In a significant decision for both employers and employees, the Ontario Court of Appeal (ONCA) recently found that Minutes of Settlement and a Release and Indemnity (Settlement Documents) executed by an employee after his termination barred him from receiving compensation for vested stock units, even though those units were not specifically in dispute at the time of the settlement.
Facts
Matthew Preston, a former employee of Cervus Equipment Corporation (Cervus), was terminated without cause on January 9, 2018. During his employment, Mr. Preston was entitled to participate in Cervus’ Deferred Share Plan (the Plan), which permitted him to apply up to $20,000 of his annual bonus towards the purchase of stock units which would immediately vest. If the employee opted into the Plan, Cervus would match those purchases with stock units that would vest over three years. The Plan also provided that upon termination, vested stock units would be automatically redeemed, while unvested stock units would be cancelled and not redeemed.
At the time of Mr. Preston’s termination, Cervus provided Mr. Preston with a severance offer, as well as a letter advising that he could exercise his vested stock units in accordance with the Plan. At the time he received the letter, he had $4,964.04 vested stock units and $4,499 unvested stock units. The value of the vested stock units was $75,949.81. Mr. Preston rejected the offer.
Mr. Preston commenced an action on June 21, 2018, for damages in lieu of reasonable notice including any applicable bonus during the notice period. There was no claim for the vested stock units. The wrongful dismissal action was settled for $100,557.12, less deductions, on July 16, 2018.
Mr. Preston executed the Settlement Documents on July 23, 2018, after receiving independent legal advice. The Settlement Documents included, among other provisions, the following terms:
AND WHEREAS Cervus and Mr. Preston have agreed to fully and finally settle all matters and entitlements (earned or claimed) arising from or relating to Mr. Preston’s employment (or the cessation thereof), including all matters and entitlements (earned or claimed) that were raised (or could have been raised) in the Action, without any admission of liability by Cervus in accordance with the terms of these Minutes of Settlement;
…
The entitlements set out in these Minutes of Settlement, including the Settlement Payment, are inclusive of any and all entitlements that Cervus may owe, or which may have accrued, to Mr. Preston pursuant to statute, contract, common law or otherwise.
…
These Minutes of Settlement, together with the attached Release and Indemnity, constitute the entire agreement between Cervus and Mr. Preston in reference to the matters stated herein and relative to all entitlements (earned or claimed) arising from or relating to Mr. Preston’s employment (or the cessation thereof). Execution of these Minutes of Settlement, together with the attached Release and Indemnity, cancels and supersedes all previous oral or written understandings and agreements between Cervus and Mr. Preston in respect of any entitlements (earned or claimed) arising from or relating to Mr. Preston’s employment (or the cessation thereof). [Emphasis added.]
The Release and Indemnity included, among other provisions, the following terms:
I, the undersigned, MATTHEW PRESTON (on behalf of myself and my heirs, executors, administrators, successors and assigns) … hereby release and forever discharge CERVUS EQUIPMENT CORPORATION … of and from all manner of actions, causes of action, suits, debts, dues, accounts, bonds, covenants, contracts, claims and demands whatsoever which against the said Releasees I ever had, now have or can, shall or may hereafter have for or by reason of any cause, matter or thing whatsoever existing up to the present time, and more particularly, but without restricting the generality of the foregoing, all claims and demands arising in or out of or in any way connected with my employment by the Releasees, the cessation of such employment, and/or the obligations, statutory, contractual or otherwise, of the Releasees to me in respect thereof.
. . .
I expressly declare that no wages, commissions, overtime pay, vacation pay, holiday pay, termination pay or severance pay is due and owing to me by the Releasees. I further declare that I have no entitlement under or from, or any claim of any nature or kind against the Releasees in respect of, any bonus, share award, stock option, deferred share or similar incentive plan offered by or on behalf of the Releasees …. I further declare that I have no entitlement, or any claim of any nature or kind, to any ownership or equity interest in the Releasees whatsoever.
On the same day that Mr. Preston executed the Settlement Documents, he emailed Cervus requesting his vested stock units to be paid out. Cervus did not respond before executing the Settlement Documents. Months later, Cervus responded, taking the position that, in settling the wrongful dismissal action, the plaintiff released his claim to the vested stock units.
Motion for Summary Judgment
On summary judgment, the motion judge found that the Settlement Documents did not bar Mr. Preston from making a claim for the vested stock units. The motion judge relied on the Supreme Court of Canada’s (SCC) decision in Corner Brook (City) v. Bailey, 2021 SCC 29 (CanLII) nothing that the courts can be persuaded to interpret releases more narrowly than other types of contracts, based on their broad wording. In consideration of this guidance from the SCC, the motion judge found that the release signed did not apply to the vested stock unit claim for three reasons:
- Mr. Preston’s settled wrongful dismissal claim did not include a claim for stock units, only reasonable notice damages.
- It made little economic sense for Mr. Preston to give up $75,000.00+ in vested stock units in settling his wrongful dismissal claim for $100,557.12. The net value of his settlement would otherwise be minimal.
- The Settlement Documents had to be read in the context of the relevant stock plan, which provided for automatic redemption of vested units on an employee’s termination. The language in the Settlement Documents release claims to stock options and share awards must be read in a way that gave effect to the stock option plan.
Ontario Court of Appeal Decision
Cervus successfully appealed the motion to the ONCA. The ONCA held that the motion judge made three errors in his analysis:
- He allowed his interpretation of the facts of the case to overwhelm the wording of the Settlement Documents, effectively rewriting the contract between the parties.
- He misapplied the doctrine that broad releases can be narrowly construed. While there was a broad release in the Settlement Documents, the language in the Settlement Documents also contained specific language regarding the release to claims for stock options and other share awards.
- He evaluated the economic benefits of the settlement. It is not the place of the court to evaluate those benefits unless a party is under disability.
Key Takeaways
This case highlights the importance of a properly drafted release and indemnity, which should include reference to all potential outstanding claims to prevent further action, even if those claims were not a part of the original, settled action. For plaintiff counsel, it is important to consider any potential outstanding claims when reviewing settlement documents and advising plaintiffs to execute a release and/or
