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Canada | Publication | November 6, 2024
When an employer settles a wrongful dismissal claim it wants to ensure all possible claims from employment are resolved, and there are no other claims waiting in the weeds.
The Ontario Court of Appeal’s (the ONCA) recent decision in Preston v Cervus Equipment Corporation offers reassurance that well-drafted settlement documents can achieve this finality. In Preston, settlement documents were effective in resolving a wrongful dismissal action, and in barring a later claim for allegedly outstanding compensation.
The facts
After Mr. Preston’s employment was terminated by his employer, Cervus, he brought a wrongful dismissal action against the company. The parties settled the action. The terms of that settlement were set out in minutes of settlement and a release (the Settlement Documents). Mr. Preston received roughly $100,000 in exchange for dismissal of his action and execution of the release in favour of Cervus. Mr. Preston received independent legal advice in reaching this settlement.
However, after the settlement, Mr. Preston brought a new claim against Cervus for certain vested stock units, worth just over $75,000. The relevant stock plan provided that these vested stock units were to be automatically redeemed upon termination of employment. However, the vested stock units were never paid out by Cervus. This led to a dispute about whether the Settlement Documents barred Mr. Preston from bringing this second claim against Cervus.
The Settlement Documents contained both general and specific language outlining their scope:
On summary judgment, the motion judge found the Settlement Documents did not bar Mr. Preston’s claim for the vested stock units. The motion judge relied on the Supreme Court of Canada’s (the SCC) decision in Corner Brook (City) v Bailey, noting in particular the SCC has held that courts can be persuaded to interpret releases more narrowly than other types of contracts, based on their broad wording. The motion judge took guidance from this statement and ultimately found the release signed by Mr. Preston did not apply to his vested stock unit claim for three reasons:
Cervus successfully appealed the motion judge’s decision.
At the outset, the ONCA found that the motion judge correctly cited the applicable law for interpreting a release:
The ONCA held the motion judge made three errors in his analysis:
Ultimately, the ONCA determined that the wording of the Settlement Documents should have been given their ordinary meaning, which specifically included release of payments related to stock units.
Settlement documents should reference all potential outstanding claims to prevent a claimant from pursuing those demands in the future, even if they were not part of the original, settled action. In the employment context, this may include listing the different forms of incentive compensation received by the employee as part of the release agreement. If this is done properly and the settlement documents contain both general and specific release language, the ONCA’s decision in Preston shows that employers can have greater confidence that they have successfully settled all matters relating to the employment relationship.
Norton Rose Fulbright’s employment and labour group can assist in drafting release agreements in the employment context.
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