Employer Relies on Release to Stop Employee Claim for Stock Units

In Preston v. Cervus Equipment Corporation, 2024 ONCA 804, the Ontario Court of Appeal examined the scope of a release and indemnity, and minutes of settlement (the “Settlement Documents”) executed by Mr. Preston after he was terminated from his employment.

Facts

Mr. Preston was an employee with Cervus from 2014 to 2018. He received vested stock units at the start of his employment and at other times during his employment. The stock option plan (the “Plan”) stated that, upon termination, vested stock units would be automatically redeemed while unvested stock units would be forfeited.

On January 9, 2018, Mr. Preston was terminated without cause and received 15 weeks’ payment in lieu of notice. At the time, he had vested stock units worth approximately $75,000. In June 2018, Mr. Preston commenced a wrongful dismissal action against Cervus, seeking additional payment in lieu of notice. Mr. Preston did not seek payment for the vested stock units in the action. 

The wrongful dismissal action was settled in July 2018, with Mr. Preston and Cervus both signing the Settlement Documents. Through the settlement, Mr. Preston received approximately $100,000 from Cervus.   

The Settlement Documents included these key phrases:

I, the undersigned, MATTHEW PRESTON … hereby release and forever discharge CERVUS EQUIPMENT CORPORATION … of and from all manner of actions, causes of action, suits, debts, dues, accounts, bonds, covenants, contracts, claims and demands whatsoever which against the said Releasees I ever had, now have or can, shall or may hereafter have for or by reason of any cause, matter or thing whatsoever existing up to the present time, and more particularly, but without restricting the generality of the foregoing, all claims and demands arising in or out of or in any way connected with my employment by the Releasees, the cessation of such employment, and/or the obligations, statutory, contractual or otherwise, of the Releasees to me in respect thereof….

…

I further declare that I have no entitlement under or from, or any claim of any nature or kind against the Releasees in respect of, any bonus, share award, stock option, deferred share or similar incentive plan offered by or on behalf of the Releasees …. I further declare that I have no entitlement, or any claim of any nature or kind, to any ownership or equity interest in the Releasees whatsoever. [Emphasis added.]

After signing the Settlement Documents, Mr. Preston asked for payment for his vested stock units.  Cervus claimed that the value of the vested stock units was released as part of the settlement.  Mr. Preston commenced an action for the value of vested stock units.

The trial judge found the vested stock units were not released under the Settlement Documents because the wrongful dismissal action did not include a claim for stock units and the units were automatically redeemed on Mr. Preston’s termination. Cervus appealed the decision.

Decision

The Court of Appeal carefully considered the clear language of the Settlement Documents. The Court of Appeal determined that, based on the broad wording (and the reference to shares and options), the payment of the settlement funds was indeed intended to cover all of his potential claims including those under the Plan. 

The Court of Appeal found that Mr. Preston had, by signing the Settlement Documents, lost the right to assert a claim for damages for the value of the stock units. 

The Court of Appeal dismissed Mr. Preston’s action and awarded costs to Cervus.

Key Takeaways:

This decision is a helpful reminder for employers to think carefully about the scope and content of their settlement documents when negotiating resolutions with employees. A well written settlement document can protect employers from secondary or additional claims made by employees. 

The link to the full decision is available here.

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