Thomas Perry

Barrister and Solicitor

Thomas Perry is an employment and labour lawyer in Toronto, Ontario. He has experience with management-side employment and labour issues, and providing strategic HR advice to businesses.

He can be reached at thomasperry88@gmail.com

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Summary and Analysis of Preston v. Cervus Equipment Corporation, 2024 ONCA 804

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This decision from the Ontario Court of Appeal addresses the interpretation of a settlement agreement and release signed by an employee, Matthew Preston, following his termination from Cervus Equipment Corporation. The central issue was whether the settlement documents released Preston’s claim for vested stock units under the company’s Deferred Share Plan. The motion judge had ruled in favor of Preston, finding that the settlement did not cover the vested stock units. The Court of Appeal reversed this decision, holding that the clear and broad language of the release included the vested stock units.

Key Facts

  1. Background:
    • Matthew Preston was employed by Cervus Equipment Corporation from 2014 to 2018. As part of his compensation, he participated in the company’s Deferred Share Plan, which allowed him to purchase stock units that vested immediately, with matching units from Cervus vesting over three years.
    • Upon termination without cause in January 2018, Preston had 4,964.04 vested stock units (valued at $75,949.81) and 4,499 unvested units. The unvested units were forfeited, but the vested units were automatically redeemable under the Plan.
  2. Wrongful Dismissal Action and Settlement:
    • Preston sued for wrongful dismissal, seeking damages for reasonable notice and bonus entitlements. He did not initially claim the vested stock units.
    • The parties settled the wrongful dismissal action for $100,557.12. The settlement documents included a broad release of all claims related to Preston’s employment, including claims for stock options, share awards, and other incentives.
  3. Dispute Over Vested Stock Units:
    • After signing the settlement, Preston sought payment for his vested stock units. Cervus refused, arguing that the release covered these units.
    • Preston then sued for the value of the vested stock units, and both parties brought summary judgment motions.
  4. Motion Judge’s Decision:
    • The motion judge ruled in favor of Preston, finding that the settlement did not release his claim for the vested stock units. The judge reasoned that the units were automatically redeemed upon termination and were not part of the wrongful dismissal action. He also noted that it would make little economic sense for Preston to give up the 75,949.81investedunitsforasettlementof75,949.81investedunitsforasettlementof100,557.12.

Court of Appeal’s Analysis and Decision

  1. Standard of Review:
    • The Court of Appeal applied the standard of correctness to the motion judge’s interpretation of the settlement documents, as this involved a question of law.
  2. Principles of Contractual Interpretation:
    • The court relied on Corner Brook (City) v. Bailey, 2021 SCC 29, which held that releases are contracts and must be interpreted according to the ordinary rules of contractual interpretation. The goal is to ascertain the parties’ objective intentions at the time of signing, considering the factual matrix but without allowing the surrounding circumstances to overwhelm the clear language of the agreement.
  3. Clear and Broad Language of the Release:
    • The settlement documents contained broad language releasing Cervus from “all manner of actions, causes of action, suits, debts, dues, accounts, bonds, covenants, contracts, claims and demands whatsoever” related to Preston’s employment or its termination.
    • Specifically, the release stated that Preston had “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.”
  4. Motion Judge’s Errors:
    • The Court of Appeal found that the motion judge made three errors:
      • He allowed the factual matrix to overwhelm the clear language of the release, effectively rewriting the contract.
      • He misapplied the principle from Corner Brook that broad releases may be narrowly construed. The language in this case was specific and unambiguous.
      • He improperly considered the economic benefits of the settlement, which is not the role of a judge interpreting a contract.
  5. Finality of Settlement Agreements:
    • The court emphasized that settlement agreements are intended to bring finality to disputes. The broad and specific language of the release clearly included the vested stock units, and Preston, with the benefit of legal advice, had signed the agreement.

Disposition

The Court of Appeal allowed Cervus’s appeal, set aside the motion judge’s judgment, and dismissed Preston’s claim for the vested stock units. The court awarded Cervus $5,000 in costs for the appeal and left open the possibility of further submissions on costs for the proceeding below.

Impact on Employers

  1. Importance of Clear and Comprehensive Releases:
    • This decision underscores the importance of drafting clear and comprehensive release language in settlement agreements. Employers should ensure that releases explicitly cover all potential claims, including those related to stock options, bonuses, and other incentives.
    • The broad language in this case (“any and all entitlements whatsoever”) was critical to the court’s decision. Employers should use similarly inclusive language to avoid ambiguity.
  2. Finality of Settlements:
    • The decision reinforces the principle that settlement agreements are intended to bring finality to disputes. Once a release is signed, employees generally cannot pursue additional claims, even for entitlements not explicitly mentioned in the settlement negotiations.
    • Employers should ensure that employees receive independent legal advice before signing releases to minimize the risk of future disputes.
  3. Economic Considerations Are Irrelevant:
    • The court rejected the motion judge’s consideration of whether the settlement made economic sense for Preston. Employers should not rely on courts to consider the fairness of a settlement when interpreting a release. The focus is on the language of the agreement, not the parties’ subjective intentions or the economic outcome.
  4. Risk of Overlooking Specific Entitlements:
    • Employees and their legal advisors must carefully review settlement agreements to ensure they understand what claims are being released. In this case, Preston’s failure to explicitly exclude the vested stock units from the release cost him a significant entitlement.
    • Employers should be prepared to address specific employee concerns about entitlements during settlement negotiations to avoid misunderstandings.
  5. Legal Advice for Employees:
    • The court noted that Preston had received independent legal advice before signing the release. Employers should encourage employees to seek legal advice to ensure the enforceability of the settlement and reduce the risk of future litigation.

Conclusion

This decision highlights the importance of clear and comprehensive language in settlement agreements and releases. Employers must ensure that releases explicitly cover all potential claims, including stock options, bonuses, and other incentives, to avoid future disputes. The case also reinforces the principle that settlement agreements are intended to bring finality to disputes, and courts will enforce the clear language of the agreement, regardless of the economic outcome for the parties. Employers should take care to draft releases that are unambiguous and inclusive, while employees should carefully review settlement agreements to understand what claims they are releasing.