Settling the terms on which departing employees leave an organization, whether as a result of termination with or without cause, resignation or retirement, is a regular part of every human resources manager’s duties.
In the case of resignation or retirement, where the action is initiated by the employee, the employer’s obligations are of course more limited, although even in these instances, certain aspects or obligations related to a departing employee’s employment may need to be resolved and documented. Settlement of vacation pay and banked leave balances, or reimbursement of expenses, are some examples that come to mind.
Consequently, drawing up an agreement that defines the terms of severance and the obligations of the parties during the post-termination phase is often useful and recommended. The importance of such an agreement is even more apparent in cases where the employer is the one wishing to terminate the employment relationship, since in these cases, the employee has certain additional rights.
The issue in a recent Court of Québec case1 was the legality of a settlement agreement arising from the dismissal of an employee who had only a few months of service. The Court stressed from the outset that the fact that the claim was for just a little more than $600 should not detract from the importance of the question to be resolved.
In this case, the employer, which had paid the employee his vacation pay only, amounting to around $450, argued that it had obtained a release, discharge and transaction, in which the employee acknowledged that the amounts paid to him represented all the amounts owed to him in relation to his employment or the termination of that employment, for salary, overtime, vacation, holiday pay as well as “prior notice” of termination.
The Commission des normes du travail (CNT), the plaintiff in the case, countered that “[translation] waiver of notice of termination of employment could not be the subject of a settlement” and that the employee was entitled to the compensatory indemnity provided for under the Act respecting labour standards (LSA), which in this case amounted to some $600 more. The CNT relied on a 1993 Court of Québec ruling,2 where the Court had confirmed the latter position on the basis that such a settlement would be contrary to “public order” but had not indicated whether such public order should be characterized as “protective” or “directive”.
In the case under discussion, the Court considered such a characterization to be essential for purposes of determining whether or not a person could enter into a settlement after acquiring a right to the indemnity in lieu of notice. In other words, in practical terms, could an employer that had not paid the indemnity invoke such a settlement against the employee and the CNT?
The Court proceeded to analyse this central question because, if the relevant LSA provisions were “directive” public order provisions, the settlement was absolutely null and could not be confirmed,3 whereas if they were merely “protective” public order provisions, the employer could invoke the signed settlement against the employee and the CNT.
In a carefully reasoned judgment, the Court found that the provisions concerned were aimed at protecting the general public interest, rather than an individual’s interests which the individual was free to waive. As such, the Court concluded that the provisions were directive in nature and could not be overridden.
It should be noted that the Court distanced itself from the parallel that many have drawn between the public nature of the protection afforded by the provisions of the Civil Code of Québec (CCQ) relating to compensation in lieu of notice of termination and the similar provisions found in the LSA. In particular, it cited section 93 LSA, which states that any provision of an agreement that contravenes a labour standard is absolutely null, whereas the CCQ, the Court pointed out, does not contain an equivalent rule that would void an agreement entered into between an employee and an employer in regard to the compensation in lieu of notice of termination contemplated in its articles 2091 and 2092.
The takeaway from this decision, irrespective of the amounts involved, is that a settlement, be it ever so generous, cannot be less advantageous to the employee than what the LSA provides for.
1 Commission des normes du travail c 7050020 Canada inc., 2013 QCCQ 10004.
2 Commission des normes du travail c Lyse Normandin, C.Q. Montréal 500-02-011671-919, June 14, 1993.
3 Civil Code of Québec, 1991, c 64, articles 1416 to 1421.
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