Case In Point
“No News” May Not Mean “No New Employment”: Settlement Drafting Lessons From Cross v. Cooling Tower Maintenance Inc.
Date: February 2, 2026
Cross v. Cooling Tower Maintenance Inc. reminds employers to expressly specify in their settlement agreements precisely what they want the consequences to be should the employee fail to satisfy an obligation under the agreement. It is a sobering reminder that an employer’s failure to do so could leave them exposed to significant liability even when the employee intentionally breaches a material obligation under the settlement agreement.
The decision is particularly educational for employers drafting agreements settling wrongful dismissal disputes that provide the employee will receive salary continuance for a specified period of time, and a clawback mechanism will activate should the employee obtain new employment during the salary continuance period.
Background
In October 2023, the employee and Cooling Tower Maintenance Inc. (Cooling Tower) executed a settlement agreement to resolve a wrongful dismissal dispute between them. The terms seemed straightforward: salary continuance for up to 24 months that would cease if the employee secured new employment. Upon obtaining new employment, the employee was required to immediately advise Cooling Tower, and he would then receive a lump sum equal to 50 percent of the remaining salary continuance payments (i.e., the clawback mechanism would activate).
The agreement addressed the possibility that the employee might fail to notify Cooling Tower that he had obtained new employment: it provided that upon this occurrence, Cooling Tower would be entitled to reimbursement by the employee of any amounts paid to him subsequent to the commencement of new employment.
Upon obtaining new employment, the employee failed to advise Cooling Tower, as required. For several months, salary continuance continued to flow. When Cooling Tower discovered the omission, it ceased making the payments.
The employee claimed entitlement to the 50 percent lump sum payment ($161,212), less amounts received since the date he commenced new employment ($45,825).
In addition to seeking repayment of the sums advanced from the date the employee started working at his new job, Cooling Tower argued in its counterclaim that by failing to disclose his new employment, the employee had repudiated the entire settlement agreement and was owed nothing.
The Court’s Reasoning
The central issue Justice Wilkinson considered was whether the employee had repudiated the agreement by failing to immediately advise Cooling Tower of his new employment, thereby relieving the company of its remaining obligations under the agreement.
Upon reviewing the legal principles relating to the remedy of repudiation, Justice Wilkinson noted, among other things, that repudiation of an agreement occurs only exceptionally “when the entire foundation of the contract has been undermined…where the very thing bargained for has not been provided”.
Justice Wilkinson found that while the employee’s failure to notify Cooling Tower was intentional and a material breach of the settlement agreement, the employer had not been deprived of “substantially the whole benefit” of the agreement: avoidance of a wrongful dismissal claim and protection from further litigation. Accordingly, Justice Wilkinson held that the employee had not repudiated the entire agreement.
The employee was ordered to repay the amounts received after commencing new employment (the consequence for a failure to notify that was set out in the settlement agreement), and Cooling Tower remained obligated to pay the remaining lump sum.
Key Takeaways
For employers, this decision underscores the critical importance of precision in drafting settlement agreements, including those involving salary continuance and a clawback mechanism.
Clearly Express Intended Consequences of an Employee Breach
Reflect on the specific consequences you want the employee to face if they fail to comply with an obligation under the settlement agreement, and explicitly communicate those consequences, clearly and in detail, in the body of the agreement.
Consider Including a Reporting Requirement
Consider including in the settlement agreement a requirement that the employee provide to the employer a monthly report of their employment status during the salary continuance period.
Consider Active Monitoring
Consider actively monitoring the employee’s employment status during the salary continuance period.
Finally, it is essential to note that settlement agreements are distinct from employment agreements, and different drafting considerations apply to each of these types of agreement.
For assistance in preparing clear and explicit settlement agreements and employment agreements that accurately reflect your intentions as an employer, consult a Hicks Morley lawyer.
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