The recent Ontario Court of Appeal decision in Kearns v. Canadian Tire Corporation, Limited., 2020 ONCA 709 is a stark reminder for employers to ensure that company representatives have complete knowledge on all of the relevant facts before entering into a settlement agreement with dismissed employees. Settlement agreements are binding contracts like any other, and a party’s unilateral mistake with respect to any terms of the agreement will not be rectified by the court unless the party can establish fraud or the equivalent of fraud.
Canadian Tire terminated the employment of Jamie Kearns in July 2018 without cause. He was told he would be paid his statutory entitlements and offered an additional 30 weeks of pay in exchange for a release.
Mr. Kearns did not sign the release and instead sued for wrongful dismissal damages. During the litigation process, the parties successfully mediated the matter and executed Minutes of Settlement (the “Minutes”). As part of the settlement, Canadian Tire agreed to pay Mr. Kearns a lump sum payment of $150,000 “in addition to amounts already paid”.
Significantly, prior to mediation, payroll personnel mistakenly paid out the additional 30 weeks of pay to Mr. Kearns – a total gross payment of $115,465.20 – even though he had not signed the release. Representatives of Canadian Tire who attended the mediation were not aware that this payment had been made. Canadian Tire discovered this mistake prior to paying out the settlement funds. As such, Canadian Tire put Mr. Kearns on notice that he would be paid the settlement amounts less the 30 weeks ($115,465.20), leaving a balance of $45,174.36. Canadian Tire then paid out the settlement funds on this basis.
Mr. Kearns brought a motion to enforce the Minutes and require Canadian Tire to pay out the full settlement amount without deducting the $115,465.20 overpayment. The motions judge agreed that the deduction was improper. Canadian Tire appealed to the Ontario Court of Appeal. The Ontario Court of Appeal upheld the findings of the motion judge.
The Motions Judge and Court of Appeal Findings
The motions judge first considered the principles for establishing the existence of a binding contract, which are: (1) the parties had a mutual intention to create a legally binding contract; and (2) the parties reached an agreement on all of the essential terms. In applying these principles to the Minutes, the motion judge found that the Minutes included all the essential terms to form a contract, and further, that there was no ambiguity in the terms. The term “in addition to amounts already paid” was clear and unambiguous. The problem here was not one of ambiguity – the problem was the person with authority to bind Canadian Tire to the Minutes did not know the November 23, 2018 payment had been made.
The motions judge also considered Canadian Tire’s argument that the Minutes should be rectified or rescinded based on unilateral mistake. To establish unilateral mistake, Canadian Tire was required to prove that:
- That a mistake occurred; and
- That there was fraud or the equivalent of fraud on the employee’s part in that he knew or must be taken to have known, when the agreement was executed, that Canadian Tire misunderstood its significance and that the employee did nothing to enlighten the company.
Mr. Kearns’ evidence was that he did not know the November 23, 2018 payment had been made in error. Accepting this evidence, the motion judge found that there was no evidentiary basis on upon which a reasonable inference could be drawn that Mr. Kearns knew Canadian Tire was mistaken when it entered into the Minutes. The motions just also found that Canadian Tire had not demonstrated that the amount of the settlement was so large that it was far more than what Mr. Kearns would have been entitled or expected to receive.
The Court of Appeal upheld all the above, and also rejected Canadian Tire’s argument that the motion judge erred in failing to consider the subjective understanding of the Canadian Tire representatives at the mediation. The Court confirmed the factual matrix that must be considered in interpreting a contract consists only of objective evidence of the background facts at the time of execution of the contract, not the subjective understanding or state of mind of the parties.
This decision raises several important practical considerations for parties entering into a settlement agreement:
- Ensure that the individual with authority to bind the party in a settlement agreement has access to and understands the most relevant and up to date information respecting the topic of the mediation.
- Clearly reference all past termination payments and/or settlement payments in the settlement agreement.
- Ensure that there is, in fact, a meeting of the minds at the time of the execution of the settlement agreement.
- Keep in mind that absent fraud or the equivalent of fraud, a plea of unilateral mistake will not save a party from being bound to the terms of a settlement.
This publication is intended only to provide general information. It should not be relied on as legal advice. Employers and employees facing specific circumstances should consult their legal counsel for specific advice. For specific legal advice, please contact: Leslie Dizgun, Allyson Fischer, Mitchell Smith, Justin Anisman, William McLennan, or Alyssa Jagt.