Canadian Employment Settlements: A Deal Is A Deal

Businesses often express frustrations about the courts, noting the litany of employee-friendly legal developments in recent years. There is hope, however, from a recent Ontario decision which confirms that a properly-worded broad settlement agreement will be enforceable.

In Preston v Cervus Equipment Corporation, 2024 ONCA 804, the Ontario Court of Appeal closely analyzed the wording of a release signed by a dismissed executive.

Matthew Preston worked for Cervus Equipment from 2014 to 2018, when his employment was terminated without cause. A key issue in the ensuing litigation was whether or not a release which Person signed in favour of the company included forfeiting his rights under the Cervus Deferred Share Plan.

Upon termination, Mr. Preston received a letter from the employer, advising that his vested stock units could be exercised in accordance with the Plan. This letter also advised of the employer’s proposed severance package.  Mr. Preston retained counsel, who filed a lawsuit claiming wrongful dismissal. The lawsuit did not claim for stock units.

The parties settled the lawsuit approximately six months after termination. The settlement documents, which were signed after Mr. Preston received independent legal advice, did not specifically refer to the Plan or vested stock units. Instead, the documents included a broad release, under which Mr. Preston confirmed that, in exchange for the agreed settlement payment, he was releasing all connected to his employment, and that he had no entitled or claim against Cervus with respect to any bonus, share award, option plan or similar plan.

In a subsequent proceeding, Mr. Preston claimed that he was still entitled to his vested stock units. The company took the position that he had released any claims under the Plan, including with respect to stock units.

In first instance, the case was decided on a summary judgment basis, with the motion judge holding that the vested stock units were not released under the signed settlement documents. This decision was based on a review of the context, which included the termination letter advising that Mr. Preston was entitled to the vested stock units.

The employer successfully appealed this ruling, with the Ontario Court of Appeal finding that the settlement documents had clear language which covered the stock unit. In its decision, the Court said the focus of any interpretation of a settlement should be on the actual wording of the settlement documents. In this particular case, the parties could have expressly stipulated that Mr. Preston continued to have his rights to the vested stock units, but they elected not to do so.

In a case where the settlement documentation says that the agreed payment covers all claim and entitlements, then the documents will be interpreted to include all items which can reasonably be captured by the relevant wording. The ordinary wording of the documentation which Mr. Preston signed was found to be clear, and including any rights under the Plan

 Takeaway for Employers

 This decision reinforces the importance of drafting clear and precise settlement agreements. The language which parties actually agrees to will be very important, and employers are encourage to use broad language which encompasses all manner of claims and potential claims. If carefully prepared settlement wording is drafted, employers are much more likely to have finality once they implement the agreed terms of the related agreement.