Legal Releases in Canada – The Basic Concepts [video]

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This lecture explains the basic concepts of the law of releases in Canada.

This lecture is taught by Amer Mushtaq, LL.B., M. Engineering , B.Sc. (Hons.), who is the Principal and Founder of Formative LLP.   Through his YouTube channel, YouCounsel, Amer shares practical advice from his years of legal experience to help anyone access justice and achieve their goals.  Subscribe today to learn more.

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Welcome everyone this is Amer Mushtaq from You Counsel. Today, we’ll talk about Legal Releases in Canada; we’ll cover some of the basic concepts about Legal Release. Keep in mind that Legal Releases could become fairly complicated and there are books written to explain what an appropriate or correct Legal Release is. So, this lecture is really to give you a basic understanding of a Legal Release, and why it’s important is because if you are ever engaged in a legal dispute in Canada, whether by way of litigation or not and if your dispute gets resolved, you may end up executing a release in favor of the other party or getting a release from the other party if they have a claim against you; and therefore, it is important for you to understand what a Legal Release is and what it contains.

We’ll begin with our usual disclaimer that is course is not legal advice, so, if you have any specific questions you must contact a lawyer or contact the Law Society of Upper Canada to get a referral.

We’ll cover in this topic, in this lecture, we’ll explain to you what it really is, what is the purpose of a release what are different forms of release, some of the common clauses that are contained in a release, and some of the challenges that may be posed to the enforceability offered release.

The basic thing you want to keep in mind is that a release is a contract, like any other contract it’s entered into between two or more parties, and it has to have normally, the release as I mentioned earlier is usually part of a settlement agreement, parties have resolved their legal dispute either by way of litigation or not but they have resolved the dispute and the release is part of that settlement agreement. And just like any other contract, each party gets a consideration. That’s the legal word what that means is – in this transaction in this settlement each party gets something out of that deal of that transaction.

A common example I can give you is that of a Wrongful Dismissal Action in which an employee commences a court action or at least brings a claim or raises a claim against the employer. The employee claims that the employee is entitled to more money than the employer has provided in severance and that gives rise to a legal claim against the employer. So, if there is a settlement then both parties are getting something out of that. So, the employee perhaps most likely is getting more money, so the employee says, “we don’t agree with your claim, but we want to settle this and here is some more money that we are providing you with respect to your claim”. And what does the employer on the other hand gets out of that deal? The employer gets the release, it gets the employee to release the employer of the Wrongful Dismissal Claim and maybe some other claims that the employee may potentially have against the employer. So, that’s why a release is a contract, it may not like many contracts, this particular contract may not be just contained in one document, it could be part of several documents, but the Release could be one of those documents in that deal.

So, what is the purpose of a Release? The purpose of a release is to extinguish causes of actions by the releasing party. So, going back to our employer employee example of a Wrongful Dismissal Action, what is the employer getting out of that release out of that transaction? Normally speaking, the employer what the employer wants, that I’m giving you more money to the employee and then I want the employee never to sue me for anything with respect to the employment with that company right? Essentially, that’s what the employer would like to have, that I’m giving you this money you the employee is getting this money and I don’t want to see you again with respect to a legal issues, you are not going to sue me for anything else. So, ideally what employer would like in terms of the causes of actions that are extinguished is not only the Wrongful Dismissal Claim, but any possible claims that the employee could raise.

So, if the employer would not like to be in a situation where the employee gets the money for the Wrongful Dismissal Action, settles the case, releases the employer for the Wrongful Dismissal Action then goes on to sue the employer let’s say for unpaid overtime pay, or unpaid commission, or let’s say goes on to bring a human rights claim against the employer. So, employers would like to have a certainty with respect to this deal and what they would prefer is that any and all causes of actions that that have arisen or could have arisen with respect to their relationship, they are actually released of those causes of action. So, that’s the goal of the release that it covers, not only the issue or the dispute at hand, but any possible disputes that could have been raised or that that become known later on and the employer would like those causes of action to be released, so, that the deal is complete and there is some certainty in this situation, in this example, for the employer and in other cases for the parties with respect to other issues that may have. So, that’s the purpose of the release is not just limited to the dispute at hand but the release could release all causes of action that may be raised.

Form of Release. A Release could be oral like any other contract or could be in writing. As you can imagine, if the release is oral there could be potentially an issue later down the line to determine what was it that exactly was released. And I’ll give you an example of a Release that I have for you, you will realize that the kinds of things that are covered in a release, if you do that orally you may have a significant issue with respect to the enforceability of that specific Release.

Let’s turn to some of the common clauses in a Release. First of all, a Release obviously should identify the parties that are part of that release. What are the parties? If it’s an employer and employee the name of the employer and the name of the employee and any of their parties that are related or that are covered in that release needs to be identified. Either in broad terms generally speaking or in specific terms and I’ll explain to you live the more about the broad and the general identification of parties. Secondly, the Release must have a consideration – who is getting what and the consideration may be explain in the release explicitly or it may be by in way of a reference. So, for instance, a Release may be a standalone document that may refer to a settlement agreement, which is a separate document and that will be sufficient.

You also want to be clear in the Release who is being released and, I’ve put two kinds of parties direct parties and third parties. Direct parties could be the ones that are identified specifically, for example, in this case employer, its directors, officers, employees, agents, successor, companies things like that that – those could be the direct parties that are released. And then third parties, those could be other parties that may have some relationship or some concerns with respect to any causes of action that the one of the parties may raise against them. And what happens to that third party? So, can a third party be released in a release agreement, and the answer is yes. So, who is being released is important.

Then what are the claims that are being released? What is it that releasor is exactly releasing? And it could be identified in broad terms, in general terms, for example, “I release the other party of all common law are statutory claims that I have against that party or may have against that party up to now”, that is a generic sort of form. And then a very specific claims that could be released, “I’m releasing the party off my unpaid overtime claim, my commissions claim, or you know payment of my car, or whatever the specific claim is those could be identified”. And ideally in a release you want to cover both, the releases are usually general to cover, you know, some of the issues that are not specifically raised but it must also cover specific issues that are being released.

A Release may contain a confidentiality clause, it may not. It’s up to the parties if you want the terms of the settlement or the Release to remain confidential, you can include that clause. A Release could have a non-disparagement clause that the Releaser cannot say anything negative about the other party at any forum, that’s not uncommon in employment law situation.

A Release should have an independent legal advice, so, the party that is releasing should have the opportunity to obtain independent legal advice or should have obtain an independent legal advice and I’ll explain to you why that’s important further down the line, in this lecture. A release may cover issues relating to tax liability, it’s common in employment law cases not common in other kinds of settlement of cases but in employment law, cases tax liability concerns may be important. A release may contain no admission of guilt or liability, so, it is quite understandable that when there is a settlement, the settlement is not based upon one party saying or admitting that they have done something wrong, it’s basically to avoid the litigation of that dispute, and so, no admission of guilt could be part of a release. So, those are some of the clauses commonly in a release.

Let’s talk about some of the challenges with respect to enforceability of a Release, and the common challenges are as you can imagine, interpretation issues. What is a specific law saying? Does the clause intend to state what the party is claiming or could it be interpreted differently? And then a common principle that you want to keep in mind is called, “Contra Proferentem”, it’s a Latin word and what it means is, the party who actually drafts the Release, the party who’s authoring the Release, if there is any ambiguity with respect to a clause that ambiguity will be interpreted against the party who created the release, right? So, if you are the one who wrote the release and there is an ambiguity and the court says this clause could be interpreted in more than one ways, and so, the court will find the interpretation against the one who drafted it. Because if you wrote the release, you better make sure that you have you have written it clearly, that there’s no ambiguity and if there is ambiguity, you are the one who’s going to get penalized for that.

No Consensus Ad idem, meaning no meeting of minds. The Release, one party may say we never agreed to these things that the other party is claiming and as you can imagine, this could be an issue an oral releases. Where one party claims that the other party released me, not only of the commissions but overtime pay and the other party says, “no we never discussed overtime pay and there is no agreement there is no meeting of minds and there’s no consensus on what the specific claim that either party is now making that they got the release but they never did”.

Failure of Consideration, that’s an important part. As I said It’s like a contract, Releases are like a contract, so, there has to be a consideration, it is not a binding if one party is getting something out of the other, and the other party is not getting anything out of that contract, so, then the release can fail on consideration. Common example and again an Employment Law situation could be where if the release gives the payment that is statutory payment, that the employee is entitled to otherwise, even if the employee does not sign the release and the release uses that as consideration and that may be challenged and maybe considered that it’s a Failure of Consideration on part of the employer, in that case and the release is not binding. So Failure of Consideration is an important element.

And then a Release could be enforced, could be could be challenged on the basis of Unconscionability in that the very contract the very release, the way it’s drafted is unconscionable for one party. And let’s talk about unconscionability for a second, there are four elements to unconscionability and all of those elements must be present for a court to find that the release, even the properly drafted correct language and everything, but the release is unconscionable. And what are those four elements? Element number one is that the Release has to be grossly unfair for one party, the one that has issued the Release signed the Release now claims that the Release is not binding. So, one of the things that the party has to show is that the exchange, the agreement, the deal, the consideration is really grossly unfair for the party who signed the release. So, that must be one element to establish. Second, the party must show that even though it was grossly unfair they had no independent legal advice, they had that they did not get an opportunity to obtain legal advice and so, that’s an important element. Third element is that there must be an overwhelming imbalance of bargaining power between the parties. So, you know, the lack of business knowledge for instance, the lack of better understanding of what the party is executing, illiteracy if a person is illiterate, the person cannot understand the release, the idea, the terms or the conditions in the release properly, their language barriers, their disability issues, so, their number of things that could create an imbalance in the bargaining position of the parties. Example in this case, is employer and employee so, the employee has no understanding of what he or she may be signing and so, that could create an imbalance. And finally the other party knowingly is taking advantage of the other side. So, in this case, a case of an employer-employee relationship. Let’s say the employer knows that the employee had no opportunity to get any kind of legal advice, because let’s say, when the deal was made the employee was asked to sign the release right then and there, not given an opportunity to go see a lawyer, and that was obvious to the employer, and the employer knew that it was grossly unfair, the deal that they were getting out of the employee was fundamentally unfair if the employee had this matter objectively reviewed by a judge and then there is an imbalance. So, if the employer in this situation, had knowledge that the employee that they were able to take advantage of the employee and then they proceeded to do that the court may find a release to be unconscionable.

So, those are some of the examples of when a release could be challenged, let me quickly go over a release. This is this is not a standard release as I said I’m just going to give you an example so, you can understand how releases drafted.

So, paragraph one as I said consideration is important, so, in consideration of the terms of settlement outlined in a letter so, it’s referring to some other letter or agreement, which is the settlement agreement so that’s the consideration here. And then who is releasing I? And this is an individual, so, individual names comes in here. If it’s a company or corporation it’s defined differently, and then, so, the individual his or her name on behalf of himself herself, successors and assigns the releaser is now releasing who? And then there is the name of the releaser, so hereby remise, release, and forever discharge comes the name of the releasee, the company as present and former directors, officers, representatives, as you can notice that it’s defined and very detailed.

And then what is being released? From all manners of actions, causes of action, suits, debts, dues, accounts, bonds, contracts, liens, claims, and demands. And it goes on and on and on and it covers generally a lot of information, a lot of claims that are being released. Then it gets into the specifics, any claims relating to the termination of employment contract, including damages for wages, salary, remuneration, commission, vacation pay, overtime pay, terminations pay, severance pay, and so on, and so forth.

So, it goes beyond that and then in paragraph two it goes further and in this paragraph you will notice that the releaser is now releasing some of the statutory claims. So, that set payment, the payment that has been made is releasing any claims again under Employment Standards Act, under Human Rights Code, Workplace safety and Insurance Act and so on and so forth. So, a number of things all of these the first two paragraphs cover the kind of things that are being released.

Now, who else is could be released as I mentioned third party, so, in this paragraph the releaser are saying I further agree not to make our cost to be initiated any claims expressly including any cross claims, counterclaims, third party action, up again against any other person or corporation who might claim contribution or indemnity against the person or corporation discharged by this release. What is, what does this mean? I’ll give you an example because it’s a complicated language, but briefly speaking, again an employer employee situation, let’s say that you make a deal, you release the employer, but then you have a separate claim against the insurance company who managed the benefits and that’s a separate contract that you have with them, and you sue them for any disability issues. And then the insurance company can claim indemnity from the employer saying, “okay, this person so and so is suing us, but you the employer are liable for this claim because of our relationship or because of something that you have done, you the employer have done wrong”. So, in that case the insurance company is now claiming contribution or indemnity from the employer. So, this release is saying listen, you’re not only releasing the employer and all the parties listed above, you’re not going to sue anybody else who can come and sue us, so, who can come and claim contribution indemnity. So, you’re releasing them as well and those are third parties and it’s usually contained in every single release.

Number four is the confidentiality clause, it’s simple; if you want the release to be confidential you can ask for it. You can say that I had the opportunity to obtain any kind of legal advice which is important, it’s now usually contained in all of the releases and then as I mentioned no admission of guilt. Clause seven talks about that this release is being made without any admission of liability or guilt. And then paragraph eight talks about tax liability. And text liability as I said, sometimes is relevant in employment law cases, for example as you know, it’s the employer’s job, it’s the employers responsibility to deduct you know taxes from an employee’s wages and then remit it to C.R.A. So, if an employer was supposed to deduct certain taxes as part of the settlement agreement and fail to do so, the employer wants the employee to indemnify the employer, so that those monies could be taken from the employee and given to [Canada] Revenue Agency. So, that’s an example of the release.

The conclusion that you want to carry from this lecture is that you want to make sure that your release is in writing it’s not orally, because you notice that there are a number of nuances to every single clause that you agree to in a release and so if it’s and writing you’re better off, oral release may not be helpful. You have to be very careful in drafting, because you have to be clear about what is being released, who is being released, were the parties accurately named the parties accurately, define third parties, what are the kinds of claims you are releasing, are you covering every possible claim that could be covered in the release, are you missing out [on] something, are you drawing any exceptions to any claims? So all of that, is part of the drafting of a release. The release of general claims is important and release of specific claims is also important.

So, I hope that you know this gives you an understanding of what is the purpose of the Release, what are some of the common elements in a Release, but ideally, if you are in a situation where you have to deal with a Release, you want to get some legal advice and then have the release drafted, or if you are signing a release to have to release reviewed by a lawyer so, that you understand what is it exactly that you are releasing.

Hopefully, this lecture gives you are broad understanding of the releases in Canada. Please provide us with your feedback, comments, and we’lll be happy to clarify any of the issues that are still not clear or answer any questions. Thank you for watching.

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