Employees may be asked to sign a release when they are terminated. In the release, there are typically terms that require the employee to accept an amount of severance pay upon termination. There may also be terms in the release that state that the employee will no longer pursue any claims of wrongful dismissal, etc., upon their termination. In other words, the employee accepts severance pay as the final settlement of their employment claims. However, signing the release may not always be in the employee’s best interests, especially if they are pressured to sign it immediately without consulting a lawyer first. They may be giving up their entitlements after termination. Once the release is signed, it is difficult to find it invalid. However, if the employee was considered not to have the required capacity to sign a contract, the release agreement may be invalid. 

This post will discuss a release agreement in the context of an employee termination. We will also discuss capacity and how a lack of capacity may invalidate a release agreement after an employee is terminated. We will also examine the evidence required to show that the employee could not sign the release agreement, as discussed in Manuel v. Lafarge et al., 2024 ONSC 3790. This post will provide important takeaways for employees seeking to understand their rights regarding release agreements upon termination. Employers can also benefit from understanding when an employee’s lack of capacity may invalidate a release agreement. 

What is a release after an employee is terminated?

When an employee is being terminated, they may be asked to sign a release agreement. The release typically includes terms involving what kind of severance will be provided to the employee, if any. In return, the release agreement will typically also contain terms that the employee will “release” their wrongful dismissal claims and similar claims against the employer. The release agreement guarantees the employer that the employee will not pursue claims against them after termination. The release agreement is typically seen as a final settlement between parties to an employment relationship. 

Power dynamics in the employment relationship typically make an employee feel pressured to sign the release right away. The employer may push the employee to sign a release promptly. It is important to note that employees are not required to sign a release agreement. Sometimes, the severance offered in the release may not cover the employee’s full entitlement upon termination. Therefore, an employee must consult a lawyer before signing a release agreement. 

Release agreements can be invalidated, even if the parties have signed them. They can typically be invalidated on the same grounds as other contracts. One of these grounds is a need for more capacity to understand the contract fully.

What is a lack of capacity?

If a party cannot sign a contract, it can be invalidated after execution. A lack of capacity means the employee needed help understanding the contract and its legal consequences. This can arise if the employee is suffering from mental illness or conditions that would not allow them to fully understand what they were signing and how it would affect their legal position. 

As a result, the agreement would be invalidated even though the employee signed it. The contract terms would not apply, including typically the employee’s agreement to give up wrongful dismissal and other similar claims against their employer. In other words, the employee may be free to pursue these claims, and the employer may not have to pay the severance or other benefits specified in the contract.

What evidence is required to find that an employee lacked capacity to sign a release?

There must be evidence that the employee did not have the mental capacity to sign the release to invalidate a contract-based on a lack of capacity. This goes beyond the evidence that an employee did not consult a lawyer, which is insufficient to invalidate a release.

If an employee is claiming that they could not sign a release agreement, they will typically have to call on the expert evidence of their doctor who diagnosed them with a mental condition that would render them incapable of signing a release. There are also rules that an employee would need to follow if they are seeking to present expert evidence, including providing a copy of the report at least 90 days before their scheduled pre-trial conference. 

Any evidence from an expert, like a doctor, must come directly from the doctor in their affidavit or report. Including the doctor’s notes or letters as part of another witness’s evidence is insufficient, as was determined in the Manuel case discussed below.

Court finds insufficient evidence of employee’s lack of capacity to invalidate release 

In the Manuel case, the employee was terminated due to a corporate restructuring. He claimed that while he was working with his employer, he suffered from sexual harassment. As a result, he experienced several medical issues, took time off work, and received short-term disability benefits. 

When he was terminated, the employee signed a release stating that he would not pursue any claims against his former employer, including sexual harassment. 

At court, the employee claimed that he experienced PTSD from the harassment he experienced in the workplace. As a result, he claimed that he lacked the mental capacity to sign the release agreement, which was therefore invalid. He alleged that he could pursue his claim of sexual harassment against his former employer. 

However, the court decided that there was insufficient evidence to conclude that the employee was suffering from PTSD. The employee’s doctors did not swear affidavits testifying on the employee’s condition. Also, none of the hospital records or doctor’s notes specified that the employee was suffering from PTSD, even though he had experienced panic attacks. Overall, there was not enough evidence to conclude the employee was suffering from a condition that would indicate that he could not sign the release agreement. Therefore, The release agreement was upheld, and the employee could not pursue his claim of sexual harassment against his former employer, as he gave up that right in the release.

Contact Haynes Law Firm in Toronto for Advice on Termination and Release Agreements

Employees may be asked to sign a release on future claims against their employer before receiving their termination package. Our experienced employment law legal team at Haynes Law Firm in Toronto can assist you with issues that arise from termination. Our goal for employees is to ensure that they understand their rights and receive maximum compensation in their termination package. Haynes Law Firm also assists employers in avoiding liabilities that may arise from terminations that are not permitted by the legislation. We are dedicated to finding the best resolution for you.

To book a consultation, please contact us online or by phone at 416-593-2731.