“Unconscionable” Release Not Enforced by Court

Written by on October 4, 2012 in Employment Law Blog, Terminations
Signing a contract

In Rubin v. Home Depot Canada Inc., the Ontario Superior Court determined that a Release signed by an employee during a termination meeting was unconscionable and ordered the employer to provide additional notice to the employee.

On July 28, 2011, after almost 20 years of service, 63 year old Eric Rubin (“Mr. Rubin”) was terminated by Home Depot Canada Inc. (“Home Depot”) without cause due to a restructuring. During the termination meeting, Mr. Rubin, who held the position of Competitive Shopper, was presented with a termination letter offering him 28 weeks notice along with the continuation of the bulk of his health benefits over that period of time provided he signed off on a Release within 1 week. The termination letter informed Mr. Rubin that the 28 weeks offered exceeded his statutory notice entitlements pursuant to the Employment Standards Act, 2000 (the “ESA”), but did not provide a calculation of his entitlement, which represented approximately 27 ¾ weeks of the 28 weeks offered, and did not reference Mr. Rubin’s common law entitlements. At no time during the termination meeting did Home Depot suggest that Mr. Rubin have the termination letter and Release reviewed by a lawyer. After reviewing the termination documents and asking Home Depot a few questions about having a portion of the notice paid to his RRSPs, Mr. Rubin signed off on the Release. Shortly after the meeting, Mr. Rubin realized he had made a mistake by signing the Release and contacted his accountant and lawyer who referred Mr. Rubin to an Employment Law lawyer. Thereafter, counsel for Mr. Rubin sent a Demand Letter to Home Depot arguing that the Release was unenforceable and seeking additional common law notice. When Home Depot refused to provide additional notice on the basis that the Release was binding on Mr. Rubin, legal proceedings were commenced.

Mr. Rubin brought a Motion for Summary Judgment where Justice Lederer considered whether the Release should be enforced or whether it was unconscionable and therefore unenforceable. Justice Lederer applied the test to determine whether the Release was unconscionable and determined that all 4 elements were present to demonstrate that the Release was unconscionable: (1) a grossly unfair and improvident transaction; (2) the victim’s lack of independent legal advice or other suitable advice; (3) the overwhelming imbalance in bargaining power caused by the victim’s ignorance of business, illiteracy, ignorance of the language of the bargain, blindness, deafness, illness, senility, or other disability; and (4) the other party knowingly taking advantage of this vulnerability. The Court drew this conclusion on the basis of a number of circumstances, including the following: Home Depot’s failure to inform Mr. Rubin that his ESA entitlements would be provided regardless of whether he signed the Release; the termination letter creating the impression that unless Mr. Rubin signed the Release he would not receive any notice, including his ESA entitlements; the fact that the offer represented only 6 months notice for a 20 year employee who at 63 years of age, was at the end of his working life; that Mr. Rubin did not have any legal or other advice prior to signing the Release; that the offer was presented as having only 2 options, being to accept the offer as is or to direct a portion of the settlement monies to an RRSP; the imbalance in bargaining power between Mr. Rubin and Home Depot; Home Depot’s awareness of the imbalance in bargaining power; and Mr. Rubin’s lack of business sophistication. Justice Lederer held that the Release was not enforceable against Mr. Rubin and awarded him 12 months notice, inclusive of his ESA entitlements.

Impact of Decision on Employers

Although there is nothing improper with an employer requiring that an employee sign a Release as part of the termination process, great care should be taken by the employer to ensure that the Release is provided and signed in a manner that will ensure that the release is legally binding and enforceable. When presenting termination letters and Releases to employees, employers should ensure that they do not directly or indirectly pressure an employee to sign the Release. Employers should provide employees with an opportunity to obtain independent legal advice and should suggest that the employee take some time to review the documentation before signing. Employers should also ensure that the employee is made aware that they will still be provided with their statutory notice entitlements even if the Release is not signed. Accordingly, not only is the language in the termination letter and Release critical, but so is the manner in which these documents are presented and signed. It is always strongly recommended that employers consult with Employment Law lawyers when they are considering terminating an employee and to obtain legal advice with respect to the termination process, including how to conduct a termination meeting.

Impact of Decision on Employees

For most employees, being informed of the termination of their employment is very stressful and even a traumatic experience. Many employees are not familiar with their statutory and common law notice entitlements and cannot determine whether the termination package offered by the employer is fair. Employees should not feel pressured to sign off on termination letters and Releases without first having them reviewed by an Employment Law lawyer. Although the circumstances in which a Release was signed may render the release unenforceable, employees should not count on this result and should ensure that they consult with an experienced Employment Law lawyer and conduct any negotiations with the employer before signing a Release.

Minken Employment Lawyers is your source for expert advice and advocacy on today’s employment law issues. Whether you are an employer or employee, we can help. Contact us to see how.

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