Let’s Make A Deal – That Stands Up In Court

January 8, 2013

By Brian Babcock

Judges prefer when possible to find contracts to be binding upon the parties who sign them. The more exceptions they makes, the more uncertainty exists about when a deal is a deal, and that is bad for business.

A recent Ontario decision, Rubin v Home Depot Canada Inc., is a useful review and reminder of the basic principles related to a settlement with a departing employee, and how they apply to the facts of that case gives us pointers about how to avoid the trouble that this employer created.

In that case, the release was not enforced, and the employee was allowed to continue with a law suit for additional damages in lieu of notice of his dismissal. Because no facts were in dispute, the motions judge was able to fix damages based on an entitlement twelve months’ notice – almost double what the release was based on.

For a contract to be enforced there needs to be an offer, an acceptance, and an exchange of value.

The release was not enforceable because it was considered unconscionable. “Unconscionable” in this context, refers to a transaction which is so gross or where the relative positions of the parties are so out of balance in the sense of gross inequality of bargaining power or that the age or disability of one of the controlling parties places him at such a decided disadvantage that equity must intervene to protect the party of whom undue advantage has been taken.

In the wrongful dismissal context, this can be broken down into four elements, all of which must be found, or the release will be enforced. These are:

  1. A grossly unfair transaction
  2. A lack of independent legal advice or other suitable advice
  3. Overwhelming imbalance of bargaining power caused by vulnerability on the part of the party signing the release- such as ignorance of business; illiteracy; ignorance of the language; blindness; deafness; illness; or senility
  4. The party seeking to rely on the release was aware of the vulnerability, and took advantage.

Eric Rubin had been a long term employee of Home Depot, having started work with a predecessor in 1991. On July 28, 2011, he was terminated without advance notice- he had been told simply to attend a meeting. When he arrived, he as presented with a letter terminating his employment immediately. He was offered 28 weeks pay in lieu of notice, and told this exceeded the employer’s Employment Standard Act, 2000 obligations. In fact under the Act, Home Depot was obliged to pay 27 and ¾ weeks notice. He was also offered continuation of certain employee benefits, for the length of the notice period (so, longer than the eight weeks required under the Act). In order to obtain the continued benefits, he was required to sign a release.

Mr. Rubin signed the release at the meeting. When he later sued, he said he did this because he believed the offer was all that he was entitled to. The termination came as a surprise, he was not thinking clearly, he was unaware that at common law he had greater rights than the minimums provided by the Act. He was unaware what rights he had under the Act. At the time he was 63 years old.

The judge found that the payment offered was grossly inadequate – in law that is a test of “community response”, and the judge ruled that this amount of notice, given Mr. Rubin’s age, the nearness of retirement, and his working history, was “far removed” from what the community would expect.

The judge’s discussion of the lack of independent legal advice may shock some employers. Home Depot had not insisted that Mr. Rubin sign on the spot- they offered him a week in which to sign. What influenced the judge against Home Depot was a combination of factors- the wording of the letter (which was ambiguous, but could be read as a threat to remove the benefits if the offer was not signed within a week); the absence of any recommendation that Mr. Rubin seek advice of any sort; and the failure to specifically suggest that he obtain legal advice. As the judge noted, almost any lawyer would have told Mr. Rubin about his true rights.

Home Depot relied on an earlier Court of Appeal decision, Titus v. William F. Cooke Enterprises Inc. in which a senior employee who happened to be a lawyer was found not to have been the victim of a power imbalance. If the same principle applied to Mr. Rubin, as Home Depot argued it should, the release was not unconscionable.

The judge in the Rubin case though, noted that power imbalance is present in almost every termination situation- as illustrated by the shock which Mr. Rubin felt at being told it was his last day. Mr. Rubin was not a high level professional, like the individual in the Titus case. Furthermore, the way that Home Depot dealt with the situation exacerbated the imbalance. The judge in Rubin found that the employee in the earlier case was the exception, and Mr. Rubin was the more typical employee, thus he was vulnerable.

From that finding, it was a short step for the judge to determine that Home Depot took advantage of the vulnerability. Specific facts he referred to included;

  • There was no negotiation or discussion with Mr. Rubin about how to deal with his termination
  • He was presented with an offer which reflected the needs of the company, not the rights of the employee.
  • The manner of presentation was structured to get him to sign, not to have him consider the offer or negotiate
  • He was led to believe that if he did not sign, he would not get paid.
  • He was told he was being offered more than he was entitled to.
  • He was not informed he had common law rights beyond those in the Act
  • The only option offered was whether to direct some of the funds to an RSP
  • The form of the letter presumed that the release would be signed.

Based on these facts, the judge found that Mr. Rubin did not agree to a contract – he did not agree to anything, he misled into thinking that signing the release was his only option.

This decision may be appealed, or it may be discounted as the far end of the swing of a pendulum of judges favouring employees, but it should sound an alarm to any Ontario employer who must terminate an employee without cause. Ontario courts will expect employers to treat departing employees fairly. What is fair will depend upon the facts of each situation, but at a minimum an employer should:

  • Make a fair proposal, which considers the rights of the employee
  • Indicate that they are open to discussion or negotiation
  • Ensure that the written offer is clear and not misleading
  • Encourage the employee to get advice before finalizing the deal
  • Consider whether any particular vulnerability exists, and take extra efforts to accommodate those as much as possible.
  • Avoid situations where the employee signs on the spot, even if they want to – it is to your benefit if they are rested and emotionally more settled when they sign.

If this process is followed, it is much more likely that you will end up with a deal which WILL stand up in court, and you can save yourself a lot of money and inconvenience in the long run.

Although many employers have Human Resource Professionals on staff with expertise in preparing offers, consideration of rights; writing clearly and avoiding ambiguity are strengths that clients look for in a lawyer, and we are always pleased to help a client avoid a mess rather than making more fees cleaning one up.

Employees who find themselves in Mr. Rubin’s situation should not hesitate to seek legal advice.