The Federal Court of Canada recently confirmed in Bank of Montreal v. Li, 2018 FC 1298 CanLII (Bank of Montreal), that an employee’s signed release and settlement agreement will not preclude a complaint for unjust dismissal under Section 240 of the Canada Labour Code (Code), but may affect the compensation awarded to the employee if the adjudicator determines that the employee was unjustly dismissed. Bank of Montreal has been appealed to the Federal Court of Appeal where it will be heard on December 2, 2019.  We will follow these developments as they unfold and report on the outcome. 

Background

In Bank of Montreal, the employer bank terminated an employee without cause. The employee then signed a release and in exchange received a severance package. Despite this accepted package, the employee then filed a complaint for unjust dismissal. The employer requested that an adjudicator dismiss the complaint.  Specifically, the employer’s contention was that the employee had agreed to a release that contemplated such a termination and under which the employee would receive $27,154 in lump-sum payments in exchange for a release from any claims, damages, or proceedings.

The clause in question was set out as follows:

In exchange for the consideration set out in paragraphs 2-3, the Employee hereby releases and forever discharges BMO, its subsidiaries, affiliates, and successors and each of their respective officers, directors, employees, and agents from any and all actions, causes of action, claims, demands and proceedings for whatever kind of damages, indemnity, costs, compensation, and any other remedy which Employee or Employee's heirs, administrators or assigns had, may now have, or may have in the future arising out of Employee's employment or the termination of employment.

Section 240(1) of the Code allows federal employees who have completed 12 consecutive months of employment and who are not subject to a collective agreement to make a written complaint regarding a perceived unjust dismissal within 90 days of the date of dismissal.

Section 168(1) states that all provisions under Part III of the Code (Standard Hours, Wages, Vacations and Holidays), which contains the unjust dismissal provisions, apply notwithstanding any law, custom, contract or arrangement, unless the law, custom, contract or arrangement grants rights or benefits to the employee that are more favourable than those granted under Part III of the Code.  

Decision of the Adjudicator

The adjudicator in Bank of Montreal determined that he was bound by the decision of the Federal Court in National Bank of Canada v. Canada (Minister of Labour), [1997] 3 FCR 727 (FC), aff’d, 1998 CanLII 8077 (FCA) (National Bank).  He agreed with the finding in National Bank that due to section 168 of the Code, it is possible for employees to utilize the unjust dismissal complaint process even when they have signed releases or accepted severance payments.

The adjudicator in Bank of Montreal also supported the position taken by the Federal Court in National Bank regarding the impact of an existing settlement agreement on the remedy awarded by an adjudicator that concludes that that an employee was unjustly dismissed.  Specifically, the adjudicator agreed that the existence of such an agreement is an important factor for consideration.  For example, if the adjudicator were to conclude that an employee was unjustly dismissed and was entitled to an amount greater than that provided under the settlement agreement, the adjudicator could order the employer to pay that greater amount.  However, if the adjudicator were to conclude that that the amount the employee received under the settlement agreement equaled or exceeded the amount the adjudicator would have ordered in response to an unjust dismissal complaint, no award would be made because of section 168; the amount considered appropriate pursuant to the unjust dismissal provisions of the Code would not be more favourable to the employee than the amount under the agreement, thus the agreement would govern. 

Decision of the Federal Court

The Federal Court heard the employer bank’s application for judicial review of the adjudicator’s decision to assume jurisdiction over the employee’s complaint for unjust dismissal under the Code.  It ruled that the employee could still seek relief for unjust dismissal despite the existence of a settlement and release.  The Court dismissed the employer’s application, affirming its decision in National Bank, and stating, “Decisions of arbitrators that have neglected or refused to follow National Bank cannot be considered good law.”

In the course of its judgment, the Court rejected the employer’s argument that allowing employees to pursue unjust dismissal complaints following a severance payment and release would create “perverse incentives.”  By this, the employer suggested that “[f]ederally-regulated employers [would] be motivated to provide only the minimum amount of severance mandated by the Code, at least for the 90 day period within which the employee may pursue a complaint of unjust dismissal.” The Court considered this argument to be grounded only in policy and not in law and dismissed it, stating that this did not provide a basis to depart from National Bank.

Bottom Line for Employers

As noted above,  Bank of Montreal has been appealed to the Federal Court of Appeal where it will be heard on December 2, 2019.  We will follow these developments as they unfold and report on the outcome. 

In the meantime, in the wake of the decision of the Federal Court of Canada in Bank of Montreal, federally regulated employers are advised not to disregard the possibility of claims for unjust dismissal during the permissible 90-day period, even once their employees have signed releases and settlement agreements.  A settlement agreement and release will not prevent an employee from filing such a claim.

The bank’s policy argument, which the Federal Court dismissed in Bank of Montreal, suggests a strategy that may allow federally regulated employers to avoid unjust dismissal claims.  Employers may provide employees only the minimum amount of severance mandated by the Code for the 90-day limitation period following a dismissal, and offer to provide additional compensation if no unjust dismissal complaint is made within the 90-day period.  In this scenario, the employer may disclose to the employee what it proposes to offer in the severance package, but explain that it will not enter into the agreement until after the 90-day period has ended.

Finally, employers should keep in mind that in accordance with National Bank and Bank of Montreal, should an adjudicator require an employer to compensate an employee for unjust dismissal pursuant to the Code, and the adjudicator would have awarded the employee an amount greater than the amount the employee already received under a settlement agreement, the adjudicator can order the employer to pay the employee the difference between the adjudicator’s award and the amount already received.  However, in accordance with section 168, should the adjudicator conclude that the amount received by an employee under a settlement agreement was equal to or exceeded the amount the adjudicator would have awarded, the agreement would govern.