tune up your termination letter and release

Tune Up Your Termination Letter and Release

By P.A. Neena Gupta

Overview

• Legal impact• Clarifies rights and obligations• Resolves issues arising from termination

• Human impact• Letter can soften or sharpen the blow of termination

Style Matters – the three “Cs”

• Compassionate

• Comprehensible

• Comprehensive

Do Some Homework

• Review any offer letters• Check any company policies regarding

termination• Review statutory obligations• Review any common law obligations regarding

“reasonable notice”• Consider what has been done in the past in

similar circumstances• Consult a lawyer, if necessary

First Critical Decision

• Are you alleging just cause for termination?• Is it borderline?• Just cause at common law?• Wilful misconduct under statute?• 95% or more of terminations are without just

cause

Just Cause Pointers

• Even if cause/misconduct, are you offering a package to get a Release?• “without waiving our rights to assert cause or

misconduct”• “gratuitously and without legal obligation”

• Exclude any standard language that suggests employee was a good performer

• Offer confirmation of employment, job title and job duties, but not positive reference letter

Second Critical Decision – Working Notice

Pros

Employee continues to provide value for money

Sometimes easier for employee to find work, because still “employed”

Rubin v. Home Depot

• Eric Rubin worked as a competitive price shopper for 19 years and 8 months at Home Depot

• Terminated due to restructuring at age 63 and was offered 28 weeks in exchange for Release

• Letter indicated that offer was in excess of Rubin’s rights under the statute

Rubin v. Home Depot

• Letter did not clarify what Rubin entitled to without Release

• Rubin signed on Release on the same day during meeting

• Rubin went to accountant to discuss tax treatment of settlement

• Accountant alerted Rubin to issue• Shortly thereafter, lawyer stated “Release not

valid.”

Rubin v. Home Depot

Was the Release signed by Rubin

valid and enforceable?

Rubin v. Home Depot

1. A grossly unfair and improvident transaction

2. Victim’s lack of independent legal advice or other suitable advice;

3. Overwhelming imbalance in bargaining power caused by victim’s ignorance of business, illiteracy, ignorance of the language of the bargain, blindness, deafness, illness, senility, or other disability; and

4. Other party knowingly taking advantage of this vulnerability.

Rubin v. Home Depot

• Court overturned Release• Employer:

• Did not verbally advise Rubin to obtain legal advice• Told Rubin his options were take package or divert

monies into RRSP

Lessons Learned

• Letter could have accurately divided up the offer under:• Without Release• Release

Sample language:

This letter is divided into 2 parts – Part 1 describes your entitlements without a release while Part 2 explains what the company is prepared to offer you in exchange for you executing a full and final release.

Part 1 – Entitlements Without Release

• Employee terminated without cause is entitled to:• Pay to date of termination• ESA notice and severance• In Ontario, benefits to end of statutory notice period

• Offer can NEVER be less than ESA amounts• Even if employee gets re-employed the next day


• Benefits• Life insurance• Short-term disability• Long-term disability• Pension• RRSP


• Compensation can be tricky• Base salary• Bonus• Commission

• Sometimes harder to determine compensation under ESA, 2000 than at common law

Disability and Illness Can Be Tricky

• If employee becomes sick during either ESA or common-law notice period, may have entitlements both under disability policy and arising from termination

• Need to explicitly deal with disability benefits

Part 2 – Severance in Exchange For Release

• Consider common-law obligations• Lump sum versus salary continuation• Benefits (be clear that disability benefit and out-

of-country benefits cannot be continued)• What happens if employee finds alternate

employment?• Do you want to make package contingent on employee

not being employed by competitor?• Do you want payments to cease, provide a lump sum

of some portion?

Additional Matters

• Conversion of benefits• Usually just life insurance• Occasionally health and dental

• If conversion privileges exist, must inform regarding deadlines and method of transfer

• Advise during termination interview

Group RRSP and Pension Benefits

• Clarify what will happen to pension benefits• Is the company contribution vested or not?• Advise regarding how to access

information/options re Pension• Advise regarding how to access

information/options re RRSP• Clarify that pension/RRSP not dependent on

Release

Return of Property

• Ensure that you require return of• Key/passcard/parking passes• Documentation• Blackberry/smart phone• Schedule• Car• Samples• Price List

Confidentiality

• Remind employee of duty of confidentiality• Advise what is confidential

• Price list• Marketing plans• Product development and design

• Advise if employee will be required to cooperate in patent process• IT lawyers may advise regarding certain consents to

be executed prior to termination

Remind of Post-termination Duties

• Non-solicitation• Of clients• Of employees

• Any amounts in excess of ESA amounts can be made contingent on abiding by non-solicitation or non-competition clause, unless already promised in contract

Important Details

• Advise when ROE will be issued (within week or after end of salary continuation period)

• Remind employee that tax forms will have to be sent and request address correction if employee moves

• Advise if letter of confirmation or reference will be provided

• To whom should reference inquiries or questions be directed?

Reputation Matters

• Unless reason is abundantly clear, important to consider how to announce termination internally and externally

• Offer to work with employee on wording of announcement

• Give employee a chance to say “good-bye”• One company gives budget to co-worker (not

manager) to take former employee and peers out for a “good-bye” lunch

Release

• Ensure it releases all related corporate parties • Ensure release in all jurisdictions where claim might be

brought (e.g. Ontario employee transferred to BC and California over length of career)

• Cover off explicitly matters which cannot be easily released (e.g. workers compensation and human rights) with acknowledgements

• Include acknowledgement re: adequate time to obtain legal advice

• Refuse to accept executed release on the day of termination

• Encourage employee to talk to lawyer, financial advisor and spouse before signing

Thank You

montréal · ottawa · toronto · hamilton · waterloo region · calgary · vancouver · beijing · moscow · london

P.A. Neena GuptaGowling Lafleur Henderson LLPBarristers & Solicitors50 Queen Street NorthSuite 1020Kitchener, ON, N2H 6M2Direct Tel: 519.575.6910Direct Fax: 519.571.5001Email: [email protected]

tune up your termination letter and release

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