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In the recent case of Preston v. Cervus Equipment Corporation, Ontario’s Court of Appeal offered employers a friendly reminder that well-drafted settlement documents will survive judicial scrutiny.

Key Takeaways for Clients

Preston underscores the necessity of clear and precise language in settlement agreements. Employers should use broad and inclusive release language that can encompass a wide range of claims, even those not explicitly mentioned. By carefully drafting settlement agreements, employers can ensure that the settlement documents have the intended effect of concluding the employment relationship without courts stepping in to frustrate the finality of the settlement documents.

Background

The case revolves around the interpretation of a release and indemnity clause in the settlement documents signed by Mr. Preston after his termination from Cervus Equipment Corporation. Mr. Preston was employed by Cervus from 2014 to 2018 and participated in the company’s Deferred Share Plan.

Upon his termination without cause in January 2018, Mr. Preston had 4,964.04 vested stock units valued at $75,949.81 and 4,499 unvested stock units. Cervus informed him that his vested stock units could be exercised according to the Plan and offered him a severance package of 15 weeks’ pay in lieu of notice. The parties then discussed and settled the matter. The settlement documents included a broad release of claims, which Mr. Preston signed after receiving independent legal advice.

Notably, the release language in the settlement documents did not specifically refer to the stock plan and vested stock units in question, but did reference that Mr. Preston was releasing all claims connected to his employment, and that he had no entitlement or claim with respect to any bonus, share award, stock option, or similar plan that his employer had offered to him.

Mr. Preston took the position that he was still entitled to his vested stock units, while Cervus took the position he had released his claim to the stock units.

Mr. Preston sought damages for the value of the vested stock units. Both parties moved for summary judgment. The issue was whether the settlement documents covered Mr. Preston’s vested stock units.

Ultimately, the motion judge found that the vested stock units were not released under the settlement documents. The motion judge explained that the Supreme Court of Canada provided authority that broad releases like the current one could be read narrowly. Given the context of the situation and discussions between the parties (e.g. because it would not make economic sense for Mr. Preston to give up his vested stock units in the release), the documents did not cover the vested stock units.

Ontario Court of Appeal’s Decision

The Court of Appeal found that the motion judge erred, and allowed the appeal in favour of Cervus.

The main issue on appeal was whether the settlement documents released Mr. Preston’s claim for the vested stock units. The motion judge initially found that the settlement documents did not include a release related to the vested stock units. However, the Court of Appeal disagreed, finding that the motion judge erred in his interpretation of the settlement documents.

The Court of Appeal emphasized that the broad language of the release clearly included all claims, including those for vested stock units. The court noted that the settlement documents were intended to be final and comprehensive, covering all entitlements owed or accrued to Mr. Preston.

The Court of Appeal identified three key errors in the motion judge’s analysis:

  1. The motion judge allowed the factual context to overwhelm the actual wording of the settlement documents, effectively rewriting the contract between the parties. The court highlighted that the parties could have specified that the release did not include vested stock units, but they chose not to do so.
  2. The motion judge mistakenly relied on the Supreme Court’s guidance to narrowly interpret broad releases. The court noted that while broad releases may be narrowly construed, the language regarding the release of claims for stock options and other share awards was specific, and should be given its ordinary meaning.
  3. The motion judge’s evaluation of the economic benefits conferred under the settlement was not appropriate. The court emphasized that the settlement documents were intended to cover all claims and entitlements owed or accrued, including those under the Plan.

Ultimately, the Court of Appeal found 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 stock plan. The court cited the following language from the settlement documents:

The entitlements set out in these Minutes of Settlement, including the Settlement Payment, are inclusive of any and all entitlements whatsoever that Cervus may owe, or which may have accrued, to Mr. Preston pursuant to statute, contract, common law or otherwise.

The Court of Appeal found that it was clear from a plain reading here that the parties intended the settlement funds to cover claims under Mr. Preston’s employment contract and the stock plan, and to bring an end to the parties’ relationship and obligations.


For support reviewing your company’s settlement agreements, please contact a member of our team. The upfront investment in legal review can avoid lengthy (and costly) disputes later.