Releases and Settlement Agreements

A "release of claims" is often sought by the employer after dismissing an employee from their employment. Sometimes an employer will provide it to the employee immediately upon termination along with an offer of some payment in lieu of notice. Whenever we negotiate a settlement for dismissed employees a release is almost always required by the employer in exchange for the settlement.

Signing a release is a significant decision with long term consequences. Before signing a release an individual should always seek legal advice to make sure they are not foregoing a right they did not intend to give away.

What is included in a typical release?

Generally, the wording of a thorough release will extinguish all claims of any type arising from the employment up to the time of signing. This includes claims for:

The above is not a full list, but are some of the key claims that usually cannot be pursued after signing a release. After a settlement is reached it should always be made clear that the agreement is pending review of the release, to ensure there are no surprise terms.

Where a release has been properly put in place, the law considers the release to supplant the employment contract. Aside from certain obligations contained in the employment contract which may continue beyond termination, such as confidentiality, fiduciary, or non-competition duties, the release becomes the effective agreement between the parties.

What happens when there is a settlement but no signed release?

In cases where no release was signed, but there was a clear settlement reached between the parties, the courts will enforce the settlement and prevent the employee from bringing their claim. There are exceptions to this, discussed below, but in general even without a release the employee will be barred from bringing a claim.

This means there is significant risk for an employee negotiating a settlement by themselves without assistance from a lawyer. For instance the employee may make an offer, not realizing that it will constitute a binding agreement upon the employer's acceptance. The employee could also agree to a settlement, then later learn they had a prohibited action claim they were completely unaware of. At that point the employee may have given up the right to pursue that claim.

When an employee has a general understanding of their rights upon dismissal, and agrees to a poor settlement, the courts will usually still uphold that settlement.

When are releases unenforceable?

Even when a signed release is given to the employer and payment is made in consideration to the employee, it is not always binding and enforceable.

All the circumstances surrounding the negotiation, formation and execution of the release should be reviewed. In some cases the courts will set aside a release or settlement agreement because of inequality of bargaining power.

When an employer takes advantage of its position of power over an employee the settlement may be set aside. Essentially the employer needs to have gotten an unfair advantage over the employee that would offend public morality. In such cases the bargain is unconscionable, and the courts have power to set the release or settlement agreement aside.

Circumstances that have been determined by courts to create an inequality of bargaining power include where the employee:

  • is not of sound mind;
  • is somehow incapacitated;
  • lacks education;
  • is inexperienced in business;
  • is in desperate financial circumstances, or
  • had no independent legal advice.

A combination of the above would strengthen the argument for inequality of bargaining power.

Examples of unconscionable uses of an employer's power include where an employer:

  • withholds final pay, payment in lieu of notice or both;
  • threatens to do something to the employee such as convert the dismissal to one with cause;
  • threatens the reputation of the employee; or
  • threatens to withhold references, unless the employee signs the release.

A release will usually be set aside when the employer requires it in exchange for Employment Standards Act minimum notice. The case of Stolle v Daishinpan (Canada) Inc. held that it was improper for an employer to withhold the statutory minimum pay in order to receive a release.

Where the courts void the release, the employee is free to claim his or her total entitlement at law.


If you are considering signing a release come talk to us. We can review your full entitlements and ensure you are making an informed decision. If you have already signed a release, the team here at Yeager can review the circumstances and advise you on whether the Court might void it.

About the Author

Dan Howitt assists both employees and employers with managing all phases of the employment relationship.  His focus is helping clients achieve a fair and cost effective solution to their employment related problems, with an emphasis on negotiation and settlement.  If you would like to schedule a meeting with Dan Howitt or any other of our lawyers, give us a call at 604-988-1000.

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