A former Chief Revenue Officer has failed in their bid to enforce a settlement agreement against their former employer after the Supreme Court of British Columbia ruled that fundamental disagreements about the tax treatment of the settlement payment prevented the formation of a binding contract.
In Brink v. Xos Services (Canada), Inc., the court dismissed K.B.’s application for summary judgment, finding that while both parties had agreed on the settlement amount, they had not reached consensus on how that payment would be taxed.
Settlement discussions followed employment termination
K.B. was employed as a Chief Revenue Officer with Xos Services (Canada), Inc., EMV Automotive USA Inc., and Xos, Inc. (collectively referred to as EMV) under an executive employment agreement dated December 24, 2021. After K.B.’s employment ended on April 24, 2024, the parties began settlement discussions regarding compensation claims under the employment agreement.
On August 26, 2024, EMV’s counsel presented a settlement offer that included:
- A lump sum payment of $441,667.00 USD, less applicable deductions
- A lump sum of $10,768.00 USD in lieu of continuation of benefits for 12 months
- A requirement that K.B. execute a release in a form acceptable to EMV, which would include confidentiality and non-disparagement provisions
K.B.’s counsel responded on September 3, indicating K.B. would accept the offer provided that:
- The form of release was mutually acceptable
- Payments were made in a “tax effective manner,” specifically requesting that an unspecified amount be paid directly as legal fees and the balance paid as a 1099 form with no withholdings at source
EMV’s counsel replied two days later, stating they were confirming payment details with their client and would prepare a draft release for review.
When is a settlement binding?
The court considered whether this exchange of emails constituted a binding settlement agreement.
Drawing on Fieguth v. Acklands Ltd., the court emphasized the need to distinguish between the formation of a contract and its completion. For a settlement to be binding, parties must reach agreement on all essential terms.
“The first question is whether the parties have reached an agreement on all its essential terms,” the court noted, quoting Fieguth. “There is not usually any difficulty in connection with the settlement of a claim or action for cash. That is what happened here and as a settlement implies a promise to furnish a release and, if there is an action, a consent dismissal unless there is a contractual agreement to the contrary, there was agreement on all essential terms.”
The court also referenced Graham Construction and Engineering Inc. v. Great Sandhills Terminal Marketing Centre Ltd., which determined that parties can enter a binding settlement even without finalizing the form of release, as this is considered part of completing the agreement rather than an essential element of its formation.
Tax treatment proved a deal-breaker
While the court considered K.B.’s requirement for a mutually acceptable release to be “an element of performance rather than an essential term,” it viewed the tax treatment differently.
“The tax treatment of the settlement payment was a condition of fundamental importance to both parties,” the court stated. “As an employee, the plaintiff was typically taxed at a rate of around 32% which, if applicable to the settlement funds, would result in a tax deduction of up to $143,300. The plaintiff sought the full settlement amount with no source deductions.”
The court noted that EMV had explicitly offered to pay the settlement amount “less applicable deductions” to avoid negative tax implications for the company. K.B.’s request for payment using a U.S. 1099 form (which would involve no tax withholding) represented a significant departure from EMV’s intention.
Citing Lacroix v. Nanaimo Regional General Hospital Society, the court recognized that tax treatment can be fundamental to settlement agreements, especially when one party bears the risk of potential recharacterization of payments by tax authorities.
The court concluded: “This is a significant gap that cannot be overlooked or resolved by resorting to common sense or common practice, as was discussed in Fieguth.”
Failure to object not determinative
K.B. had argued that if EMV truly considered the September 3 email to be a counter-offer rather than an acceptance, they should have indicated this in subsequent communications. However, the court did not find this argument persuasive in establishing that a binding agreement had been reached.
The court distinguished the case from situations where minor disagreements over documentation arise after a settlement has been reached, noting that such disputes “seldom [will] be one of repudiation…but rather whether a final agreement has been reached which the parties intend to record in formal documentation.”
In this case, however, the fundamental nature of the disagreement over tax treatment prevented the formation of a binding agreement in the first place.
For more information, see Brink v Xos Services (Canada), Inc., 2025 BCSC 658 (CanLII).
