October 2, 2002 by Israel Foulon LLP
Having terminated workers sign releases
Question: Our company has been severely hit by the economic downturn and it is necessary that we terminate a number of our employees. We intend to offer the dismissed employees severance packages. Should we require the terminated employees to sign releases or will this just invite legal intervention causing more harm than good?
Answer: The purpose of a release is to ensure a payment made to a departing employee is made in full and final settlement of all claims the employee may have against the employer.
Many employers believe asking an employee to sign a release will create additional difficulties because it may cause them to seek the advice of a lawyer. Despite this concern, obtaining an executed release is usually the best course of action. If the employee does choose to seek independent legal advice, this will reduce the chance of the termination agreement being unenforceable.
However, whether or not a release is sought in a particular case, should be assessed according to the value of the separation package. For example, it is common for an employer to offer a departing employee a lump-sum settlement for an amount which is less than the full common-law notice period.
This allows the employer and employee to attain some finality with respect to the employment relationship. From the employer’s perspective, this option may be attractive because the company is not required to pay the employee the full common-law entitlement should he be unable to find other employment. On the other hand, this may also be desirable for the employee since the lump-sum payment may amount to a windfall if new employment is found during the notice period represented by the settlement. In these circumstances, an employer should require a release in order to protect itself from future liability.
Conversely, in circumstances where the employer provides the employee with only the minimum entitlement under employment standards legislation, obtaining a release is usually not appropriate as the employee has not received any consideration or benefit in signing the release. The employee was entitled to this payment in the absence of an agreement as to the severance payout. In these circumstances, a court would likely find the release unenforceable.
The following procedure should be followed when obtaining a release from an employee:
- the release should be provided to the employee along with a written severance letter which outlines the proposed termination package;
- the employee should be given a reasonable period of time to consider the package and to obtain legal advice if desired; and
- signing the release should be made a condition of settlement.
Peter Israel is the senior partner in the Toronto law firm of Israel Foulon LLP – Employment and Labour Lawyers. He can be reached at 416-640-1550 or pi@qtw38575.mywhc.ca. A version of this article originally appeared in the Carswell publication, Canadian Employment Law Today