An Ontario Court recently found that a releasesigned by an employee in exchange for a severance package was unenforceable becauseit was unconscionable.
The employee, a Competitive PriceShopper, was given a letter of termination which included a settlement offerfor slightly more than the severance to which he was entitled under employment standardslegislation. The letter said that the offer was open for one week, and that theemployee would have to sign a release to accept the offer. The employee signedthe release, but subsequently filed a claim and argued that the release wasineffective.
The trial judge found that thetermination letter was ambiguous and misleading, and was designed to obtain theemployee’s release. He ruled that the six months’ severance which the employeehad agreed to was “far removed from what the community would expect” for 19years’ service. He also found that the employer took advantage of the situationby allowing the employee to accept the offer without independent legal advice ora sufficient understanding of the situation on his own.
The trial judge found the circumstancessurrounding the signing of the release to be unconscionable, and set it aside.The judge concluded that, although parties are free to contract and willgenerally be bound by their agreements, “employers cannot use their superiorposition to mislead an employee into an agreement that is unconscionable.”
Employers routinely rely on releases to providecertainty in resolving claims and to extinguish their potential liability forseverance. This decision is an important reminder to employers to ensure that suchreleases are legally enforceable.
Questions pertaining to the information presented in this article may be directed to Matthew Cooperwilliams, Partner.