A release from future claims is to be interpreted in accordance with the principles of contract law

The Supreme Court of Canada recently clarified the required approach taken towards the interpretation of releases from future claims in Corner Brook (City) v. Bailey.

The Court has previously relied upon the application of the Blackmore rule, which preferred for a factual analysis of the surrounding circumstances when the parties signed the release. Writing for a unanimous court, Justice Malcolm Rowe, expresses that this rule no longer adds value and has, in fact, been incorporated within the general principles of contract law. He argued that an objective approach ought to be applied towards the interpretation of a release with regard to the principles of contract law established in Sattva Capital Corp. v. Creston Moly Corp. Hence, the language used in the release is paramount to the analysis. While not necessary to itemize all types of claims contemplated, the court will read the contract as a whole “giving the words sense using their ordinary and grammatical meaning consistent with the surrounding circumstances known to the parties at the time.” The question then becomes whether the type of claim sought is one which the release intends to cover.

In this case, Mr. Temple, an employee of the City of Corner Brook, brought an action against the respondent, Bailey, after being struck by her husband’s vehicle. In turn, as part of a separate action, the respondent advanced a claim against the City, wherein she settled and agreed by way of release to absolve the City of any liability pertaining to the accident. Bailey subsequently brought a third-party claim for contribution or indemnity against the City for the initial action against her by Mr. Temple. The City, in an application for summary trial, argued that the action was barred pursuant to the release previously signed.

At first instance, interpreting the release in accordance with the Blackmore rule, the application judge dismissed the action. Looking to the words of the release as well as the intention of the parties, it was determined that the release included third party claims. In contrast, the Court of Appeal of Newfoundland and Labrador reinstated the third-party notice and opined that the application judge erred by “putting too much weight on the broad, general language of the release” rather than considering the matter contemplated by the parties upon signing.

The Supreme Court reinstated the order emitted by the application judge as the “claim at issue was one which the parties mutually had intended to cover in the release”. Importantly, the court takes a meaningful opportunity to clarify the principles pertaining to the interpretation of releases. In all, based on the notion that releases generally tend to restrict all liability for future claims and account for all unknown risks, they will be interpreted more narrowly than other contracts, especially with regard to the types of claims not specifically contemplated at the time of signing. In drafting a release, the particular subject matter along with the timeframe for the duration of the release are relevant elements to address. The court will look at the purpose of the contract and “what the parties mutually and objectively intended” at the time. As well, it is specifically noted that releases can cover unknown claims if sufficient language is utilized.

The Supreme Court also clarified the applicable standard for appellate review. Granting that a “contractual interpretation is a fact-specific exercise”, the standard is based on a question of mixed fact and law, unless it is based on an extricable question of law.

Interestingly, in obiter, the court hints that it remains a question if pre-contract negotiations are to be admissible when interpreting a release. It remains to be seen how the long-standing evidence rule against the admissions of pre-contract negotiations will be reconciled with the common law principles established in Sattva.

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Can Employees Rely on a Progressive Discipline Policy?

In Nelson v. Canada (Attorney General), (2019 FCA 222), the Applicant sought judicial review of a decision of the Appeal Division of the Social Security Tribunal, which affirmed that the Applicant lost her job because of her own misconduct and therefore, would not qualify for employment insurance.

The Applicant was a receptionist for the Gitxaala Nation (the “employer”). She was terminated after the Employer received a report from a community member that, contrary to the terms of her employment, she was seen publicly intoxicated on the reserve. The Applicant had signed a declaration affirming her understanding that this was a dry-reserve and that her employers adopted a zero-tolerance policy for alcohol consumption, even in private spaces. Furthermore, the employer had allegedly discussed its policies with the Applicant prior to the incident, warning that any breach of the policy would result in termination. The Applicant disputed this meeting.

Following the termination, she was denied Employment Insurance on the grounds that she had been socially drinking in her home, and this amounted to misconduct, a valid exemption to receiving benefits. It was not a consideration that other employees would engage in similar behaviour without the same consequences. The Applicant appealed to the Commission, alleging that though she knew she would breach a condition, she did not expect to be terminated because the Employer’s progressive discipline policy required that they provide her with a warning or suspension prior to dismissal. The Commission denied the Applicant’s request for benefits. The Applicant then appealed to the General Division (“GI”) which affirmed the Commission’s findings. The GI also held that the employer was not bound by its progressive discipline policy; the important part was the Applicant signed on the dotted lines prohibiting drinking as a condition to the employment. On appeal, the Appeal Division concurred.

The Employee brought an application for judicial review. The Application was dismissed. The Appeal Division did not err in determining that the Applicant knew that termination was a possibility if she continued to consume alcohol on the reserve, and that her behaviour amounted to misconduct. The Applicant was not entitled to rely on the Employer’s progressive discipline policy or the fact that other employees had received warnings or suspensions prior to termination for drinking on reserve.

Simply because a progressive discipline policy exists, does not mean an employer is bound by it, nor its inconsistent management of it.  In other words, an employee cannot rely on the principle of estoppel in pais (estoppel by conduct) to argue that the employer should offer them the same leniency observed previously, or with other employees; the employment contract and the conditions contained therein, remain the only determining force in any breach of policy case.

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