Feb 19, 2020

Federal Court of Appeal confirms that signed releases do not prevent employees from pursuing unjust dismissal complaints under the Canada Labour Code

Bank of Montreal v. Li, 2018 FC 1298 (CanLII)

On January 24, 2020, the Federal Court of Appeal upheld the decision in Bank of Montreal v. Li (2018 FC 1298). This decision serves as confirmation that federally-regulated employees who sign releases in favour of their former employers will not be barred from bringing complaints for unjust dismissal under the Canada Labour Code (“CLC”), provided that they do so within 90 days of the dismissal.

Background

In the Wilson v. Atomic Energy of Canada decision (2016 SCC 29), the Supreme Court of Canada found that an employer could not resort to giving notice and providing severance payments in order to avoid a determination about whether a dismissal is unjust. Effectively, this decision determined that employment policies which provided for terminations without cause to be unenforceable, and put the onus on employers to prove just cause in the event of dismissal. In response to this restriction and in order to avoid any debate or uncertainty around whether a dismissal was indeed “just”, employers would often enter into settlement agreements with employees upon termination in exchange for their signature on a full and final release.

The recent Federal Court and subsequent Federal Court of Appeal decisions dealt with an employee who had been terminated from her position after nearly six years of service. Following the dismissal, the employee signed a release agreement which discharged her former employer from any and all claims resulting from her employment in exchange for a lump sum payment plus salary continuance equivalent to just over $27,000. After signing the release, the employee proceeded to file a claim for unjust dismissal pursuant to Section 240 CLC. The employer sought to rely on the release to bar the bringing of the claim, but the Federal Court found that Section 168(1) CLC protects the right of an employee to complain of an unjust dismissal, even if that employee has signed a release agreement in favour of their former employer.

On appeal, the Federal Court’s findings were upheld on the basis that Section 168(1) CLC prevents employees from retrospectively waiving their right to file a claim for unjust dismissal. Acknowledging the policy implications of such a finding, namely that it could have a chilling effect on settlements between employees and their former employers and that it would create uncertainty around executed releases, the Court ultimately found that Parliament would have amended the provision in question if it had been its intention to allow employees to waive this right through agreement.

The practical implications

For employers bound by the CLC, the restriction on terminating employees without just cause remains in effect. In situations where the qualification of the dismissal as “unjust” remains uncertain or doubtful, the recent case law has confirmed that employers cannot avoid a debate relative to same by securing a release from the employee, even where the employee is given sufficient (or even generous) consideration in exchange. In other words, even where an employer has secured a release from their former employee, the release cannot be used as a bar for the employee to bring a complaint for unjust dismissal and to have that complaint heard on the merits.

This is a key distinction from the law generally applied to employers subject to provincial employment standards, including Quebec, where it is possible to waive the right to bring claims against the employer at the time of termination. In jurisdictions where the retrospective waiver of rights upon termination is possible, if the employee were to bring a claim for wrongful dismissal after having signed a release in favour of the employer, the employer would be able to rely on the release to bar the bringing of the wrongful termination claim. Any resulting debate would revolve around whether the conditions for securing a valid release were met (i.e. meeting of the minds, sufficient consideration, etc.). In these cases, it is only in situations where the release would be first be deemed null and void that the employee could then bring a claim for wrongful termination and have it examined on the merits.

Under the CLC, if a former employee files a complaint for unjust dismissal after signing a release, the employee can still bring their claim on the merits, regardless of the validity of the release. As such, employers who have secured releases, will still be forced to expend resources defending the sufficiency of the “just cause” in support of the employee’s termination. It is only once the unjust dismissal complaint has been heard and judged on the merits, that the adjudicator will turn to the release to determine whether the employee received sufficient consideration in the circumstances. Where it is determined that the consideration was not sufficient to compensate the employee, the employer may be subject to additional remedies, including reintegration, back pay, damages, or any other type of equitable relief.

Solutions for employers

In order to mitigate the risks outlined above, federally-regulated employers must now consider solutions beyond securing releases from their former employees. One strategy that may allow employers to avoid facing an unjust dismissal complaint would be to limit payment upon dismissal to the minimum statutory entitlements under the CLC and provide the employee with details of a termination package that will only become available to the employee once the 90-day limitation period for filing an unjust dismissal complaint has lapsed and the employer has received proof that no claims have been filed against it by the former employee during that time.

Each termination case brings its own challenges and legal considerations, which in light of the decisions highlighted above, have now been further complicated for federally-regulated employers. Please contact the authors for more information on how your organization can best navigate difficult terminations.