One of the common questions that employment lawyers are asked is whether an employee has to sign a release when they are terminated from their employment. The short answer to this question, like most legal questions, is: it depends.
Generally, when an employee is terminated without cause they are entitled to notice of termination based on the Employment Standards Act, 2000 (the “ESA”), the terms of their employment contract and/or the common law.
Often when an employee is terminated, their employer will provide them with a termination letter with a release attached. A release is a contract that is often used to limit an employer’s liability by preventing the employee from bringing legal claims against their employer.
Where an employer wants an employee to sign a release, they will generally provide the employee with their minimum entitlements (pay in lieu of notice and severance, where applicable) under the ESA, and may also offer to provide the employee with an additional amount of money in exchange for a release. In these cases, employees have three options:
- To sign the release and receive their ESA entitlements plus the extra money that the employer has offered in exchange for the release;
- To negotiate the offer; or,
- To not sign the release.
However, sometimes an employer may try to tell the employee that they have to sign the release in order to receive any termination pay. A recent case from Ontario shows the consequences for employers when they try to make payment of the ESA minimums contingent on the employee signing a release.
In Wilds v 1959612 Ontario Inc., 2024 ONSC 3452, the Court dealt with a case where an employee was terminated and their employer said that they would be given their minimum entitlements under the ESA once the employee provided them with a signed release. When the employee did not sign the release, the employer did not provide their termination pay entitlements.
The Court found that the employee should have been given their minimum entitlements under the ESA regardless of whether or not they signed a release, and explained:
“The termination without cause provision requires that Ms. Wilds execute a full and final release in a form acceptable to Gibson in exchange for pay in lieu of notice. The employer’s obligation to provide the ESA entitlements is not contingent on the execution of a release or anything else. Making the employer’s compliance with the ESA subject to the execution of a release violates the ESA, notably section 54.”[Emphasis added]
In this case, the Court ordered that the employer had to pay the employee reasonable notice for termination, plus $10,000 in punitive damages because they withheld the employee’s ESA entitlements after they declined to sign the release. Had the employer either offered to pay the ESA minimums plus an additional amount of money in exchange for a release, or had they paid the ESA minimums without requiring a release, this likely would not have been the outcome.
The Wilds case clarifies that employees are entitled to their minimum entitlements under the ESA regardless of whether or not they sign a release, and also serves as a warning to employers to ensure that they comply with the ESA, otherwise they will be exposed to further liability.
Takeaways
There are a few takeaways from this case for both employers and employees.
Employers should consider speaking with their employment lawyer before they terminate an employee to understand whether or not a release is necessary, how to structure the termination package and the release, and to better understand what they are required to pay the employee, regardless of whether or not the employee agrees to sign a release.
Employees, on the other hand, should be cautious when asked to sign a release as their rights may be limited significantly by doing so. Employees should consider speaking with an employment lawyer before signing a release to ensure that they understand what amounts they should be paid upon termination, how the release may impact them, and whether or not they should sign the release.
This blog post was written by Lori Philpott, a member of the Employment Law team. She can be reached at 613-369-0382 or at lori.philpott@mannlawyers.com.
