Employee’s $76,000 Claim for Vested Stock Units Barred by Wrongful Dismissal Settlement and Release

By: Andrew Easto , Kelly Brennan

Settlement agreements require careful attention to both present and future entitlements, as highlighted by the Ontario Court of Appeal’s recent decision in Preston v. Cervus Equipment Corporation . The Court held that the scope of an executed release, indemnity and minutes of settlement (the Settlement Documents) precluded an employee’s subsequent claim to vested stock units, despite these units’ automatic vesting rights upon termination under the company’s plan. The decision emphasizes the binding nature of clear release language in settlement documents.

Background

At the time of his without cause termination, the plaintiff had approximately 5,000 vested and 4,500 unvested stock units. Neither party disputed the amount or value ($75,949.71) of the vested stock units. Cervus Equipment Corporation’s (Cervus) Deferred Share Plan (the Plan) provided that, upon termination of employment, vested stock units would be automatically redeemable and any unvested stock units would be forfeited.

On termination, the plaintiff received a letter advising him that he could exercise his vested stock units in accordance with the Plan. The letter also provided the plaintiff a severance offer, which he rejected. He subsequently pursued his claim for wrongful dismissal. In the wrongful dismissal action, he claimed damages in lieu of reasonable notice and entitlement to a bonus during the notice period. Notably, the plaintiff did not claim an entitlement to the vested stock units, nor did he take steps to redeem those units in accordance with the Plan.

The parties agreed to settle the wrongful dismissal action for $100,577.12, less deductions. Both parties executed the Settlement Documents.

On the same day the plaintiff executed the Settlement Documents, he emailed Cervus requesting his vested stock units be paid out—Cervus did not respond before executing the Settlement Documents. Months later, Cervus took the position that, in settling the wrongful dismissal action, the plaintiff released his claim to the vested stock units, triggering the instant action.

Both parties moved for summary judgement, with the plaintiff arguing the settlement did not address the vested stock units since they were not part of the wrongful dismissal action and were already his property. Cervus argued that any entitlement to the vested stock units was released by the settlement of the wrongful dismissal action.

The Settlement Documents

Key terms of the Settlement Documents included the following:

• An agreement that the parties: “… fully and finally settle all matters and entitlements (earned or claimed) arising from or relating to Mr. Preston’s employment (or the cessation thereof), including all matters and entitlements (earned or claimed) that were raised (or could have been raised) in the Action.”
• An agreement that the consideration was: “… inclusive of any and all entitlements that Cervus may owe, or which may have accrued, to Mr. Preston pursuant to statute, contract, common law or otherwise.”
• A robust “entire agreement” provision: “… Execution of these Minutes of Settlement, together with the attached Release and Indemnity, cancels and supersedes all previous oral or written understandings and agreements between Cervus and Mr. Preston in respect of any entitlements (earned or claimed) arising from or relating to Mr. Preston’s employment (or the cessation thereof).“… Execution of these Minutes of Settlement, together with the attached Release and Indemnity, cancels and supersedes all previous oral or written understandings and agreements between Cervus and Mr. Preston in respect of any entitlements (earned or claimed) arising from or relating to Mr. Preston’s employment (or the cessation thereof).

Key terms in the full and final release and indemnity included:

• A broad release: “… hereby release and forever discharge CERVUS EQUIPMENT CORPORATION … of and from all manner of actions, causes of action, suits, debts, dues, accounts, bonds, covenants, contracts, claims and demands whatsoever which against the said Releasees I ever had, now have or can, shall or may hereafter have for or by reason of any cause, matter or thing whatsoever existing up to the present time, and more particularly, but without restricting the generality of the foregoing, all claims and demands arising in or out of or in any way connected with my employment by the Releasees, the cessation of such employment, and/or the obligations, statutory, contractual or otherwise, of the Releasees to me in respect thereof….”
• A specific reference to the compensation in question: “I further declare that I have no entitlement under or from, or any claim of any nature or kind against the Releasees in respect of, any bonus, share award, stock option, deferred share or similar incentive plan offered by or on behalf of the Releasees….”

Lower Court Decision

The motion judge found that since the vested stock units were not claimed in the wrongful dismissal action, they were not released by the Settlement Documents.

The motion judge accepted the plaintiff’s argument that the $100,577.12 settlement would make “little economic sense” if it meant foregoing the nearly $76,000 in vested stock units, with the motion judge finding that the resulting net benefit to the plaintiff (compared to the initial severance package) would be less than $7,000.

Court of Appeal’s Reversal

In overturning the motion judge’s decision, the Court of Appeal found three errors:

1. The motion judge erred by allowing surrounding contextual factors to overwhelm the actual wording of the Settlement Documents, effectively rewriting the contract between the parties.
2. The motion judge misapplied the doctrine that broad releases can be narrowly construed. While there was a broad release in the Settlement Documents, the language in the Settlement Documents also contained specific language regarding the release to claims for stock options and other share awards.
3. The motion judge improperly evaluated the economic benefits of the settlement, which courts should not do unless a party is under disability.

Key Takeaways

This decision serves as a helpful reminder that, when properly drafted, courts will not engage in wholesale rewriting of the terms of a settlement and release to the benefit of an employee.

The article in this client update provides general information and should not be relied on as legal advice or opinion. This publication is copyrighted by Hicks Morley Hamilton Stewart Storie LLP and may not be photocopied or reproduced in any form, in whole or in part, without the express permission of Hicks Morley Hamilton Stewart Storie LLP. ?

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Tags: Benefits , Court of Appeal , Settlement , Termination of Employment