Negotiating and Documenting the Deal
Reaching agreement on the settlement amount is only part of the job.
Employment settlements frequently require careful consideration of
tax treatment, Employment Insurance repayment, releases,
confidentiality, payment terms and the precise obligations
undertaken by each party.
The materials below address the negotiation, structure and documentation
of employment settlements, together with the consequences that may
follow when settlement terms are incomplete, disputed or breached.
Particular care is required when defining the scope of a release,
including its application to shares, stock options, restricted share
units and rights under related agreements.
Settlement Checklist
Build Your Settlement Checklist
Select the issues relevant to your mediation, including releases, tax treatment, Employment Insurance repayment, confidentiality and payment terms. The tool gives you points to resolve, cautions and drafting questions for each issue. You can add notes and copy or print your checklist.
Negotiating the Settlement
Negotiating the Deal
An introduction to the financial considerations that commonly arise
in employment settlements, including the allocation of damages,
tax treatment, Employment Insurance repayment and the possibility
that taxing authorities may obtain access to settlement information.
Tax Treatment & CRA
Tax Issues in Employment Law
A review of the taxation of employment-related settlements,
including CRA’s treatment of retiring allowances and the
distinction between taxable employment payments and damages
that may receive different tax treatment. These issues can
materially affect the structure and value of a settlement.
Is CRA at the Table?
Can CRA obtain documents and information arising from apparently
confidential settlement negotiations? This article considers
a Federal Court decision allowing CRA access to settlement-related
material and the implications for counsel when allocating damages
in a settlement.
Bill C-47
A discussion of amendments to the Income Tax Act concerning the
mandatory disclosure of certain transactions and their possible
relevance to employment settlements involving tax allocations,
indemnities and payments characterized as non-taxable damages.
Employment Insurance & Settlement Funds
EI Clawback in Canada: When Benefits Must Be Repaid
A review of the Employment Insurance repayment rules that may apply
when settlement funds are received after termination. The article
also considers circumstances in which particular settlement
payments may not be treated as earnings for EI purposes, including
payments relating to an existing right of reinstatement.
Releases & Equity Claims
A General Release Undermined by Its Specific Terms?
A Questionable Decision in Kalal
A critical examination of Kalal v. Softchoice Corporation,
in which broadly worded employment releases were held not to cover
the former employees’ shareholder claims. The article questions
why separate statutory provisions introduced ambiguity into
otherwise sufficient general wording, and distinguishes preserving
an outstanding share payment obligation from preserving claims
challenging valuation or repurchase.
The drafting discussion addresses shareholder agreements,
employee investment plans, stock options, restricted share units
and other incentive arrangements, including the need to identify
released claims and any payment or performance obligations that
survive settlement.
Drafting & Enforcing the Settlement
When is a Deal not a Deal?
A settlement may be reached even though details such as a release,
reference letter, confidentiality term, tax allocation or EI
treatment remain to be documented. This article reviews the
principles used to determine whether an enforceable agreement
has been made and whether later disputed terms are essential
or merely incidental.
Settlement Terms Call for Default “Penalty”
A review of an Ontario Court of Appeal decision enforcing a
settlement provision that substantially increased the amount
payable following default. The case illustrates the importance
courts place on enforcing negotiated settlement terms.
Breach of Minutes of Settlement
A consideration of the consequences that may follow when a party
fails to comply with agreed settlement terms, including a Human
Rights Tribunal proceeding seeking recovery of settlement funds
following an alleged breach.