Termination of Employment and Releases: What Employers and Employees Should Know

By Andrew Skeith

An employee’s termination can be a stressful and uncertain time. The employee will be asked to attend a termination meeting where they will be given a number of documents. These documents may include a termination letter setting out the terms of the dismissal and any additional offer of severance. The employee will also usually be given a release to sign.

A release is a written contract where the employee agrees to give up their right to commence any legal claims in relation to their former employment against their employer. In exchange for the employee’s release of their legal rights, the employer agrees to provide the employee with additional severance pay.

It is important for an employee to realize what they are giving up when they sign a release. The employee is agreeing that they will never be able to sue their former employer for wrongful dismissal, constructive dismissal, or additional severance. Furthermore, depending on the language in the release, the employee may also be giving up any right to commence a human rights complaint, a complaint under the Employment Standards Code, RSA 2000, c E-9, or any other form of legal action relating to their employment.

A release is beneficial for employers as it creates a clean and final break between the employer and the employee. A signed release will also provide certainty and protect the employer from legal claims from employees who were terminated in the past.

Does the Employee Have to Sign the Release?
A question that employees often ask is whether they are required to sign a release before receiving their severance payment. The simple answer is no. Upon termination, an employer is required to provide the employee with a minimum amount of working notice or pay in lieu of notice. The minimum amount of working notice or pay in lieu of notice an employee is entitled to is set out in the Employment Standards Code. An employer must also provide the employee with any unpaid wages to the date of termination, and any accrued vacation, holiday, and overtime pay, as well as their Record of Employment. An employee may also be entitled to additional severance or bonus payments, depending on the terms of their employment contract.

For a release to be legally binding, the employer must provide the employee with some amount of severance over and above the minimum amounts set out in the Employment Standards Code. It is usually a wise choice for an employer to offer additional severance in exchange for the certainty that comes with a signed release.

However, both employers and employees must be cautious in how they approach the signing of the release.

An employee presented with additional severance and a release in a termination meeting should never immediately sign the release. Depending on whether there is an effective termination clause set out in their employment contract, and depending on the employee’s length of service and other factors, they could be entitled to significantly more severance than what the employer has offered. It is important for the employee to have the opportunity to have their termination offer and release reviewed by a legal professional in order to better understand their rights, entitlements, and options before signing.

It is also important for the employer to ensure that the employee understands their options and what they are signing away if they choose to sign the release. The employer should make it clear in the termination meeting that the employee is not obligated to sign the release. Furthermore, the employer should recommend that the employee seek independent legal advice before signing the release, and they should provide the employee with a reasonable period of time to review the offer and seek legal advice. If the employee requests additional time to review the offer, those requests should not be refused unreasonably.

When Will a Signed Release Be Unenforceable?: Unconscionable Releases
If an employee signs a release immediately during the termination meeting, without first obtaining legal advice or any opportunity to obtain legal advice, the release would likely be found to be unenforceable. This occurred in the case of Rubin v Home Depot Canada Inc., 2012 ONSC 3053.

Eric Rubin had worked for Home Depot for twenty years. He was called into a meeting, without being told what the meeting was about, and was promptly terminated. In the meeting, Mr. Rubin was given a termination letter and was told that it was his last day. Very little was said in the meeting. Mr. Rubin read the termination letter, asked a question or two about allocation of the termination pay to his RRSP, and then signed the letter and release in the meeting. His employer did not tell Mr. Rubin that he had a week to consider the release, nor was Mr. Rubin advised to consult a lawyer.

The Court found the release was not enforceable as it was found to be an unconscionable transaction. A release will be unconscionable when:
1. The release was signed in a grossly unfair and improvident transaction;
2. The employee did not receive any legal advice or other suitable advice prior to signing;
3. There was an overwhelming imbalance in bargaining power due to the vulnerability of the employee; and
4. The employer knowingly took advantage of this vulnerability.

The Court found the transaction to be unfair as Mr. Rubin had been provided essentially his bare minimum entitlements under the Employment Standards Act, despite having worked at Home Depot for twenty years. The termination letter provided him with 28 weeks, while Mr. Rubin was legally entitled to a minimum of 27 ¾ weeks. Due to the gross inadequacy of the notice, the Court found the transaction to be unfair.

Mr. Rubin did not receive any legal advice before signing the release. Furthermore, his employer did not notify him that he had the option of obtaining independent legal advice before signing. The employer also failed to notify Mr. Rubin that he had a week to consider the offer, and that he did not have to immediately sign the release.

The Court found that there was a clear power imbalance in the termination meeting, as there is always a power imbalance between employers and their employees. Additionally, Mr. Rubin was not a high-level employee with professional training, which can offset some of the usual power imbalance. Furthermore, the representatives of Home Depot clearly took advantage of Mr. Rubin’s vulnerability in that they failed to explain the situation to Mr. Rubin and did not notify him of his right to seek legal advice and to take time to review the offer.

Mr. Rubin was awarded a reasonable notice period of twelve months by the Court, twice the amount which he was provided by Home Depot.

Take Away:
In all cases, it is important for the employee to have the opportunity to have their termination offer and release reviewed by legal counsel before signing. It is also important for the employer to notify the employee of that right, and to provide the employee with enough time to do so. A failure to do so can result in the signed release being unenforceable, and can lead to further litigation and legal costs in the future.

This post is meant to provide information only and is not intended to provide legal advice. Although every effort has been made to provide current and accurate information, changes to the law may cause the information in this post to be outdated.