Settling an employment dispute often brings feelings of relief and closure.

A key legal document in any legal settlement is the release. In a release, one party agrees to give up (or “release”) any current or future claims against another party arising from a dispute, typically in exchange for a settlement payment.

Yet, employment releases often contains clauses that are one-sided in favour of the employer. These clauses present risk to the individual. People might assume that once they have signed the paperwork and received the payment, the matter is over. They may not be aware that problematic clauses could create potentially serious financial or legal exposure long after the fact.

Employers of course prefer to settle a wrongful dismissal lawsuit for less than the employee’s full wrongful dismissal legal entitlement.

Any employer who wishes to add even a single problematic term into a release should expect to negotiate the introduction of that clause, and should expect to pay extra for the added benefit it receives from such a clause.

Below are three of the most common problematic clauses that an employee receiving an employment settlement package should watch for.

1. Repayment or Liquidated Damages Clauses

Some releases contain language stating that the individual must repay the entire settlement amount if certain circumstances occur, such as if certain terms are violated. For example, if the individual talks to someone about her or his experiences with the employer, or disparages the employer or countless others associated with the employer, the clause states that the employee must repay the full settlement amount to the employer.

In practice, these provisions are often extreme. Even a minor or unintentional breach, such as a social media “like,” an offhand remark, or a family member’s comment, could trigger the repayment clause, even if the breach caused the employer little or no actual harm. 

The result of having to repay the settlement funds is that the individual has given up the ability to pursue her or his legal entitlements, and has now also lost the payment that was received in order to give up those very rights in the first place.

Even if those rights are able to be resurrected, how could an individual pursue her or his legal rights, once the limitation period has lapsed? The end result in these circumstances is that the employer receives disproportionate benefits from the settlement and the employee could be left with nothing.

Repayment clauses are one of the most offensive types of clauses in this context. It can expose the individual to indefinite financial risk and leave him or her facing unexpected future liabilities.

2. Broad Indemnity Provisions

Another common pitfall is an indemnity clause. These provisions often attempt to require individuals to reimburse the employer for certain costs or liabilities.  For example, if the employer does not withhold enough tax or remit proper amounts to authorities as part of the settlement, these clauses state that the employer could recover these and related amounts from the individual.

These clauses can be so broad that they effectively shift the employer’s risk back onto the individual. In some cases, an individual could be held responsible for the employer’s own tax and other obligations relating to the settlement.

An indemnity clause is not routine in this context. It can expose the individual to indefinite financial risk and leave him or her facing unexpected future liabilities.

3. Confidentiality and Non-Disclosure Clauses

Employers commonly expect that employees will not disclose, or will keep confidential, the amount of the settlement payment. Confidentiality clauses require the individual to keep the settlement terms private, sometimes subject to narrow exceptions including spouses or specific professionals such as legal and financial advisors.  

Many consider it understandable that an employer would want to preclude former employees revealing the amount of the payment received. However, consider that employers have data on what they have paid former employees. Individuals, on the other hand, rarely have such information.  Confidentiality clauses assure they do not obtain it.

Some confidentiality or non-disclosure clauses go far beyond protecting only the settlement amount. They may state that an individual may not discuss events relating to the termination at all, even with family, close friends, counsellors or future employers.

Such restrictions can be very harmful, isolating individuals and preventing them from seeking emotional support or professional guidance after a major life event. A broad non-disclosure clause may also pose difficulties for an individual who merely wishes to explain to a potential employer why he or she left the previous position.

In some cases, the language is so expansive that it could restrict lawful communications with regulators or government agencies.

Sometimes, confidentiality clauses also state that if others, such as professional advisors or spouses, breach confidentiality then the individual who signed the release may be held liable for that breach.

These clauses may also trigger repayment or liquidated damages clauses. For example, the release may state that the individual must repay the entire settlement amount if the confidentiality provision is breached.  Even if the breach was minor, or by a third party, or caused the employer no harm.

Key Takeaways

Settlement agreements may impact an individual long after the employment relationship ends and long after the person thought the matter was concluded.   

Problematic terms can be very harmful to the individual. Among other things, they may create undue anxiety about inadvertently breaching the settlement agreement and the potential legal and financial consequences that could follow.

They may expose individuals to disproportionate penalties, further injustice, and further legal proceedings.

Provisions including those requiring repayment of the settlement, imposing broad indemnities, or restricting what an individual can say require careful review and legal advice.

Employers who insist on including such clauses risk undermining the entire settlement.

A lawyer who practices employment law can help identify which clauses are standard, which are risky, and assist with how to approach these concerns.

This article is for general informational purposes only, does not constitute legal advice, and is not directed at any particular client or case. The views expressed herein are based on current law, specific facts and available information and may not be applicable to your specific situation or to any matter on which we may act. You should not rely on this material in place of consulting a qualified lawyer about your own situation.

About the Author
Susan Kootnekoff is a lawyer and founder of Inspire Law, an employment and human rights law practice based in Kelowna, British Columbia. She represents clients in employment related matters including wrongful dismissal claims, employment contract negotiations, severance negotiations, human rights complaints and workplace rights.