An Ontario Court recently found that a release signed by an employee in exchange for a severance package was unenforceable because it was unconscionable.
The employee, a Competitive Price Shopper, was given a letter of termination which included a settlement offer for slightly more than the severance to which he was entitled under employment standards legislation. The letter said that the offer was open for one week, and that the employee would have to sign a release to accept the offer. The employee signed the release, but subsequently filed a claim and argued that the release was ineffective.
The trial judge found that the termination letter was ambiguous and misleading, and was designed to obtain the employee’s release. He ruled that the six months’ severance which the employee had agreed to was “far removed from what the community would expect” for 19 years’ service. He also found that the employer took advantage of the situation by allowing the employee to accept the offer without independent legal advice or a sufficient understanding of the situation on his own.
The trial judge found the circumstances surrounding the signing of the release to be unconscionable, and set it aside. The judge concluded that, although parties are free to contract and will generally be bound by their agreements, “employers cannot use their superior position to mislead an employee into an agreement that is unconscionable.”
Employers routinely rely on releases to provide certainty in resolving claims and to extinguish their potential liability for severance. This decision is an important reminder to employers to ensure that such releases are legally enforceable.
Questions pertaining to the information presented in this article may be directed to Matthew Cooperwilliams, Partner.