Preston v Cervus

To Release or not to Release?

The recent Ontario Court of Appeal decision, Preston v. Cervus Equipment Corporation, 2024 ONCA 804, serves as a salient reminder for employers of the importance of well drafted settlement documents.

Background

Mr. Preston worked for Cervus Equipment Corporation ("Cervus") from 2014 to 2018. In addition to base salary and an annual bonus, Mr. Preston was entitled to participate in Cervus' Deferred Share Plan (the "Plan"). Mr. Preston was also granted $25,000 in stock units upon the start of his employment with Cervus.

After four years of service, Mr. Preston's employment with Cervus was terminated without cause. Upon termination, Cervus advised Mr. Preston that his vested stock units could be exercised in accordance with the Plan. Mr. Preston was also provided with fifteen weeks' pay in lieu of notice. Mr. Preston disputed this offer and commenced a wrongful dismissal action on June 21, 2018 (the "Wrongful Dismissal Action").

In the Wrongful Dismissal Action, Mr. Preston claimed damages in lieu of reasonable notice and bonus payments throughout the notice period. Mr. Preston did not claim any vested stock units, although at the time of his termination the value of his vested stock units was $75,949.81.

The Wrongful Dismissal Action settled for $100,577.12. Mr. Preston received independent legal advice before executing the settlement documents (which contained minutes of settlement and a release and indemnity) on July 23, 2018. Cervus subsequently signed the settlement documents on July 24, 2018.

The minutes of settlement contained standard language which set out to fully and finally settle all matters and entitlements arising from or relating to Mr. Preston's employment or the cessation thereof. Cervus and Mr. Preston agreed that the entitlements set out in the minutes of settlement were inclusive of any and all entitlements that Cervus may "owe or which may have accrued" to Mr. Preston under statute, contract, common law or otherwise. Finally, Cervus and Mr. Preston agreed that the minutes of settlement, together with the release and indemnity, constituted the entire agreement between themselves.

In the release and indemnity, Mr. Preston agreed to release and forever discharge Cervus from all "manner of actions, causes of action, suits, debts, dues, accounts, bonds, covenants, contracts, claims and demands whatsoever" which Mr. Preston could ever have against Cervus for any matter up to the time that Mr. Preston executed the release and indemnity. Importantly, the release and indemnity contained a specific declaration that Mr. Preston had "no entitlement under or from, or any claim of any nature or kind against [Cervus] in respect of, any bonus, share award, stock option, deferred share or similar incentive plan" (emphasis added).

On July 23, 2018, Mr. Preston emailed Cervus requesting that his vested stock units be paid out. Cervus responded to this request in October 2018, taking the position that Mr. Preston released his claim to the vested sock units in executing the settlement documents to the Wrongful Dismissal Action.

The parties moved for summary judgment over the issue of whether the settlement documents covered Mr. Preston's vested stock units.

Motion Judge's Decision

The Motion judge found that since Mr. Preston did not claim the vested stock units in the Wrongful Dismissal Action, the settlement documents did not protect them. The motion judge opined that the $100,577.12 settlement made "little economic sense" if Mr. Preston was to forfeit $75,949.81 in vested stock units. Further, the motion judge indicated that the Plan called for automatic redemption of vested units upon termination of employment, and since the language in the release and indemnity should be read as referring to stock/share awards that were not awarded or redeemed, Mr. Preston ought to have been provided the vested stock units.

Cervus appealed this decision.

Court of Appeal's Decision

The Ontario Court of Appeal overturned the motion judge's decision, finding the following three errors:

1. The motion judge effectively re-wrote the settlement documents by introducing contextual factors into the pre-established agreement between Cervus and Mr. Preston;
2. The motion judge erroneously relied on the doctrine that broad releases can be narrowly interpreted. This was incorrect in light of the "specific language" in the release and indemnity which effectively removed Mr. Preston's entitlement to the vested stock units; and,
3. The motion judge operated outside of his jurisdiction in evaluating the "economic benefits" of the minutes of settlement (barring any parties having a disability).

Ultimately, by affording the language in the settlement documents their ordinary meaning, the Court of Appeal found that the documents were intended to cover any claims Mr. Preston could make against Cervus, including his claim for the vested stock units.

Key Takeaways

This decision underscores the importance ensuring that settlement documents achieve the delicate balance of being both broad and specific enough to cover all possible claims arising out of an employee's employment. This requires a careful drafting of clear, comprehensive language that lends well to plain reading.

The decision also demonstrates that courts will not interfere with well-written settlement documents, even if such language is to the detriment of the employee.