Employers often rely on signed releases after termination to ensure that employees cannot later sue them for wrongful dismissal. It has always been the law that in certain limited circumstances a release may not be an effective defence (for example, due to unconscionability, lack of consideration, or duress) but those situations are rare. In the recent decision of Saliken v. Alpine Aerotech Limited Partnership, the B.C. Supreme Court found that a release signed at the time of termination was unenforceable, and in doing so may have imposed additional obligations on employers and made it easier for former employees to challenge signed releases.
Mr. Saliken was a helicopter mechanic who had been working for the defendant, Alpine Aerotech, for 15 months when he was summarily dismissed for cause due to his inappropriate behaviour in the presence of a safety auditor. In the helicopter maintenance business, customers regularly send auditors to their maintenance contractors to ensure that proper safety and maintenance protocols are being followed. When Mr. Saliken was questioned by an auditor about an uncalibrated tool and unlabelled bottles at his work station, Mr. Saliken became annoyed and threw the tool and bottles in the garbage.
Because the auditor was from one of Alpine's main customers, Alpine's President was furious when he heard about Mr. Saliken's behaviour, despite the fact that the auditor was not particularly upset about the interaction and the audit result was generally positive. The President directed that Mr. Saliken be fired the next day and asked the Human Resources Manager to arrange for it. Mr. Saliken was brought to a meeting, told he was being fired for cause, and was given paperwork to review, including a release.
Mr. Saliken had previously signed a "training bond" in which he promised to repay certain training costs if his employment ended before a certain date. In his termination documents, Alpine offered to waive repayment by Mr. Saliken in exchange for a final release of all claims. Mr. Saliken read the documents and signed them on the spot. The whole meeting took 15 minutes.
Despite having signed the release, Mr. Saliken sued for wrongful dismissal, claiming he was entitled to six months' pay in lieu of notice.
The Court found that Alpine did not have just cause to terminate Mr. Saliken's employment. Although Mr. Saliken's behaviour was inappropriate and cause for some discipline, the Court found it was not sufficiently serious to amount to just cause for summary dismissal. This finding alone is not surprising given the high burden employers face in proving just cause.
More surprisingly, the Court found that the release signed by Mr. Saliken was unenforceable because it was unconscionable. The Court found that the following factors supported a finding of unconscionability:
(a) Mr. Saliken was surprised, distressed and concerned at the time he signed;
(b) Mr. Saliken did not understand the release and the documents were not explained to him (although he did read it and did not ask for clarification);
(c) The termination documents "wrongly suggested" that the employer had just cause for termination;
(d) Absent cause for dismissal, the employer could not insist on repayment of the training loan, so waiving a repayment obligation was not good "consideration"* for the release;
(e) The employer did not invite the employee to get legal advice (but also did not tell him he had to sign the release then and there); and
(f) There was "intimidation and pressure [from the employer] by silence" during the termination meeting.
Advice for Employers
In this case, the failure of consideration was the most serious problem with the release, but the extensive comments from the Court about the circumstances at the termination meeting should be noted by all employers. Previous decisions have said that unconscionability required the employee to prove something more than the stress inherent in losing employment. In this case, the Court was willing to find unconscionability with mere "pressure by silence" at the termination meeting, which suggests that there may be a positive obligation on employers to provide an explanation of the effect of a release and to encourage (or even force) the employee to seek independent legal advice.
Although the following steps were always good practice at a termination meeting, this case highlights their importance:
- Offer the employee monetary consideration for the release (beyond any Employment Standards Act or contractual minimum requirements);
- Explain the legal effect of the release to the employee;
- Ask the employee if he or she has any questions;
- Give the employee a reasonable deadline to respond and encourage the employee to take the release home and think about it before signing;
- Inform the employee that they may seek legal advice; and
- Do not misrepresent or embellish the generosity of the severance offer.
*"Consideration" means something of value received by a promisor from a promisee. To create a binding contract, there must be an exchange of consideration between the parties. In other words, for a contract to be valid, both parties must receive something of value.
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.