Dismissed employees: be wary of release forms

You may be signing away termination benefits owed to you by law

Anyone who has been dismissed from employment in the past decade or so has probably noticed that together with the letter from the employer informing of the dismissal, the employer has included some sort of financial proposal dealing with the dismissal, and a form of document often referred to as a “release.” Receiving the proposed benefits often depends on signing and returning the release within a set period of time.

Sometimes the release is simple, and as short as one page. Sometimes it is more complex, perhaps covering a few pages and containing numerous clauses. And more frequently these days, the release is called something else, such as “release and settlement agreement” or some such, and appears to be pages long and formally structured like a contract.

The question obviously arises: why does the employer seek a release or a settlement agreement from the employee?

Here are some answers:

The core obligation of the employer at dismissal, unless there is specific contractual agreement otherwise, is to provide the dismissed employee with reasonable notice of the dismissal. A release can be a specific contractual agreement designed to avoid reasonable notice.
The orthodox method of giving of reasonable notice is for the employer to give working notice, meaning the employee is expected to continue to work during the notice period, and once the notice period expires, then to cease employment with nothing more.
The employer may not wish to give working notice, and may opt for “salary continuance” involving cessation of work but regular payment of wages for the duration of a period of time defined by the employer. Or the employer may opt a “lump sum” payment, in a sum defined by the employer, paid in lieu of reasonable notice.
The employer may wish to make an offer to the employee that is not working notice and is less than the face value of what the law would consider “reasonable notice.”
The employer may wish to do some “housekeeping” and include in the release document some terms that may not form part of the employment contract, but that the employer may find helpful in dealing with the aftermath of a dismissal. In particular, a release may contain terms dealing with confidential information, competition with the employer after dismissal, solicitation, fiduciary duty, and such.
A release signed by the employee can overcome a wide variety of employer liabilities flowing from the dismissal that the employer would otherwise be exposed to. Typically, the employer wishes to end the employment at the same time as it issues the dismissal letter. If the employment is ended, then the employer cannot provide the employee with reasonable notice in the form of working notice. Instead, the employer will offer financial terms in place of reasonable notice. The big question is this: how closely do the financial terms proposed by the employer simulate reasonable notice?

In the interim, the employee has been removed from the workplace, and often also removed from payroll. The employee has been sent home with a dismissal letter, a financial proposal and the release, and given a short period of time to accept the financial proposal and sign the release. Under these conditions, the dismissal is fully effected. The employer is now essentially exposed to a damages claim for wrongful dismissal unless it can obtain the agreement of the employee as to the proper terms of the dismissal. That is what the financial proposal and release are for.

Some employers further push the envelope and seek to add non-competition, confidentiality, non-solicitation and other clauses to releases, and these should be treated with great care.

Releases and settlement agreements, once entered into by the parties, are new forms of agreement between the employer and employee which can redefine the legal obligations owed at dismissal and beyond.

It is important for the employee to clearly understand what his or her bargaining leverage is in these circumstances. The employer needs the release to perhaps gain a better deal than it is entitled to at law, to make up for its mistakes, and to eliminate the employee’s right to make claims for the dismissal. The employee should only sign such a release if he or she is confident that the bargain has been maximized in the employee’s favour.

An employer that has fully complied with its obligation to provide the employee with reasonable notice of dismissal does not require a release agreement to protect itself from the employee.

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