In Preston v. Cervus Equipment Corporation, 2024 ONCA 804, the Court of Appeal for Ontario (OCA) found that Minutes of Settlement and a Release and Indemnity (“Settlement Documents”) executed by an employee after he was terminated from his employment prevented him from suing for the value of his vested stock units. 

Background

On January 9, 2018, the employee was dismissed “without cause” after four years’ employment.  On that day, the employer sent the employee a letter advising him that his vested stock units could be exercised in accordance with the employer’s Deferred Share Plan (“Plan”), and he would receive a severance package of 15 weeks’ pay in lieu of notice.

On June 21, 2018, the employee commenced a wrongful dismissal action for damages in lieu of reasonable notice including any applicable bonus during the notice period. He did not, however, make a claim for the vested stock units, which he had yet to exercise.  The action was settled on July 16, 2018, for CDN $100,557.00, less deductions, and the employee signed the Settlement Documents on July 23, 2018 after receiving independent legal advice, with the employer signing the following day on July 24, 2018. 

The Minutes of Settlement provided, among other things, 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).”
• “The entitlements set out in the Minutes of Settlement, including the Settlement Payment, were inclusive of any and all entitlements that [the employer] may owe, or which may have accrued, to [the employee] pursuant to statute, contract, common law or otherwise”. [Emphasis added]
• “…together with the attached Release and Indemnity, they constitute[d] the entire agreement between the parties.” [Emphasis added]
• “Their execution, together with the attached Release and Indemnity, cancel[ed] and supersed[ed] all previous oral or written understandings and agreements between [the employer] and [the employee] in respect of any entitlements (earned or claimed) arising from or relating to [the employee’s] employment (or the cessation thereof).”

The Release and Indemnity provided, among other things, that the employee:

• “…hereby release[d] and forever discharge[d] [NAME OF EMPLOYER]… of and from all manner of actions, causes of action, suits, debts, dues, accounts, bonds, covenants, contracts, claims and demands whatsoever which against the said Releasees [he] ever had, now have or can, shall or may hereafter have for or by reason of any cause, matter or thing whatsoever existing up to the present time”; and
• “…further declare[d] that [he] ha[d] 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.” 

On July 23, 2018, the employee emailed the employer, requesting that his vested stock units be paid out. The employer responded by claiming that, in having signed the Settlement Documents, the employee had released his claim to the vested stock units. In response, the employee commenced another civil action against the employer, this time seeking monetary damages for the value of the vested stock units.

Both parties moved for summary judgment to decide whether the Settlement Documents covered the employee’s vested stock units to effectively prohibit the employee’s subsequent action.

Decision of the Summary Judgment Motion Judge

The motion judge found that the employee’s claim for vested stock units was not released under the Settlement Documents and awarded the employee $75,949 in damages for their value. 

The motion judge relied on Corner Brook (City) v. Bailey, 2021 SCC 29, for the following guidance regarding the interpretation of the Settlement Documents:

• A release is an agreement that must be interpreted in accordance with the rules of contractual interpretation to ascertain the objective, mutual intentions of the parties at the time of its formation. This includes consideration of the factual matrix or surrounding circumstances.
• The surrounding circumstances must not overwhelm the words of the release or be used to deviate from the text to effectively create a new agreement. 
• When the ordinary meaning of the words and the surrounding circumstances are inconsistent, the words must override.
• Courts can interpret releases more narrowly than other types of contracts because the broad wording of releases can conflict with the circumstances, especially for claims not in contemplation at the time of the release. The broader the wording of the release, the more likely this is to be the case.

Based on this guidance, the motion judge made the following findings: 

• The wrongful dismissal action did not include a claim for stock units. 
• The settlement made little economic sense if the employee was giving up more than $75,000 in vested units.
• 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 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. The Plan, by its very wording, no longer had any application to the redeemed vested stock units.”

The employer appealed the motion judge’s decision to the OCA.

OCA Decision

The OCA allowed the employer’s appeal and overturned the decision of the motion judge, holding that the employee lost his right to claim damages for the value of his vested stock units by signing the Settlement Documents.  The OCA emphasized that the employee had executed the Settlement Documents with the benefit of legal advice and that the Settlement Documents clearly released the employee’s entitlement to those damages.

In providing its reasons, the OCA acknowledged that the motion judge had correctly cited the applicable law regarding how to interpret a release and had also correctly observed that the factual matrix of the case could not overwhelm the ordinary meaning of the words used in the release.

The OCA found, however, that the motion judge made the following three errors in his analysis:

• His interpretation of the factual matrix overwhelmed the actual wording of Settlement Documents “and effectively rewrote the contract between the parties.” The OCA rejected the motion judge’s conclusion that the release of stock units applied only to stock or share awards that had not been awarded or redeemed, noting, “The parties could have specified this result but chose not to do so.” The OCA emphasized that, instead, the parties used the following unrestricted 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.

• The motion judge’s reliance on the Supreme Court’s guidance in Corner Brook that broad releases may be narrowly construed was misplaced in this case because the language in the Release and Indemnity regarding the release of claims for stock options and other share awards was distinctively specific.
• The motion judge inappropriately evaluated the economic benefits conferred under the terms of settlement when interpreting the Minutes of Settlement, which they may only do so if a party is under disability.

The OCA held 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. In coming to this conclusion, the OCA stressed the following portion of the Minutes of Settlement:

The entitlements set out in these Minutes of Settlement, including the Settlement Payment, are inclusive of any and all entitlements whatsoever that [the company] may owe, or which may have accrued, to [to the employee] pursuant to statute, contract, common law or otherwise. [Emphasis added]

Bottom Line for Employers

Employers that settle wrongful dismissal claims should ensure that the settlement documents release them from all possible claims arising from the employment relationship and its cessation.

Cervus Equipment demonstrates why, to accomplish this objective, settlement documents must be drafted with great care to include language that generally releases the employer from all employment-related claims, as well as language that releases the employer from specific claims, including those for any incentive compensation received by the employee. 

Cervus Equipment also reminds employers to ensure that their settlement documents include language providing that they constitute the entire agreement between the parties regarding the employee’s entitlements arising from the employment relationship and its cessation.