THE EMPLOYERS' EDGE
Should Employers insist that Employees take time to think before accepting Termination Packages?
The Superior Court of Justice has recently raised the standard to which employers are held when providing departing employees with a termination package in exchange for a release. Until recently, in most instances a signed release could be relied on to stop most legal proceedings brought by employees as a result of termination of employment. However, a recent Ontario decision suggests that courts may be willing to strike down releases as unconscionable in some circumstances.
Eric Rubin was 63 years old and at the time of termination employed by Home Depot for 19 years. He had been instructed to attend a meeting where he was terminated immediately due to reorganization. The termination letter handed to him at the meeting offered 28 weeks’ pay in lieu of notice, stated that the offer was in excess of Mr. Rubin’s statutory entitlement and advised that to obtain the benefit of the offer, Mr. Rubin must sign a release. Although the termination letter advised that Mr. Rubin may have a week to consider the offer before accepting or rejecting it, the employer did not verbally advise Mr. Rubin that he was afforded a week to make a decision. The employer also failed to advise Mr. Rubin that the offer only provided two days’ pay in addition to Mr. Rubin’s statutory entitlement. Mr. Rubin signed the offer and the release at the meeting, sought legal advice following the meeting and sued for wrongful dismissal, arguing that the release was unconscionable and should be set aside.
In Rubin v. Home Depot Canada Inc. (2012 ONSC 3053), Justice Lederer agreed with Mr. Rubin and set aside the release. He concluded that the release was unconscionable for four reasons. First, the termination package represented only two additional days’ notice to what Mr. Rubin was already entitled to, even though he was 63 years old and was a long-serving employee. The notice period provided was grossly inadequate and offended community standards. Second, Mr. Rubin was not verbally advised at the meeting that he may have a week to seek independent legal advice. Justice Lederer found that although the letter provided for a week to sign the release, the language in the letter was so ambiguous and misleading that it suggested that Mr. Rubin would not be entitled to any funds if he did not sign the release by a particular date rather than advise that he can take the week to think about his options. The Court further found that there was overwhelming imbalance in the bargaining power between the employer and Mr. Rubin. Finally, the Court found that the employer took advantage of Mr. Rubin’s vulnerable state after being advised that his employment was terminated effective immediately. The employer used ‘presumptive selling’, that is they presumed that Mr. Rubin would sign the release and they did not give Mr. Rubin a real choice in the matter, or an opportunity to seek advice about whether the release should be signed. Justice Lederer struck the release, found it to be unenforceable and awarded 12 months’ pay in lieu of notice to Mr. Rubin.
To ensure that releases signed by terminated employees are not struck in future litigation, and to avoid future litigation altogether, employers should consider taking the following steps:
Draft a clear, unambiguous termination letter, providing the employee with a choice to accept the termination package or his or her statutory entitlements / contractual entitlements. Do not use language that assumes the employee will accept the termination package.
Set out the employee’s statutory / contractual entitlements in the termination letter if he or she chooses not to accept the termination package, and clearly set out the additional amount the employer is offering to pay above the minimum entitlement in exchange for the release.
Strongly advise the employee to take some time to think about the offer and seek independent legal advice. Ensure that the termination letter provides the employee with sufficient time to review and consider the offer and the release and to contact a legal advisor and repeat this offer verbally at the termination meeting.
Offer to contribute a nominal amount toward legal advice (i.e. $500). Although this is an extra cost, courts are less likely to strike a release that was signed by an employee after he or she sought and received independent legal advice. This nominal amount, then, may decrease the cost of future litigation.
Our lawyers can assist employers in drafting termination letters and releases that are legally sound and that will be upheld by courts in future litigation.
Please Note: This blog has been prepared as an informational service for our clients and other interested parties. It is not intended to constitute legal advice, a complete statement of the law or opinion on any subject. Although we endeavour to ensure the accuracy of the content, no one should act upon the information provided without a thorough examination of the law after the facts of a specific situation are fully considered.