the clause is invalid.
(iii) Whenever your benefits insurer will be discontinuing the employee’s LTD or ADD coverage prior to the expiry of his/her legal notice period:
Whenever an employer discontinues a terminated employee’s LTD or ADD coverage, and that employee later has an accident, or becomes disabled, prior to expiry of the notice period, the employer is liable to pay that employee all the LTD or ADD money that would otherwise have been paid by the insurer, but for its cancellation of the coverage. This means that an employer could potentially become liable to the dismissed employee for hundreds of thousands, if not millions, of dollars if and when s/he suffers a serious accident, or a permanent disability, during the uninsured months that immediately follow the insurer’s cancellation of insurance coverage.
Most benefits insurers discontinue LTD and ADD coverage of dismissed employees at the end of the statutory notice period, that is to say, at the conclusion of the relatively short, 1-8 week, notice period prescribed in the Employment Standards Act. If the employment contract with the dismissed employee contains no enforceable termination clause validly restricting his/her notice to the 1-8 week period that is prescribed in the Act, then you are legally liable to reimburse him/her for the loss of his salary and for any consequences arising from his loss of benefits coverage during the remainder of the far longer period of common law notice.
As stated by the Ontario Superior Court in Egan v. Alcatel 2004 CanLII 2553, that entails the employer compensating the employee for all lost LTD or ADD money that would have been paid to him, by the benefits insurer, if and when s/he suffers a serious accident or permanent disability during the remaining, uninsured, portion of the common law notice period, that immediately follows the initial, 1-8 weeks where insurance coverage is still in place.
If your benefits insurer follows standard insurance industry practice, by discontinuing LTD and ADD coverage at the end of the 1-8 week statutory notice period, then (in the absence of an enforceable termination clause in the employment contract) your organization’s failure to secure a signed Release, from the employee, releasing all claims for LTD and ADD, could eventually lead to its becoming liable for hundreds of thousands, if not millions, of dollars if and when a serious accident or permanent disability suddenly occurs.
A final note
For the above reasons, a prudent employer will exercise great care securing Releases from its employees. Your organization must be careful not only about when to ask for a signed Release, but also about how that Release is actually signed. If the Release is to be legally enforceable, it is vital that employees be afforded a meaningful opportunity – at a minimum 1-2 business days – to secure independent legal advice, before signing the Release. In no circumstances should you allow the dismissed employee to sign the Release on the very same day that his employment is terminated, because as a general rule, courts usually refuse to enforce Releases that are signed that same day. This was confirmed by the Ontario Superior Court in Rubin v. Home Depot 2012 ONSC 3053, a decision in which the court struck down a Release that the employee himself had insisted on signing on the very same day that his employment had been terminated. In that case, the termination letter issued by Home Depot (the employer) invited Mr. Rubin (the employee) to take up to a week to think over the Release before signing it, and it was the employee who voluntarily chose to sign it there and then, on the very day that he had been dismissed! The fact that the Court refused to enforce the Release, even in these circumstances where the employee chose to sign the Release the same day, thereby disregarding the employer’s invitation to take longer to do so, underscores how firm Ontario courts are when it comes to requiring that releases not be signed on the day of termination.
If you are an employer and have further questions about when to ask for a signed Release when terminating an employer, or if you are an employee and are looking for advice on a Release, please contact our employment lawyers, Alan Riddell and Kyle Van Schie.