A Canadian Cautionary Tale on Settlements for Federally Regulated Employers

A Federal Court of Appeal decision, Bank of Montreal v. Li, is a cautionary tale for federally regulated employers about the limits of settlement agreements in resolving unjust dismissal complaints.

Background

Yanping Li was discharged after working for the Bank of Montreal (BMO) for almost six years. When her employment was terminated, Li signed a settlement agreement, which provided that she would accept a lump-sum payment in exchange for releasing BMO from any and all claims arising out of the termination of her employment.

However, shortly thereafter, Li filed an unjust dismissal complaint under Section 240 of the Canada Labour Code (CLC). Under Section 240, if the appointed adjudicator finds that the dismissal was unjust, he or she has broad remedial powers, which include awarding compensation and ordering reinstatement.

When Li’s complaint proceeded to adjudication, BMO argued that the arbitrator had lacked jurisdiction, given the terms of the settlement agreement. However, the arbitrator held that she had jurisdiction, based on the Federal Court’s 1997 decision in National Bank of Canada v. Canada (Minister of Labour). In National Bank, the Federal Court held that Section 168(1) of the CLC “prohibits employees from contracting out of their statutory right to bring unjust dismissal complaints” under Section 240. This meant that even an employee who signed a full and final release could bring an unjust dismissal complaint within 90 days of his or her dismissal.

In Bank of Montreal, the Federal Court of Appeal upheld National Bank and rejected the arguments advanced by BMO. BMO argued that permitting employees to bring Section 240 unjust dismissal complaints after entering into settlements created a “chilling effect” on employers and employees who would otherwise have settled termination disputes. The Federal Court of Appeal found that, despite this concern, it was bound to apply the legislative scheme adopted by Parliament, which does not permit employees to waive or release their rights under the CLC. However, the Federal Court of Appeal acknowledged that when an arbitrator finds that an employee has been dismissed unjustly, he or she must take the settlement agreement into consideration when determining a remedy.

Implications for Employers

Federally regulated employers may want to keep in mind that a dismissed employee who signs a settlement or release agreement may still file an unjust dismissal complaint. The Federal Court of Appeal’s decision holds that terms of the settlement or release agreement are not determinative of the validity of a dismissal or a bar to an unjust dismissal complaint. Rather, such agreements may be considered when determining a remedy, if the arbitrator has found that the employee was unjustly dismissed.

Michael C. Comartin is a partner in the Toronto office of Ogletree Deakins.

Michael F. Lee is a 2020 graduate of the University of Western Ontario Faculty of Law and is currently an articling student awaiting admission to the Law Society of Ontario.