One of the most common types of employment actions is the wrongful dismissal suit. Employers facing these claims often try to avoid court altogether by attempting to settle with the party early on in the process. However, employers need to be aware of what termination payments, if any, have already been paid to the employee when settling a claim. Otherwise, the settling of the matter can get quite expensive for an employer, as this next case demonstrates.

Long-Time Executive Employee Terminated Without Cause

In Kearns v. Canadian Tire Corporation, Limited, 2020 ONCA 709, the case was about an employee who had been terminated after being employed with the company for over 25 years. An employment contract was in effect dated December 2012, and it stated that if dismissed without cause, the employee was entitled to one month’s notice for each year of service up to a maximum of 24 months’ notice. In 2018, the employer company terminated the employee without cause. At the time of dismissal, the employee held the position of Associate Vice-President.

The company offered the employee ‘guaranteed pay’ including 12 weeks’ severance pay, an extension of benefits and incentive plan payments. The employer also offered an “enhanced separation package” referred to in the letter as ‘contingent pay’, including a lump sum payment equivalent to an additional notice period of 30 weeks’ salary. To obtain this contingent pay, the employee would have to provide the company with a signed release by a certain date, which the employee did not do. Instead, the employee started an action for wrongful dismissal seeking 24 months’ pay in lieu of notice.

Settlement Agreement Overlooks Amount Previously Paid in Error

The parties entered into mediation, and by the time the proceedings took place, the employee had received three termination-related payments from the employer:

  • eight weeks’ statutory termination pay,
  • twelve weeks’ statutory severance pay, and
  • a payment of over $115, 000 representing 30 weeks’ pay in lieu of additional notice (aka the ‘contingent pay’).

The mediation was successful and the company’s representatives agreed to pay the employee a retiring allowance as well as general damages, in addition to amounts already paid, which totalled approximately $150,000. Notably, the settlement agreement indicated that this amount would be paid in addition to amounts already paid. The company’s representatives, who had attended the mediation, had not been aware that the employee had received the $115,000 contingency payment. After the company became aware of this payment, they deducted amounts from the settlement amount agreed upon in mediation. The employee brought a motion for judgment to enforce the minutes of settlement.

The Lower Court Decision

In Kearns v. Canadian Tire Corporation, Limited 2019 ONSC 4946, the motion judge granted the plaintiff’s motion to enforce the full payment under the settlement agreement. The motion judge found that there was no ambiguity in the written terms of the minutes of settlement. The judge also found that the minutes of settlement included all terms essential to the formation of a contract. Finally, the judge concluded that there was no evidence that the employee knew that the company had made an error when it made the payment to the employee. The company appealed.

ONCA: Contractual Interpretation Leaves no Room for Ambiguity

The Ontario Court of Appeal dismissed the company’s appeal. The appeal court found that the motion judge properly applied the principles of contractual interpretation. Furthermore, the court stated that there were requirements to succeed on a claim of “unilateral mistake”. The company had to successfully make the case that a mistake occurred and that there was fraud, or the equivalent of fraud, on the employee’s part in that he knew, or must be taken to have known, when the agreement was executed, that the company misunderstood its significance, and he did nothing to make the company aware of its mistake.

There was no evidence to show that the employee knew that the company had made a mistake. During cross-examination, the employee stated he had not been aware that when he received the contingency payment the company had made the payment in error.

The Court of Appeal found no error with the motion judge’s findings, analysis, and conclusions. The motion judge had accepted that the company had made a unilateral mistake but also found that there had been no fraud or equivalent of fraud on the employee’s part. Accordingly, the motion judge declared that the minutes of settlement constituted a valid and binding contract.

Finally, the Court of Appeal noted that “this litigation could have been avoided through the simple drafting device of quantifying in the Minutes the “amounts already paid”.

The bottom line is that employers need to be aware of all amounts paid to former employees during mediation talks. If they fail to do so, it could end up costing them.

For advice on wrongful dismissal disputes, termination letters and other employment or labour law matters, contact the offices of Toronto employment lawyers Grosman Gale Fletcher Hopkins LLP. We regularly advise workplace parties on a wide range of legal workplace issues. Contact us online or by phone at 416-364-9599 to schedule a consultation.