Canada: Deal or No Deal? Ontario Court Finds Settlement Agreement Binding

Author: Emily Durand

Summary

In the recent decision Johnstone v. Loblaw, 2025 ONSC 4755 (“Johnstone”), the Ontario Superior Court of Justice found a settlement agreement to be binding despite the former employee’s attempt to unilaterally modify the terms after acceptance. As the Court stated, “Buyer’s remorse, a change of heart, or even growing concern about his ability to close his house purchase do not entitle him to renege on a settlement.”

 

Facts

Mr. Johnstone was an employee of Loblaw Companies Limited (“Loblaws”) for just over seven years. In 2022, he relocated from Winnipeg to Ottawa and began the process of buying a house. Prior to closing on the purchase of his new house, Mr. Johnstone was terminated without cause on April 11, 2022. Loblaws offered Mr. Johnstone a severance package at the time of termination. Mr. Johnstone rejected the initial offer from Loblaws and retained legal counsel to negotiate a settlement.

Mr. Johnstone’s and Loblaws’ legal counsel exchanged several offers, with the root of the discussion centering around: the notice period; a letter of reference; the “Housing Issue” which related to Mr. Johnstone’s desire for financial guarantees related to his mortgage obligations; and legal fees.

 

The Settlement

On May 19, 2022, Loblaws made the following proposal to Mr. Johnstone:

• Eight months’ salary continuance;
• $500.00 contribution towards legal fees;
• A letter detailing his employment; and
• Commitment to provide contact information of a member of HR who will confirm Mr. Johnstone’s employment and salary details to a mortgage broker.

After further discussion between counsel, Loblaws offered to increase the legal fee contribution to $1,500.00 and provided a draft reference letter. On May 28, 2022, Mr. Johnstone’s counsel sent the following email to Loblaws to confirm their acceptance:

“I can confirm receipt of instructions to accept your most recent proposal, subject to mutual agreement on the supporting documentation that I would suggest you prepare for our review.”

Loblaws prepared the settlement documents containing all the terms that had been agreed upon and circulated them for signing. After reviewing the settlement documents, Mr. Johnstone’s counsel requested additional items be included as conditions for settlement. These additional items had either not been previously raised or had already been rejected during negotiations.

Loblaws refused to alter the terms and maintained that an agreement had been reached. Loblaws made the payments contemplated in the settlement, other than legal fees as no invoice was submitted by Mr. Johnstone’s counsel as required under the agreement.

On April 25, 2023, Mr. Johnstone commenced an action against Loblaws, for breach of contract, wrongful dismissal, contribution and indemnity for any amounts Mr. Johnstone owed in the litigation against him for the failed house purchase, and punitive damages. Loblaws brought a motion to dismiss Mr. Johnstone’s claim on the basis that the parties had entered into a binding settlement.

 

The Decision

The Court granted Loblaws’ motion and dismissed Mr. Johnstone’s action.

The Court cited Cellular Rental Systems Inc. v. Bell Mobility Cellular Inc., 1995 CanLII 10638 (ON SC), to highlight the two elements that must be met for a binding agreement to exist, the parties must:

• intend to create a legal binding relationship; and
• have agreed on all essential terms.

The Court went on to note that a meeting of the minds is required, and that failure to sign a formal settlement document does not release the party from the agreement. Rather, it puts an obligation on the party to work towards formalizing the documentation.

The Court was emphatic that all the essential terms had been captured in the draft minutes sent to Mr. Johnstone’s counsel, making it a binding agreement. The additional terms that Mr. Johnstone’s counsel raised were attempts to change the essential terms of the agreement and were not an indication of a misunderstanding of agreed upon terms. The Court believed that Mr. Johnstone was attempting to improve the deal he had agreed to, and noted that,

“Buyer’s remorse, a change of heart, or even growing concern about his ability to close his house purchase do not entitle him to renege on a settlement.”

The Court also commented on the need for counsel to be able to rely upon one another’s communications. An email from one counsel to another indicating acceptance of an offer is evidence of an intention to create a legally binding agreement.

Takeaways

The case of Johnstone is a reminder that once the essential terms are agreed upon the deal is done, and the time to add or revise terms is over. A change of heart will not allow a party to back out of the agreement. For that reason, it is critical to ensure that the necessary terms are accurately captured, and the parties understand the implications of the terms that are agreed upon.

Clear, well-documented communication throughout the negotiation process can help avoid unnecessary pitfalls. Negotiations can be complex and stressful. We encourage employers to consult our firm for guidance to help navigate these matters with confidence and clarity.

 

Need More Information?

For more information or assistance with employee dismissals, contact Emily Durand or your regular lawyer at the firm.