The Importance of Legal Review for Settlement Agreements: Avoiding Costly Oversights - Preston v. Cervus Equipment Corporation

When faced with the conclusion of employment, whether through termination or mutual agreement, employees are often presented with settlement documents that aim to resolve any outstanding claims between them and their employer. While it may be tempting to sign and move on, it is critical to have these documents reviewed by a qualified legal professional. Failure to do so could result in unintended consequences, including the forfeiture of rights or benefits you may have assumed were secure.

A stark reminder of this risk can be found in the Ontario Court of Appeal decision in Preston v. Cervus Equipment Corporation. This case underscores how crucial it is to understand the full scope of the settlement agreement before signing.

Case Highlight: Preston v. Cervus Equipment Corporation

In this case, the employee, Preston, sought to claim previously vested stock units following his termination. These stock units were governed by a company plan that provided automatic vesting rights upon termination. However, Preston had signed a settlement agreement that included a broad and specific release of claims against the employer.

Preston argued that the stock units were not part of the wrongful dismissal settlement since they were already his property. Despite this, the Ontario Court of Appeal found that the language of the settlement agreement unequivocally precluded any claims to the vested stock units. The court emphasized:

The broad release language in the settlement agreement explicitly barred all claims, including those related to the stock units.

Contextual factors, such as Preston’s belief that the stock units were separate from the settlement, did not override the clear wording of the agreement.

The lower court had erred by misapplying the doctrine of narrow construction for broad releases and improperly weighing the economic implications of the settlement.

As a result, Preston’s $76,000 claim for the vested stock units was barred, demonstrating how seemingly minor oversights in understanding the terms of a settlement agreement can have significant financial repercussions.

Why You Need Legal Advice Before Signing

Broad and All-Encompassing Language: Settlement agreements often contain clauses that release the employer from all current and future claims, whether or not the employee is aware of them at the time. Without professional review, employees may unknowingly waive rights to significant entitlements.

Complex Legal Jargon: Settlement agreements are typically drafted by the employer’s legal team and are designed to protect their interests. Legal professionals can help identify overly broad clauses and explain their implications in plain language.

Hidden Consequences: Certain benefits or entitlements, like vested stock units, deferred compensation, or bonuses, may appear to be excluded from the agreement but could be inadvertently waived by signing a broad release.

Ensuring Fair Compensation: Legal professionals can evaluate whether the settlement offer adequately compensates you for all outstanding claims, including statutory entitlements and common law damages.

Protecting Your Future: A poorly understood settlement agreement can have long-term impacts on your career and financial stability. For example, restrictive covenants like non-compete or non-solicitation clauses may limit your future employment opportunities.

Key Takeaways

The Preston case serves as a cautionary tale for employees navigating settlement agreements. It highlights the importance of:

Thoroughly understanding the terms of the agreement.

Recognizing the potential for broad release clauses to encompass entitlements you might not expect to be affected.

Seeking legal advice to ensure that your rights are protected and your claims are fully resolved on fair terms.

Before signing any settlement documents, take the time to consult a legal professional who can review the agreement, explain its implications, and negotiate on your behalf if necessary. The investment in legal advice is a small price to pay compared to the potential financial losses and long-term consequences of an unexamined agreement.

By being proactive and informed, you can protect your rights and avoid the pitfalls experienced by Preston in his case against Cervus Equipment Corporation.