Severance Clauses & Demands for a Release

Written on behalf of Peter McSherry
employee who has been terminated packing up office belongings into box
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A recent decision of the Ontario Superior Court has again reviewed the wording of the employer’s severance term in an employment agreement.[1] This issue has been discussed in a prior post.

Employer Could Not Insist on a Release

Apart from the issues which nullified the severance term, the Court interestingly commented upon the employer’s conduct, presuming that the agreement was valid.

The contract on its face required the employer pay the employee, a person with 3 years service, payment of two weeks per year, which hence totaled 6 weeks. The agreement did not require the employee to sign a general release to receive this payment. The employer, however, insisted that the individual sign such a release to receive the six weeks severance sum. For this reason, the company did not pay what it believed to be its contractual obligation.

Additional Damages

Although this issue was academic in this case, as the termination clause was held to be unenforceable for the reason set out below, it will be open in future cases to determine that such conduct is unfair and could be argued as a reason to award aggravated or moral damages to compensate for mental suffering. These damage awards have been significant in recent cases. One case[2], certainly extreme, awarded $250,000 for moral damages. That may be not be the expected sum in such a case as this, but nonetheless is reflective of the power of the remedy.

Contract Offside the Employment Standards Act

In this case, the agreement required one week of severance for each full year of employment. It did not deal with benefit continuation which was required by statute to be provided for 3 weeks. It also stated that no severance be paid for service less than 12 months which also violated the requirement of one week’s pay after three months. This latter issue was still a valid reason to set aside the contract, even though the employee was not fired in the first 12 months. Due to these violations of the minimum standards legislation, the employment agreement was found to be unenforceable.

Remedy in this Case

As the employment contract was ruled invalid, the judge determined that the employee was entitled to reasonable notice, which was set at 6 months. Had the agreement been worded properly, the claim would have been limited to 6 weeks.

Legal Advice Opens the Doors

This case reflects the common theme of employment law cases. The written contract may not be effective to limit your rights on termination. Even had the contract been effective in limiting this claim to 6 weeks, the employer’s demand for a full release could well have given rise to an additional claim for aggravated or moral damages. Legal advice may well lead to substantial recovery.

If you have questions about your rights on termination of employment, contact the offices of Guelph employment lawyer Peter McSherry. We can guide you through the issues, help you understand your rights, and defend your position. Contact us online or by phone at 519-821-5465 to schedule a consultation

[1] Tong v Synerion

[2] Galea v Wal-Mart