Northern Exposure

It’s not a settlement when the parties can’t agree on what they agreed to

By Christina Hall

It is usually good news for employers and employees if they are able to resolve an employment dispute and reach a settlement before engaging in protracted litigation. However, finalizing the details of a settlement can be a tedious process. When the parties rush through the process or fail to properly consider the terms of the settlement, the situation can rapidly unravel.

A recent case before the Ontario Superior Court of Justice illustrates these issues well: Remedy Drug Store v. Farnham, 2014 ONSC 4391 (CanLII). In this case, an employer brought a motion before the court to enforce a settlement it had reached with a former employee, where the parties fundamentally disagreed about the scope of a key term of the settlement.

Facts

Ms. F was the general manager and executive vice president, pharmacy services, of Remedy Drug Store Co. Inc. On her last day of work, she deleted 13,844 e-mails from her in-box and 35,632 e-mails from her sent items. In addition, she forwarded 526 e-mails to her home e-mail account.

Remedy discovered Ms. F’s actions and commenced an action against her for breach of her employment agreement, breach of her fiduciary duties, and breach of confidence. Remedy also commenced injunction proceedings regarding the confidential information that it alleged Ms. F had improperly acquired.

Before the injunction was heard, the parties attempted to settle their dispute. This was done through a series of e-mails exchanged between Ms. F and Remedy’s president, Bruce Moody. The various settlement proposals included discussions as to how the parties would capture and destroy the electronic information Ms. F obtained before her departure from Remedy.

Ms. F proposed that she would engage a third-party IT consultant, at her own expense, to wipe, purge, and certify that her laptop, tablet, and e-mail account were “clean of all Remedy documents.” Moody responded by stating that he would agree only to use an IT firm selected by Remedy’s law firm, with the work to be done at Ms. F’s expense.

Ms. F countered by stating that if Remedy’s IT firm was used, she would contribute only $2,500 to the cost of the work, rather than the full amount. The e-mail exchange between Ms. F and Moody concluded on January 9, 2014, with an e-mail from Ms. F stating “we have an agreement.”

The trouble arose following January 9, 2014, when Ms. F’s lawyers and Moody attempted to document the settlement Ms. F and Moody reached. At that time, Moody suggested that the IT work the parties had agreed to was a “full sweep,” including forensic searches to see where Ms. F had sent Remedy’s confidential information so that Remedy could take steps to protect its interests.

Ms. F disagreed and took the position that the IT work the parties had agreed to was limited to certifying that her devices and e-mail accounts were free of any Remedy documents. Unable to resolve the dispute, Remedy brought a motion to the Ontario Superior Court of Justice seeking to enforce the settlement agreement, including a full sweep of Ms. F’s electronic devices and e-mail accounts.

Court’s decision

After reviewing the evidence, the court concluded that Ms. F and Moody had reached a settlement on the terms set out in the various e-mails that they had exchanged. The court noted that nowhere in that exchange was there a discussion of a full sweep of Ms. F’s devices and e-mail accounts, which Remedy submitted was part of the settlement.

While this “full sweep” may well have been an accurate description of the work that Remedy’s IT firm had intended on doing, those details were not documented by the parties in their e-mail exchanges. As a result, the court concluded that an objective reading of the e-mail exchanges showed that the parties had agreed only to an IT review along the lines of what Ms. F had originally proposed, with the modification that the work would be done by Remedy’s IT firm instead of a firm selected by Ms. F. As a result, the court upheld the settlement reached by the parties, including Ms. F’s interpretation of the IT review.

Lessons for employers

This case serves as a good reminder that employers and employees need to exercise care when settling disputes. One way to avoid the situation that arose in this case is to make any informal settlement or “agreement in principle” conditional upon the creation of a written document setting out the terms of settlement—in other words, the settlement will not be final until that written document is prepared and signed by the parties.

In this way, any interpretative disputes can be dealt with and resolved by the parties while they are preparing the formal documentation and neither party can suggest that “the deal is done” until the documentation has been prepared.