The fundamentals of contract law require that both parties have agreed to the substantive terms of the bargain. This basic precept is well known. Let’s go under the hood and see how this concept works in practice.

The Facts

In the recent case Shete, Lada, and Chung v. Bombardier Inc., the employer advised three employees in writing of their termination. In a separate letter, the employer offered a compensation package if each employee agreed to sign a general release in its favour.

The employees hired a lawyer who replied by stating that the offer, in each instance, would be accepted provided that the company also agreed to pay their legal costs of $2,500 individually.

The company responded and accepted these terms. An amended settlement agreement was drafted, which incorporated the revised terms. This document was never signed. The employees then commenced lawsuits. The company defended by pleading that a settlement agreement had been reached. The employer requested that the lawsuits be dismissed and that the settlement agreements be enforced.

Hence the fundamental question was posed – was there an enforceable settlement reached, even though the final release documentation and formal settlement agreements remained unsigned?

Let’s see how the courts dealt with this issue.

First Up

The company moved for summary judgment to dismiss the actions. This motion failed. The judge had interpreted the company’s response to the request for legal fees to be a counter-offer as opposed to a legal acceptance of the revised offer. Interestingly, the court did not advance a decision on the company’s argument that the fundamentals of the settlement agreement had been reached, even though the actual release and settlement documentation remained unsigned.

The Appeal

The appeal was heard by the Divisional Court, the appropriate venue for the appeal given the sums in dispute. This court set aside the earlier decision and found in favour of the company’s submissions.

The appeal court found that the employees had agreed to the employer’s original offer provided that the costs were paid, a position readily accepted by the employer. It rightly stated that there was no counter-offer but rather acceptance of the employees’ counter. The fact that the documents were unsigned was of no consequence. They had clearly bound themselves to the counter-offer and could not now wriggle out.

The case was dismissed.

This really is not a novel concept. The basic terms of the deal were set out, varied and the revision was accepted.

Often at settlement meetings, the parties will agree to “a release in the usual terms”. The release is not generally prepared on the spot, due to time constraints. The release which then follows cannot contain any “unusual” terms such as a non-disparagement clause or a favourable tax clause. These terms must be bargained for in the settlement agreement. In this context, even if the “usual release” is never signed, there is nonetheless an enforceable agreement.

Take Away for All

The moral of the story is that putting pen to paper on the dotted line may not be required to conclude the deal. The court will examine the substance of the communications to determine if a mutual agreement has been reached regarding the essential terms.

Get Advice Before You Act

If you have questions about this issue or any employment issue, contact the offices of Toronto employment lawyers Grosman Gale Fletcher Hopkins. We regularly advise employees and employers on issues in the workplace. Contact us online or by phone at 416-364-9599 to schedule a consultation.