The possibility of a dispute between an employer and an employee is an inherent part of every employment relationship. These disputes can arise during the term of employment, such as a disagreement over whether the employee is entitled to a bonus or more commonly after the employer or the employee has taken steps to terminate the relationship. They can even arise in situations where no relationship is even formed, as in cases where an individual claims they were not offered a position based on discriminatory grounds such as age or disability.

Notwithstanding the above, relatively few disputes between employers and employees end up in formal litigation, and even fewer require a full hearing before a court or administrative tribunal. That is because the vast majority of disputes result in a settlement between the parties. A settlement is simply an agreement between the parties whereby the parties agree to resolve their differences based on certain terms and conditions. In that sense, a settlement is simply a contract between the parties, and like a contract of employment, can be either formal or informal.

In some cases the employer and the employee may be able to resolve their dispute by discussing the matter and reaching a verbal agreement. However, where the issues are more complex, or where the employee has a potential claim for damages that could result in litigation, it is preferable that the parties put their agreement in writing. This can be done by way of a letter from the employer setting out its offer, which the employee may then accept. Alternatively, the parties can prepare a document, often described as “Minutes of Settlement”, which sets out the terms of their agreement and which they both sign.

The most common situation that would lead to a settlement between an employer and an employee is following the employee’s termination. In that case, the employer will typically agree to pay a sum of money to the (former) employee to resolve a potential claim for, among other things, wrongful dismissal. However, the settlement may resolve any number of different types of claims, including for unpaid wages such as bonuses or overtime pay, harassment by a manager or supervisor, or human rights damages. In exchange, the employer will usually require that the employee give up the right to bring any other claims relating to their employment.

It is important to keep in mind that a release will only be enforceable if the employee is receiving something more than their statutory entitlements. For example, the employer cannot require the employee to provide a release in exchange for receiving the amounts the employee is entitled to on termination under employment standards legislation. A release signed by an employee in those circumstances is unlikely to be enforceable.

Another important factor for employers to keep in mind when negotiating settlements with employees is the inherent inequality in bargaining power between the parties. A court or administrative tribunal may set aside a settlement that is the result of unconscionable or improper behaviour by the employer. The following approaches to settlement discussions will assist an employer in creating an enforceable settlement agreement:

  • The employee should be given a period of time to review the offer or agreement before accepting it.
  • The employer should caution the employee from immediately accepting a settlement offer. Even if the employee indicates a wish to accept the settlement offer as soon as it is presented, the employee should be encouraged to take some time to think about it.
  • Correspondingly, the employer should not pressure the employee to sign the settlement agreement during the same meeting when it was presented.
  • The employer should advise the employee to obtain whatever advice they feel is necessary, whether from family and friends, an accountant or a lawyer.
  • It would be improper for the employer to threaten to withhold an employee’s statutory entitlements unless they accept the employer’s offer. Similarly, it is preferable that the employee is clearly made aware that they will receive their statutory entitlements regardless of whether they accept he employer’s offer.

The terms that should be included in a settlement agreement will depend on the type of dispute between the parties and whether litigation before a court or administrative tribunal has been commenced. However, the following issues should be addressed in most settlement agreements arising out of the termination of an employee:

  1. Parties:
    1. What are the legal names of the employer and the employee who are entering into the agreement?

  2. Payment of settlement funds:
    1. What amounts are being paid to the employee?
    2. How are the payments being classified (i.e. as employer income, as a retiring allowance or as general damages)?
    3. Are some or all of the payments subject to statutory deductions?
    4. Are the payments being made by way or salary continuance or a lump-sum? Is there a deadline by which the payments must be made?
    5. Are the payments subject to mitigation if the employee finds new employment?

  1. Benefits:
    1. Are benefits being continued for a certain period of time pursuant to employment standards legislation?
    2. Are any benefits being continued beyond the time required by employment standards legislation? If so, which specific benefits are being continued, and which benefits are not being continued?
    3. Is the employee responsible for paying some or all of the premiums for any benefits that are being continued?

  2. Employer’s property:
    1. Does the employee have any property belonging to the employer that is to be returned (i.e. keys, an access pass, company credit cards or a company laptop/mobile device)?
    2. Does the employee have any confidential documents or information that is to be returned?
  3. Miscellaneous:
    1. Is the employee being provided with outplacement services?
    2. Is the employee being provided with a letter of employment?
  4. Release:
    1. Is the settlement agreement conditional on the employee providing the employer with a signed release?
    2. Has a copy of the release been enclosed with the letter?
  5. Accepting the offer:
    1. How much time does the employee have to accept the offer?
    2. How should the employee accept the offer?
    3. Whom should the employee contact if they have any questions?