Vague settlement language leaves employer on the hook for salary continuance after worker fails to follow terms

Employers should be aware of the recent Ontario Superior Court of Justice case, Cross v. Cooling Tower Maintenance Inc., which serves as a reminder that careful language must be used when drafting “claw back” clauses in settlement agreements relating to a terminated employee’s allegations of wrongful termination.

The employee in this case, Mr. Cross, was terminated without cause on Aug. 22, 2023, after more than 26 years working for Cooling Tower Maintenance Inc. Cross alleged that his employment was wrongfully terminated and eventually negotiated a settlement agreement on Oct. 3, 2023, wherein Cooling Tower agreed to pay Cross various sums, including a 24-month salary continuance.

The settlement agreement contained a “claw back clause” that required Cross to immediately advise Cooling Tower when he obtained new employment, at which time the salary continuance payments would stop and Cross would be entitled to a lump-sum payment equivalent to 50 per cent of the remaining amount owing to him under the agreement. The language of this paragraph was as follows:

“Mr. Cross must immediately advise [Cooling Tower] if he obtains new employment or becomes self-employed during the Salary Continuation Period. Should he fail to notify [Cooling Tower] upon obtaining such new employment … [Cooling Tower] will be entitled to be reimbursed by Mr. Cross for any monies it has paid...

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