Have you ever been asked to sign a settlement agreement? Do you know what types of documents are used in settlement agreements and how those documents are used to finalize litigation or other types of disputes?

As employment lawyers, we have discovered that most people have a lot of misconceptions about settlement agreements. In this blog we explore settlement agreements in employment law. Specifically, we will look at some key aspects of settlement agreements including minutes of settlement, some common elements of compensation in settlement agreements and what a full and final release generally entails.

Key Aspects of Minutes of Settlement

Simply put, minutes of settlement is a document the sets out all the terms related to finalizing a dispute. A common misconception is that minutes of settlement is only used to finalize litigation upon settlement of a lawsuit where pleadings have been filed in an Ontario court. This is not the case, and minutes of settlement can be used to settle before the commencement of a lawsuit or legal proceeding. Another common misconception is that minutes of settlement is some sort of admission of liability. This is not the case as minutes of settlement simply reflect what has been paid or how the matter has resolved.

One of the key aspects of minutes of settlement is that the document is binding to the parties who have agreed to the minutes of settlement and who are part of the dispute that was settled. This means that once the terms are agreed to then parties to the minutes of settlement must abide by their terms. They cannot change their minds at a later date and act outside the scope of the settlement agreement or minutes of settlement.

Another key aspect of minutes of settlement is that the minutes will set out how the matter is being concluded or finalized. In most cases, the minutes of settlement will set out that one party is paying the other party to conclude the matter. This payment or compensation is usually in the form of damages and / or legal costs. However, in cases when an employment law matter is being finalized, the minutes of settlement will set out termination pay and severance pay as well as possibly other forms of damages like moral or aggravated damages.

Key Aspects of Compensation in Minutes of Settlement Related to Employment Law

a. Statutory Entitlements to Notice and Severance

When an employment law matter is being settled, in most instances, an employee has brought a claim for wrongful dismissal. To remind our readers, in cases of wrongful dismissal, employees have been terminated from their job by their employer without the employer providing to the dismissed employee proper notice of that termination. If the employee was wrongfully terminated and the employer failed to provide to the dismissed employee the proper notice of that termination, then the employee is owed termination pay in lieu of that notice of termination.

The amount of termination pay is then dependent upon two further factors: 1) what the employee should be compensated for under statute and 2) if the employee can be further compensated under the common law.

Firstly, Ontario’s Employment Standards Act, 2000 sets out what the employee’s minimum notice period should be under statute upon dismissal. For federally regulated employees, minimum standards for notice are set out in the Canada Labour Code, 1985.

Let us briefly mention severance pay. Severance pay is commonly misunderstood and confused with termination pay. Severance pay and termination pay are two distinct forms of compensation under statute. In Ontario, an employee is only entitled to severance pay compensation if they meet certain criteria that are set out in statute. For provincially regulated employees, the employee must have worked for the employer for five (5) or more years. The second criterion is that the employer must have a payroll of at least $2.5 million. An employee may also be entitled to severance pay if the employee was subjected to a mass termination in accordance with the various rules set out in the Employment Standards Act, 2000.

b. Common Law Notice

Secondly, an employee may be entitled to a significantly longer notice period under the common law. For instance, depending on the individual nature of the case, a wrongfully dismissed employee who was terminated without cause may be entitled to over 24 months of common law notice. The amount of common law notice is determined by using a variety of factors.

These factors include:

• the employee’s age;
• the length of service;
• the character of employment (such as the employee’s job description or position); and
• the availability of similar employment, having regard to the experience, training and qualifications of the employee.

However, an employment contract or employment agreement may have clauses that limit a dismissed employee’s right to common law notice. It is important that a dismissed employee contact an employment lawyer so that the lawyer can review the employment contract for the employee to see what the employee is entitled to upon termination.

Finally, because the common law factors are not set in stone, these factors can and have been litigated over continually in Ontario courts. As such, employment lawyers routinely see common law notice compensation clauses in minutes of settlement.

c. General Damages

General Damages may also be a component of compensation found in minutes of settlement in employment law disputes or litigation, depending on the nature of that dispute or litigation. Such damages usually arise in employment law disputes involving egregious conduct with the intention to hurt the employee. General damages may also arise as result of discriminatory behaviour.

d. Moral or Aggravated Damages

The parties may also agree to settle the case on the basis of moral damages. To remind our readers, wrongful dismissal claims compensate the employee for income loss by making the employer provide to the employee notice of termination or pay in lieu of notice of termination. However, sometimes the dismissed employee may claim an additional loss resulting not from the actual dismissal but from the manner of the dismissal. These damages are called “moral damages.” They can also be called aggravated damages or bad faith damages. Both terms are essentially the same and are often used interchangeably in employment law. For more information on the legal concept of bad faith, please visit our blog entitled “The Legal Landscape of Bad Faith Dismissal“.

e. Legal Fees

Legal fees in employment law disputes are often included as part of minutes of settlement. Specifically, employers who have settled a wrongful dismissal dispute will pay to the employee’s lawyers an amount for legal fees.

The amount of legal fees as set out in minutes of settlement is variable depending on the nature of the dispute and how the employee and the employee’s lawyer have agreed via a retainer agreement that the employee’s lawyer will be paid fees, if at all. For example, they may be apportioned out of the settlement amount or may be a separate amount agreed to under the minutes of settlement. However, in all instances, legal fees are not treated like termination or severance payments, as they are not set out as income for the employee nor are they subject to statutory deductions.

No Admission of Liability

This is a common statement found in almost every minutes of settlement prepared by employment lawyers in Ontario as well as in a full and final release document. Simply put, its purpose and meaning are to set out that neither party admits to any wrongdoing or agrees to any of the claims contained in pleadings related to the dispute.

Non-Disparagement

Another common statement found in both minutes of settlement and a full and final release in employment law cases is the non-disparagement clause. These obligations usually involve the employee’s obligations towards the employer (although it could be mutual). A mutual non-disparagement clause means that the parties are expected to refrain for making negative comments or statements about the other party involved in the employment law related dispute. In the case of a one-sided clause, only the employee will typically commit in writing to not make disparaging comments about the employer to the public.

Confidentiality

Finally, confidentiality statements are commonly found in both minutes of settlement and a full and final release in employment law cases. This clause simply means that the employee will refrain from disclosing the terms of the settlement to third parties. The typical exemption will be reserved to financial advisors, legal advisors, immediate family members or as required by law.

Key Aspects of a Full and Final Release

A full and final release is usually separate document from minutes of settlement. The purpose of this document is not to set out the terms of settlement like minutes of settlement but to set out that the rights or claims to the dispute at hand are waived in the future so they cannot be brought up or claimed again.

A full and final release can be either where 1) the employer receives a release from the employee only or 2) where both the employer and employee release each other. In employment law cases, usually it is the employee who will waive future claims related to the dispute at hand and the compensation such as termination pay or severance pay that was the subject of the minutes of settlement. With respect to number 2, this set of circumstances is rarer and usually only limited to cases where the employer has claimed some harm from the employee such as in termination for cause cases or in situations where a non-competition or non-solicitation agreement has been breached. For more information related to non-competition clauses or agreements, please see our blog entitled “Are Non-Compete Clauses Enforceable in Ontario?“.

How Can Zeilikman Law Help?

It is crucial that an employee who has been terminated approach an employment lawyer to review any settlement documents that they have. They can help ensure that the employee’s legal rights are protected upon termination (or litigation) so that the employee gets the compensation that they are owed.

We have a lot of blogs that set out when to contact an employment lawyer. To learn more, please visit:

• Learn Why You Should ALWAYS Get an Employment Lawyer to Review Your Termination or Severance Package
• You received a termination letter from your employer stating that you are dismissed. So, what do you do now?
• Attention Employers! Why You Should NEVER Draft You Own Employment Agreements

Not reaching out to an employment lawyer may result in an employee failing to obtain their full legal entitlements to things like severance or termination pay. Zeilikman Law can be contacted at (905) 417-2227 or online here to schedule a confidential consultation with one of Zeilikman Law’s employment lawyers.