In Knauth v The Independent Electricity System Operator et al. [Knauth], the Ontario Superior Court of Justice (“ONSC”) upheld an arbitration decision requiring a former employee to repay $70,000 after breaching the terms of a termination agreement.

Background

The employee was a unionized worker who, following workplace conflict and allegations that she made regarding workplace harassment and discrimination, went on sick leave. The employee also filed a grievance as well as a Human Rights Tribunal of Ontario (“HRTO”) application. Through the employee’s union, she later initiated discussions with her employer regarding an exit package.

Although the employer remained open to her return, the parties ultimately entered into a termination agreement (the “Termination Agreement”) that included the following terms:

• The employee agreed to have irrevocably resigned from her employment;
• She received $50,000 as employment related compensation; and
• She received $20,000 as damages relating to her harassment and discrimination allegations.

In exchange, the employee agreed to withdraw her HRTO application. The Termination Agreement also contained a release prohibiting her from commencing any future claims relating to her employment or resignation. It further included a clause requiring the employee to repay the $70,000 in full if she breached that condition.

Over a decade later, the employee filed an unfair labour practice complaint with the Ontario Labour Relations Board (“OLRB”), alleging that the Termination Agreement was unlawful, as well as a separate HRTO application repeating the allegations from the unfair labour practice complaint. As part of her claim, she stated that she was coerced into signing the Termination Agreement, and asserted she was entitled to additional severance pay on top of the $70,000, which she referred to as “hush money. The employer responded by filing a grievance alleging that these actions breached the Termination Agreement and sought repayment of the $70,000.

The Arbitration Decision

The arbitrator concluded that the employee had voluntarily resigned, and as a result, she was not constructively dismissed and had no entitlement to severance pay. In doing so, the arbitrator also concluded that the payments the employee received were not “hush money” and the Termination Agreement was not a non-disclosure agreement as the employee claimed.

As a result, the arbitrator determined that the employee had breached the Termination Agreement by commencing the unfair labour practice complaint and ordered the employee to repay the $70,000 settlement back to the employer. The employee accordingly sought judicial review of the decision.

The Ontario Superior Court of Justice Decision

The ONSC upheld the arbitrator’s decision in full. The ONSC emphasized that in a unionized workplace, the union is the exclusive bargaining agent and controls the grievance and arbitration process. Individual employees will generally lack standing to challenge arbitration outcomes alone where the union has decided not to, absent exceptional circumstances that were not evident here. While the ONSC proceeded to consider the merits, it confirmed that the application could have been dismissed on this basis alone.

Th ONSC, in rendering its decision, made the following findings:

• The employee resigned voluntarily, rather than being constructively dismissed and was therefore not entitled to severance pay;
• A medical letter that the employee provided as evidence that she suffered from post-traumatic stress disorder (“PTSD”) and depression did not support a finding that she lacked the mental capacity to understand the terms of the Termination Agreement or manager her own affairs. Notably, the medical letter post‑dated the Termination Agreement by two years;
• There was no evidence that the employee was improperly pressured into signing the Termination Agreement; and
• The ONSC confirmed that the Termination Agreement contained a mutual confidentiality clause, and that such clauses are common in settlements of that nature. There was no evidence to suggest the payments were illegal or characterized as “hush money”.

The ONSC ultimately concluded that the employee, her union and the employer had all voluntarily agreed and signed the Termination Agreement that included the repayment clause and upheld the arbitrator’s conclusion that the employee’s conduct of commencing litigation triggered the repayment provision. The employee’s application was dismissed, and she was forced to repay the $70,000 on top of $2,500 in costs to the union and the employer.

Key Takeaways

1. Ensure Appropriate Time and Space for Reviewing Settlements: Employers should ensure that employees have sufficient time to review settlement terms, understand their implications, and have the opportunity to seek independent legal advice. Taking and documenting these steps can significantly reduce the risk of subsequent challenges from the employee that they did not have the capacity or were coerced into signing an agreement.
2. The Union Generally Controls When Grievances Are Brought: In unionized environments, the union generally controls the grievance process. Individual employees will generally not have standing to individually bring forth a grievance, except in very specific circumstances.
3. Settlement Agreements are Enforced by Courts: Settlement agreements are intended to bring finality to workplace disputes, and Knauth confirms that courts will give effect to the provisions of a settlement agreement, where the terms of the settlement agreement and release are clear and voluntarily entered.

This blog is provided as an information service and summary of workplace legal issues.

This information is not intended as legal advice.