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Consider the following scenario. A business gives advance written notice of termination to one of its employees. At the same time, the business delivers to the employee a letter offering a termination package (i.e., a settlement agreement) that exceeds the employee’s minimum entitlements under the Employment Standards Act, 2000 if the employee signs a release settling all current or future claims against the business relating to his/her employment. The employee’s lawyer responds to the business, stating that the employee will accept the termination package if the business also agrees to pay the employee’s legal fees. The employer sends the employee a revised termination package which reflects employee counsel’s request. Have the parties reached a settlement agreement even if the employee does not sign the documents?

The Divisional Court considered this scenario in Shete, Lada, and Chung v. Bombardier Inc., 2019 ONSC 4083. Bombardier had delivered letters offering termination packages to three employees, all represented by the same lawyer (the “September 2015 Letters”). The employees’ lawyer told Bombardier that his “3 clients are prepared to accept your offers … provided that Bombardier make an additional payment of $2,500 each towards their legal costs” (the “Employee Response”). Bombardier revised the termination package documents to include an additional payment of $2,500 towards each employee’s legal costs as requested by the lawyer and delivered the revised documents to the employees’ lawyer (the “April 2016 Letters”). The employees never signed or returned the termination package documentation to Bombardier. Two months later, each of the three employees filed a civil claim against Bombardier seeking damages for wrongful dismissal.  

Bombardier brought motions for summary judgment seeking the dismissal of the claims on the basis that the actions were barred by the release in the termination package. Bombardier argued that the Employee Response was a settlement offer, which Bombardier had accepted in the April 2016 Letters. As such, Bombardier argued that the parties had agreed to the material terms of a settlement agreement, including a binding release, even though the employees had not signed the termination package documents.

The motions judge dismissed Bombardier’s motions for summary judgment, holding that the April 2016 Letters were in fact new offers by Bombardier, not an acceptance of offers made by the employees. As such, there was no settlement agreement, since the employees had not accepted Bombardier’s revised offers.

Bombardier appealed to the Divisional Court. The Divisional Court overturned the decision of the motions judge, holding that:

[14]           In our view, it is clear from the sequence of events that the parties had reached a settlement. [Bombardier] offered a termination package on December 18, 2015. On April 4, 2016, the Employees’ counsel expressly stated that his clients would accept the terms of the December 18th offer, provided Bombardier agreed to pay an additional $2500 for legal fees…

[15]           [Bombardier] responded on April 11, 2016 and agreed to the $2500 in legal fees. That was the final term that the Employees had proposed and it was one that Bombardier accepted. Nothing in [Bombardier’s] response changed any of the other terms that the Employees had previously agreed to accept or proposed any new terms for the Employees to consider… We disagree with the motions judge’s characterization of [the April 2016 Letters] as a new offer. In our view, it was properly characterized as Bombardier’s acceptance of the offer to which the Employees had previously agreed…

[16]           By April 11, 2016, the parties had agreed on all of the essential terms of the settlement. They intended to resolve matters between them. The fact that the Employees may have subsequently re-considered their position does not undermine the existence of an enforceable settlement. 

The Divisional Court further held that there was no genuine issue requiring a trial and dismissed the actions against Bombardier.

This decision is a reminder that a settlement agreement can be binding even if it is not formally executed by one or more parties. In short, what matters is whether the parties had reached an agreement on all of the essential terms of a settlement – not whether both parties signed on the dotted line. For this reason, communication during settlement negotiations should always be exercised with care.

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