• Settlement Agreements and the Objective Observer
  • September 21, 2012
  • Law Firm: Stewart McKelvey - Halifax Office
  • The Ontario Superior Court of Justice recently released a decision in which email negotiations regarding the terms of a termination agreement constituted confirmation of a settlement agreement. The court said that an objective observer would find that the parties had reached a settlement agreement and that the Claimant's demand for a formal release and offer was not reasonable. This barred the employee from bringing an action for wrongful dismissal and further damages.

    The facts

    In Bland v. Canadian Farm Insurance (2012 ONSC 3021; "Bland") the Claimant, Alan Bland, brought an action for wrongful dismissal against his employer Canadian Farm Insurance ("CFI").

    CFI terminated Bland "without cause" after 15 months' service, due to performance issues. Nine months after accepting (and benefitting from) a termination package, Bland launched this suit. He denied having arrived at a settlement package with CFI and sought damages.

    In its defence, CFI argued that Bland had negotiated, agreed to, and received a termination package in lieu of notice and, as such, no further damages could be claimed. The package provided by CFI gave Bland six weeks' pay in lieu of notice of termination and commission owing in the amount of $10,000. CFI also extended Bland's health benefits and allowed him to operate from an office space leased by CFI for a number of months following the termination.

    CFI testified (and Bland did not dispute) that Bland and the employer initially discussed the termination package at the time of termination and then through a series of emails. The discussions involved the amounts payable for outstanding commissions, benefits and payment in lieu of notice. CFI outlined the proposed terms to confirm that they matched discussions between the parties; Bland replied and stated "all is agreed".

    CFI argued that Bland's emails and his statement that "all is agreed" constituted a settlement agreement between the parties. CFI also stated that "the fact that Bland received and kept the termination package is 'powerful confirmation of an agreement'". The package, CFI argued, was fair. Bland argued that he expected to get a release and a formal offer from CFI.

    The decision

    The main issue before the Ontario Superior Court was whether the parties had negotiated a settlement agreement for Bland's termination package. The court said that the perspective of an "objective observer" must be used to determine whether a settlement agreement exists.

    In applying this perspective, the court found it unreasonable for Bland to expect a formal offer. The email exchange constituted negotiations and a reasonable observer would conclude that CFI would not have agreed to such a well-rounded termination package if Bland had not also agreed to settle his claim for wrongful dismissal against them.

    The court, therefore, found that a settlement agreement had been reached and dismissed the wrongful dismissal action.

    What this means for you

    Every effort should be made to get settlement agreements and releases formalized in writing. However, this decision provides some wiggle room for employers where there is evidence to show that an agreement was reached in a "non-traditional" way. Courts will decide whether an objective observer would conclude that an agreement was reached, even though there may not be a formalized agreement and release in place.

    This decision is in keeping with a number of previous cases from Canadian courts which have held that an informed employee can negotiate severance compensation and that the employee's signed release may be enforceable against any wrongful termination claims. We now see a non-traditional release being enforced as a result of Bland.

    Employers should be careful to save all email correspondence and document any negotiations they have with employees when discussing the terms of a severance of the employment relationship. Employers should always try to get clear, documented confirmation that the employee has agreed to fairly negotiated terms, and that any potential claims for wrongful dismissal will be precluded through acceptance of the termination package.

    If an employee brings a wrongful dismissal suit after the employer has taken these precautions, the employer will be in a good position to have the action dismissed.