In a significant decision for both employers and employees, the Ontario Court of Appeal has ruled that an employee’s broad release in a settlement agreement includes claims for vested stock units, even if those units were not specifically in dispute at the time of settlement.
The court’s decision in Preston v. Cervus Equipment Corporation underscores the importance of precise language in release agreements and the need for employees to fully understand the rights they may be relinquishing.
Background
M.P., a former employee of Cervus Equipment Corporation, was terminated without cause on January 9, 2018. At the time of his dismissal, he held 4,964.04 vested stock units valued at $75,949.81 and 4,499 unvested units under the company’s Deferred Share Plan. The Plan stipulated that upon termination, vested units would be automatically redeemed, while unvested units would be cancelled.
Following his termination, M.P. received a letter from Cervus advising that his vested stock units could be exercised in accordance with the Plan. However, a dispute arose over his severance package, leading M.P. to commence a wrongful dismissal action on June 21, 2018, seeking damages in lieu of reasonable notice, including any applicable bonus during the notice period. Notably, this action did not include a claim for his vested stock units.
Wrongful dismissal settlement
In July 2018, the parties settled the wrongful dismissal action for $100,557.12, less deductions. As part of the settlement, M.P. signed comprehensive release and indemnity documents (the “Settlement Documents”) on July 23, 2018, after receiving independent legal advice. Cervus signed the documents on July 24, 2018. The Settlement Documents included broad language releasing Cervus from “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.”
Specifically, the release stated: “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.”
One day before Cervus signed the Settlement Documents, M.P. emailed the company requesting payment of his vested stock units. Cervus did not respond immediately but later took the position that M.P. had released his claim to the vested units under the terms of the settlement.
M.P. initiated a new action seeking damages for the value of his vested stock units. Both parties moved for summary judgment on whether the Settlement Documents covered M.P.’s vested stock units. The motion judge found in favour of M.P., concluding that the vested units were not included in the release and that the settlement made “little economic sense” if M.P. had given up his entitlement to the vested units.
However, the Court of Appeal disagreed, finding that the motion judge erred in law by not giving effect to the clear and broad language of the Settlement Documents. “In our view, the words of the Settlement Documents should be given their ordinary meaning, which included a release of any payments to be made under the Plan,” the court stated.
Three key errors
The Court of Appeal identified three key errors in the motion judge’s analysis:
Overemphasis on factual matrix: The motion judge allowed his interpretation of the surrounding circumstances to “overwhelm the actual wording of the Settlement Documents and effectively rewrote the contract between the parties.” The court emphasized that while the factual matrix is important, it should not override the clear language of the agreement.
Misplaced reliance on precedent: The motion judge’s reliance on the Supreme Court’s guidance in Corner Brook (City) v. Bailey was deemed inappropriate. The Court of Appeal noted that although broad releases might sometimes be interpreted narrowly, the language in this case was specific regarding the release of claims related to stock options and share awards.
Improper evaluation of economic benefits: The court asserted that it is not within a judge’s purview to assess the economic fairness of a settlement when interpreting its terms, unless there is evidence of a party being under a disability. “It is not the province of a judge interpreting minutes of settlement to evaluate the economic benefits conferred under the settlement, absent a party being under disability,” the court stated.
The court highlighted that the Settlement Documents were intended to be final and comprehensive. The minutes of settlement explicitly stated: “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.”
Plain language of a contract
The ruling also serves as a reminder that courts will generally uphold the plain language of a contract. The Court of Appeal noted, “The parties could have specified this result but chose not to do so. Instead, they used the following specific language: ‘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.'”
Employers can take some reassurance from the court’s willingness to enforce broad release language when it is clear and specific. The decision illustrates the effectiveness of well-drafted release clauses in protecting against future claims and emphasizes the value of comprehensive settlement agreements in bringing finality to employment disputes.
The court also alluded to the potential for other legal remedies for M.P. related to the legal advice he received. “We offer no comment regarding other legal remedies potentially available to him related to the legal advice he received,” the court noted.
The appeal was allowed, and the judgment granted to M.P. was set aside. The court awarded costs to Cervus, but in a modest amount given the circumstances. “Cervus is entitled to costs of the appeal… We order M.P. to pay costs of the appeal to Cervus fixed in the all-inclusive amount of $5,000,” the court ordered.
For more information, see Preston v. Cervus Equipment Corporation, 2024 ONCA 804 (CanLII).
