Employment Termination Releases: A Five-Point Test for Validity

The Tribunal began its analysis by stating that a release is presumed to be valid and enforceable if its validity is not reasonably put into issue. Therefore, the onus of persuasion is on the party opposing the validity of the release. The Tribunal engaged a five-pronged discussion of some key analytical factors associated with determining the validity of a release:

1. Unconscionability and Consideration

The Tribunal found that the amount of severance offered, while low, was not so low as to be unconscionable. The employee also received something of legal value in exchange for the release, namely, the severance pay.

2. Duress, Undue Influence and Financial Need

The Tribunal summarized that the evidence before it was, at best, that the employee was "unhappy" about the severance amount and felt "ill-treated." However, there was no evidence of coercion, duress, or pressure exerted by the employer with respect to the severance amount or the needs of the employee.

3. Timing of the Termination

The employer was not aware of the employee's mental health status at the time of termination, nor could the employee offer evidence that the employer knew, or ought to have known, of her mental health status. Further, at the time of termination, there was no evidence that the employer manipulated the timing of the signing of the release.

4. The Release Itself

The terms were found to be clear and concise since the termination letter clearly laid out:

• the basis for termination;
• a calculation of the severance amount;
• the requirements for the signing of the release;
• confirmation of documents to follow;
• a description of benefit plan considerations; and
• general best wishes in future.

Significantly, the Tribunal found that "the Release itself is clear and not overly complex in the language used. The Release specifically references relevant legislation, including the Act. It addresses the need for independent legal advice."

5. Lack of Capacity

There is a legal presumption that an adult has the legal capacity to enter into a contract, such as a release. The burden lies with the party seeking to overturn the release to show that they lacked the legal capacity at the time of signing. In this case, the employee alleged that she could not enter into a contract at the time when she signed the release because she was mentally disabled at the time. While the employee presented some evidence of mental disability, the Tribunal ultimately found that the employer's witnesses were forthright and that there was no evidence of malicious or manipulative behaviour. The employee was unable to show that she lacked the legal capacity to sign the release.

Tip: Be Clear, Concise and Forthright When Drafting a Release

This decision illustrates the importance of being clear and concise in the drafting of a release, and being forthright when presenting it to an employee. While employees remain free to challenge the validity of a release, they must present compelling evidence to override the presumption that they had the legal capacity to sign the release. In the employment and human rights context, employers can ensure that releases are upheld by drafting them using simple, plain language, by ensuring that the terms of the termination letter and the release are clearly explained to the employee, and by documenting all of the steps taken throughout.

Note: This a reprint of an article by Larry Page of DLA Piper.