In Preston v. Cervus Equipment Corporation, 2024 ONCA 804, the Court of Appeal for Ontario found that Minutes of Settlement and a Release and Indemnity (“Settlement Documents”) executed by an employee (“Mr. Preston”) after his termination barred him from receiving compensation for vested stock units valued at almost $76,000.
Facts
The employer, Cervus Equipment Corporation (“Cervus”), induced Mr. Preston to leave his former employer by granting him $25,000 in stock units that vested when Mr. Preston started his employment with Cervus. During his employment, Mr. Preston was entitled to participate in Cervus’ Deferred Share Plan (“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 Mr. Preston opted into the Plan, Cervus would match those purchases with stock units that would vest over three (3) years. The Plan also provided that upon termination, vested stock units would be automatically redeemed while unvested stock units would be cancelled and would not be redeemed. Mr. Preston participated in the Plan.
Mr. Preston was dismissed without cause after four (4) years’ employment. Cervus advised Mr. Preston in a termination letter that his vested stock units could be exercised in accordance with the Plan, and that he would receive a severance package of 15 weeks’ pay in lieu of notice.
Mr. Preston was not satisfied with his severance package and commenced an action 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 $100,577.12, less deductions, and the parties executed the Settlement Documents.
Mr. Preston received independent legal advice before executing the Settlement Documents, which included, among other provisions, the following:
- The Minutes of Settlement provided that the parties agreed to fully and finally settle all matters and entitlements (earned or claimed) arising from or relating to the employee’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 the Minutes of Settlement.
- The entitlements set out in the Minutes of Settlement, including the settlement payment, were 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.
- The Minutes of Settlement provided that it, together with the Release and Indemnity, constituted the entire agreement between Cervus and Mr. Preston in reference to the matters stated and relative to all entitlements (earned or claimed) arising from or related to Mr. Preston’s employment (or the cessation thereof).
- The execution of the Minutes of Settlement, together with the Release and Indemnity, cancelled and superseded 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 his employment (or the cessation thereof).
- The Release and Indemnity was broadly worded and also included specific reference to compensation, namely that Mr. Preston declared that he had no entitlement under or from, or any claim of any nature or kind against Cervus (and other releasees) in respect of, any bonus, share award, stock option, deferred share or similar incentive plan offered by or on behalf of Cervus (and other releasees).
On the same day Mr. Preston executed the Settlement Documents – being one (1) day before Cervus executed the Settlement Documents – Mr. Preston sent an e-mail to Cervus to request that his vested stock units be paid out. Cervus did not respond to this request for several months. Eventually Cervus took the position that Mr. Preston released his claim to the vested stock units. Mr. Preston then started another action and sought damages for the value of the vested stock units. There was no dispute between the parties about the value of the vested stock units being $75,949.81.
Both parties moved for summary judgement and the issue was whether the Settlement Documents covered Mr. Preston’s vested stock units.
Decision of the Motion Judge
The Motion Judge ultimately found that the vested stock units were not released under the Settlement Documents. In support of that conclusion, the Motion Judge noted that the wrongful dismissal action did not include a claim for stock units and that those stock units were automatically redeemed on Mr. Preston’s termination. The Motion Judge also noted that the $100,577.12 settlement would make “little economic sense” if Mr. Preston was giving up in excess of $75,000 in vested units. The Motion Judge stressed that the Settlement Documents had to be read in the context of the Plan, which provided for automatic redemption of vested units on an employee’s termination. The Motion Judge also found that the language in the Settlement Documents releasing claims to stock options and share awards must be read as referring to “stock or share awards which have either not been awarded or not been redeemed and which were still subject to the terms of the Plan…”.
Cervus appealed this decision to the Court of Appeal for Ontario.
Decision of the Court of Appeal
The Court of Appeal allowed Cervus’ appeal and overturned the decision of the Motion Judge.
The Court of Appeal found that the Motion Judge made three (3) legal errors:
- First, the Motion Judge erred by allowing an interpretation of the factual matrix to overwhelm the actual wording of the Settlement Documents, effectively rewriting the contract between the parties. The parties could have specified that the release of stock units only applied to stock or share awards which had either not been awarded or not been redeemed, but they chose not to do so.
- Second, the Motion Judge’s reliance on the jurisprudence that broad releases may be narrowly construed was misplaced in the circumstances. While the Settlement Documents did include a broad release of claims, the language regarding the release of claims for stock options and other share awards was specific.
- Third, the Motion Judge improperly evaluated the economic benefits conferred under the settlement to inform his interpretation of the Minutes of Settlement, which courts should not do absent a party being under disability.
In short, the Court of Appeal found that 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 of Appeal further found that clearly the payment of the settlement funds was intended to cover, among other things, all claims and entitlements owed or accrued pursuant to any contract, including Mr. Preston’s employment contract and the Plan, and it was evident looking at the Settlement Documents that they were intended to be final and bring an end to the parties’ relationship and obligations.
In Our View
This decision highlights the importance of settlement documents and releases given their significant impacts on employers’ obligations and employees’ entitlements. It serves as a confirmation that the courts will not recraft terms of a settlement when a court is able to determine and uphold the ordinary meaning of the settlement, including general release language, entire agreement clauses, as well as more specific release language. This guidance serves as a helpful reminder of these points, which are particularly informative in the context of the settlement of a termination of employment matter as the parties wish to reach certainty and finality around obligations and entitlements.
For more information, please contact Sheri Farahani at 613-769-4781 or Sophie Kassel at 613-410-6115.
