In a recent appeal to the Divisional Court of Ontario’s Superior Court in Shete, Lada, and Chung v. Bombardier Inc., 2019 ONSC 4083, the court applied the most basic principle that serves as the foundation of common law contract law: an agreement is formed when an offer is made and accepted, and consideration exchanged; the contract’s terms need not be in writing to be enforceable. 

Background

The employer at issue, Bomardier Inc., informed three long-term employees by letter that their employment would be terminated, and offered them a termination package in exchange for a release.  The employees rejected the initial offer and proposed new terms.  Bombardier then sent a revised offer of 13-16 months’ base salary (varying by employee), minus notice and severance already paid under Ontario’s Employment Standards Act, 2000. This new offer did not require the employees to mitigate Bombardier’s damages by seeking and taking comparable employment. 

The employees’ counsel sent a letter to the company stating that they would accept this new offer, provided the company would also pay $2,500 to each employee toward their legal costs.  Bombardier emailed the employees’ counsel revised severance offers, which included reimbursement of legal fees up to $2,500 on proof of payment.  The revised severance offers included a transaction and release document stating, “Your signature will confirm your acceptance of the terms and conditions for the termination of your employment.”  The documents were not executed.

Three months later, the employees each filed a Statement of Claim seeking damages for wrongful dismissal. Counsel for the employees explained his clients had not appreciated that the amounts in the new offer were subject to a deduction of the termination and severance pay they had received, and he had received instruction to reject the offers and proceed to litigation. Bombardier filed a Statement of Defence in each action and served a notice of motion for summary judgment.

Decision of the Motion Judge    

The motion judge determined that the following language in Bombardier’s correspondence indicated it was not an acceptance of the employees’ offer, but rather a new offer that impliedly rejected the employees’ offer:

• It referred to “revised severance offers”;
• It stated that Bombardier was “prepared to offer you the following terms and conditions”;
• It stated that Bombardier would pay $2,500 in legal fees “upon presentation of a document demonstrating that such legal fees were incurred”; and
• It required the employees’ signature to confirm acceptance of the terms and conditions. 

The motion judge referred to Ferron v. Avotus Corp., [2005] O.J. No. 3511 (Ont. S.C.), for the proposition that a settlement will be enforced where the parties agreed on all essential terms. However, he dismissed the instant action on the basis that an enforceable settlement did not exist as the parties had not agreed on all essential terms.

Decision of the Divisional Court

Bombardier appealed to the Divisional Court, which held that there was an enforceable settlement between the parties regarding the terms of the employees’ termination from the company.  The court criticized the motion judge for failing to apply the principles of Ferron v. Avotus Corp., and dismissed the employees’ wrongful dismissal claims. 

In arriving at this conclusion, the court pointed out that Bombardier made a new offer, and the employees’ counsel’s letter expressly stated that his clients would accept it, provided Bombardier agreed to pay an additional $2,500 for legal fees.  In its email accepting the legal fee term, Bombardier expressly agreed to reimburse up to the $2,500 in legal fees, thereby accepting the final term the employees proposed.  At that point, no outstanding substantive issues required resolution, no terms previously agreed to were changed, and no new terms were proposed.  The court stated:

In our view, it was properly characterized as Bombardier’s acceptance of the offer to which the Employees had previously agreed.  The formal language used in [Bombardier’s email accepting the legal fee term] did not detract from the meeting of the minds that had occurred by that point. 

By the [date of Bombardier’s email accepting the legal fee term], the parties had agreed on all of the essential terms of the settlement.  They intended to resolve matters between them. The fact that the Employees may have subsequently re-considered their position does not undermine the existence of an enforceable settlement. (paras. 15 and 16)

Bottom Line for Employers

In the back and forth of negotiations between an employer and employee regarding the terms of the employee’s termination or another aspect of their employment, once the parties agree on all terms orally or via email, text message, or voicemail, there is a meeting of the minds, the offer is accepted, and an enforceable settlement exists.  Execution of formal documents is not required to make the settlement binding, although it is encouraged to eliminate any questions about its terms.  

When communicating with an employee regarding their termination or any other aspect of their employment, employers should be cautious not to state orally or in an email or text message that they agree to any terms before they are absolutely certain they are willing to be held to them.  Once the employer makes such a statement, the agreement will be enforceable even without the execution of formal documents by one or both parties; an employee who objects to terms subsequently placed in formal documents will be well within their rights to do so.  Accordingly, employers are encouraged to resist entering into oral negotiations with employees.  Instead, they should advise employees to expect to receive a written agreement containing all proposed terms.  If the agreement pertains to the employee’s termination, one of its terms should be that the employee will execute a full and final release.   

However, if an employer must enter into an oral discussion about the terms of an employee’s termination or another aspect of their employment, the employer should take the following steps to bar the employee from successfully claiming that an oral agreement is not enforceable: (a) diligently document negotiations in real time; and (b) once the final term of the agreement is agreed to, ask the employee to confirm that all terms have been accepted and the agreement has been finalized.  Although an oral confirmation is acceptable, it is preferable to obtain the employee’s confirmation in writing.