Many people assume that the most challenging part of settlement negotiations is the bargaining. While that is certainly a prime consideration, it is arguably more important to determine and articulate what you want from the bargain.
This year Northwest Value Partners Inc. ("Northwest") learned the hard way that a deal is a deal. It's hard to add terms after the deal is done. In Wilson v. Northwest Value Partners Inc. 2015 ONSC 4726 Justice Faieta of the Ontario Superior Court of Justice refused to overturn a settlement reached between the parties in respect to a wrongful termination case despite the ex-employee's ongoing refusal to abide by the terms of his employment agreement.
Northwest terminated Mr. Wilson's employment. Mr. Wilson brought a wrongful dismissal claim against the company. The parties entered into negotiations and agreed to a settlement that included a release from Mr. Wilson. Shortly thereafter, Northwest learned that Mr. Wilson had started working for their competitor, allegedly in violation of a non-competition clause in his employment agreement. Northwest refused to finalize the settlement and Mr. Wilson brought an action against them for payment of the settlement funds.
Northwest asked the Court to set aside the settlement agreement on a number of grounds: first, Mr. Wilson had made a material misrepresentation by failing to inform them that he was working for their competitor; second, Northwest made a unilateral mistake of fact which led them to sign the settlement agreement; and third, because upholding the settlement would prejudice the company's ability to pursue a claim for breach of the non-competition obligations contained in Mr. Wilson's employment contract.
The Court rejected all of the company's arguments, noting the parties never discussed Mr. Wilson's post-termination employment status, nor was the non-competition clause in his employment agreement incorporated in any way into the settlement terms. The Court did say the company could still continue with its claim against Mr. Wilson for breach of his employment contract. That was probably little comfort for Northwest, which was forced to comply with the settlement agreement and pay Mr. Wilson, who was now working for their competitor, approximately $240,000.
This case serves as a good reminder to all employers to consider all the important issues when approaching a settlement negotiation. If post-employment compliance with non-competition or non-solicitation obligations is important, remember to turn your mind to it during settlement negotiations. Ask the right questions and keep your settlement goals in mind.
If an employer is offering an employee something beyond the statutory or contractual rights upon termination, it may be appropriate to tie the additional payments to new or ongoing obligations of non-competition, non-solicitation and/or confidentiality.
Non-competition and non-solicitation provisions may be valuable bargaining points. In some cases, the value ascribed to obtaining, reinforcing, or relinquishing restrictive covenants may be significant to one or both parties.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
