It is common for employers to ask employees to sign a release as a condition of receiving an enhanced severance package in a without cause termination. If the employee accepts the package and signs the release, the release will usually bar legal claims by the employee arising from their employment.
It has not always been clear that a release prevents an employee from bringing an unjust dismissal complaint under the Canada Labour Code (Code). The Code gives certain non-unionized employees, who have completed twelve consecutive months of continuous employment, the right to file a complaint if they consider their dismissals to be unjust. The Code says that right applies "notwithstanding any other law or any custom, contract or arrangement." In an earlier case, the Federal Court said employees can file an unjust dismissal complaint even after signing a release. That decision was upheld by the Federal Court of Appeal. Despite that ruling some unjust dismissal adjudicators have refused to hear complaints where the employee has signed a valid release.
A recent Federal Court decision clarifies again that an employee may file an unjust dismissal complaint even if they signed a release and any decisions to the contrary by adjudicators are bad law.
In this case, an employee was terminated without cause and signed a release in exchange for a severance package. After signing the release, the employee filed an unjust dismissal complaint. The employer asked the adjudicator to dismiss the complaint because the employee signed a release. The adjudicator refused. The employer applied to the Federal Court for a review of that decision.
The Federal Court dismissed the application. The court confirmed that the Code “protects the right of an employee to complain of an unjust dismissal even if that employee has signed a contract by which his or her employment is terminated.” But, a signed release may be an important factor in determining what remedy to award if the dismissal is found to be unjust. This leaves open the possibility that an adjudicator may find that the employee is not entitled to anything more than what has already been provided in exchange for the release.
This is an important decision for federally regulated employers who terminate without cause and offer a severance package conditional on signing a release. Employers need to know that a release will not prevent an employee from filing an unjust dismissal complaint. They need to adjust their settlement practices and releases to address this risk.