Two recent Ontario decisions show how employee conduct and violation of settlement terms can invalidate such agreements and give a basis for employers to recover payments already made under the settlement

Roder v 1049077 Ontario Limited, 2014 ONSC 4389 involved an employee who was dismissed due to poor performance. The employee sued for wrongful dismissal and the parties agreed to a settlement. Shortly after the minutes of settlement were signed, the employer was informed by a whistleblower that the employee had been working for one of the employer’s competitor’s during his employment. Moreover, he had done this work during his regular work hours with the employer on a computer owned by the employer. It was discovered through forensic computer analysis that the employee had attempted to remove evidence of this work from his computer. Consequently, the employer repudiated the settlement, and the employee brought a motion to have the settlement enforced. In dismissing the employee’s motion the Judge concluded that settlements should not be enforced when enforcement would create a clear risk of injustice. Enforcing a settlement against an employer who did not know and could not have known that their employee was abusing his position with them would have constituted a clear risk of injustice.

Wong v The Globe and Mail Inc, 2014 ONSC 6372 involved an employee who was terminated without cause. In Wong the employee, through her union, grieved her dismissal. Through mediation the parties agreed that the employee, who had been off work for almost 2 years due to depression, would receive two separate lump sum payments: 1) a payment for 6 months of unpaid sick leave; and 2) a lump sum payment of $209,000.00, the equivalent of 2 years’ salary. The Memorandum of Understanding contained just one term for the benefit of the employer: a requirement that the employee not disclose the terms of settlement. Four years after her termination, the employee wrote a book in which she referred to the settlement and clearly indicated that she had received a large sum of money, though she did not reveal the exact figure. The employer sought to enforce the non-disclosure term before an arbitrator and was successful. The employee applied for judicial review. In dismissing her claim, the Judge held that the arbitrator’s finding that the non-disclosure provision was an enforcement provision was reasonable. Because the non-disclosure term was an enforcement provision a breach of it meant that the employee was required to repay the funds she had received in the settlement.

These cases show two ways in which employee conduct can invalidate a settlement agreement. An employee’s dishonest conduct prior to the settlement, or during its negotiation, unbeknownst to the employer, can justify an employer repudiating the settlement if its enforcement could be clearly unjust. Or, an employee’s conduct after the settlement, in breaching key terms of the settlement that are intended to enforce the agreement, could justify an employer seeking repayment of the funds paid out as part of the agreement.

Recent case law of the Supreme Court of Canada finding an implied duty of good faith in contracting should only serve to reinforce these findings.