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Rubin v. Home Depot: When Is a Release Signed by Employee Unenforceable?

I have a backlog of interesting cases in my inbox that deserve a note.   Rubin v. Home Depot, decided by the Ontario Superior Court this spring, is such a case.  It considers whether a release signed by a terminated employee should be enforced, or struck as ‘unconscionable’.  “Uncounscionability” is a contract law concept used by judges to strike down deals they consider to be grossly unfair.  I like this case, because I confess to having a real problem with employers who offer their terminated employees only the minimum ESA notice and severance amounts, or slightly above those amounts, when they know that the employment contract requires them to give the employee considerably more ‘reasonable notice’.

Key Facts

Home Depot Release Found 'Unscionable"

Rubin had just under 20 years service with Home Depot when he is suddenly fired without cause.  He was entitled to 27 3/4 weeks notice and severance under the ESA as a minimum, though his contract entitled him greater ‘reasonable notice’. The employer offerered him 28 weeks notice, informing Rubin that this amounted to greater than his legal entitlements.  If he signed the release claiming that he will not seek any further legal remedies against Home Depot, the employer offered to pay out that money immediately.   Rubin signs the release, but then speaks to a lawyer who advises Rubin that the employer basically just gave him the minimum statutory entitlements, and that his employment contract required much longer ‘reasonable notice’ of termination.  He sues for wrongful dismissal, and the employer points to the Release.  Rubin argues the Release was unconscionable and should be struck down as unlawful.

Decision

The Court summarizes the four parts of the test for an unconscionable contract, and finds that all four were satsified here. 

1.  The Contract is Grossly Unfair

Rubin was 63 years old when he was dismissed after 20 years service.  This clearly distrurbed the judge, who rules that offering him only 6 month’s notice falls well sh0rt of ‘community standards’:

It must have been obvious that, given his age and the narrowness of his experience, that he could have difficulty finding new employment.  The question is whether, in the circumstances, the notice provided is grossly inadequate; that is to say, in the circumstances, would this award be sufficiently divergent from community standards that it ought to be set aside? I find that it is. The idea that, in the modern day, a twenty-year employee, moving to the end of his expected working life, who is fired without cause, for reasons reflected in an internal re-organization of the company, would receive only six months’ notice, is far removed from what the community would accept.

Interesting.  If he were a younger employee, would 6 month’s notice for a 20 year employee be fair?

2.  The Employee Did Not Have Independent Legal Advice

Rubin was offered a week to seek legal advice in the termination letter, but he signed the Release on the spot.  The judge finds that this aspect of the test was satisfied because the employer’s presentation of the issues was one-sided and misleading.  For example, the employer led Rubin to believe that he would only receive the 28 week’s pay if he signed the release, but did not inform him that he was legalyl entitled to 27 and 3/4 weeks at a minimum under the ESA, whether he signed the release or not.  Had Rubin spoke to a lawyer, he would have learned that.

3.  Overwhelming Imbalance of Bargaining Power

The Court says that imbalance of bargaining power  is ‘inherent”  in the employment relationship, at least when dealing with employees who are not senior management types.  Therefore, this aspect of the unconscionability test should usually be easy for employees to satisfy.

4.  Taking Advantange of Employee’s Vulnerability

The Court finds that Home Depot organized the termination so as to exploit the employee’s vulnerability by giving the employee only half truths intended to make the employee believe that the only sensible response was to sign the release. 

He was presented with a response to this decision that was prepared by, and shaped to respond to, the needs of the company. The offer was presented in a way that was directed to getting it signed. Eric Rubin was not presented with a choice calling on him to decide whether or not to accept the offer. The letter advised him that he was already being offered more than he was entitled to.  The proposition was that, if he did not sign, he would not be paid. The letter did not say that the offer represented less than two days’ more pay than he was entitled to be paid whether or not he signed. There was no suggestion that he had common law rights that extended beyond the Employment Standards Act, 2000 to which the letter referred.

Outcome:

The release was struck as uncounscionable.  Therefore, the judge turned to consider the lenght of reasonable notice the employee should have been given.   The employer argued that the contractual reasonable notice period should have been between 7-10 months, though it actually gave the employee only 28 weeks’ notice.  The Court found that 12 months’ notice was reasonable.

Questions for Discussion

If Home Depot believed that the contract required it to provide at least 7-10 month’s reasonable notice to Rubin, why do you think it only offered him 28 weeks when it fired him?   If you were Home Depot’s lawyer, what advice would you have given prior to the dismissal of Rubin?

Do you agree that the release should be struck down by the Court?

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2 Responses to Rubin v. Home Depot: When Is a Release Signed by Employee Unenforceable?

  1. slantendicular Reply

    September 4, 2012 at 2:24 pm

    It looks like Rubin gained about an extra $30,000 from this decision, plus interest on that amount, plus whatever he got from the (ensuing) costs award in the case. I wonder how much his legal fees ate into his extra $30k.

  2. Dennis Buchanan Reply

    September 11, 2012 at 11:44 am

    I made an entry about this case a couple months ago. I ultimately agree with the conclusion, on the facts, but I noted that, while the Court’s decision on the third element of the Titus test could have far-reaching implications, the decision altogether is deeply fact-based.

    Home Depot broke with a number of common practices here – there are elements in this case, including the framing of the termination letter itself – that I’ve never seen before from such a major company.

    They had to know the offer was woefully inadequate, and they crafted and presented it in such a way that makes it clear they were hoping he would sign it without getting appropriate legal advice. No sympathy here.

    Still, I find the 12 month notice period to be surprisingly low, and it appears to me, shockingly, that Justice Lederer is reducing the notice period because “he is arriving at a time when the working life of many Canadians comes to an end.”

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