When a Settlement Isn’t Paid but Still Survives
Settlement agreements are intended to finally resolve disputes. When payment obligations are not met, however, parties often assume the agreement has collapsed and that the underlying claims automatically revive.
In this post, the litigation lawyers at Walker Law examine Clark v. 189557 Ont. Inc.,[i] which is a decision that squarely addresses whether delayed or partial payment of settlement funds allows the innocent party to walk away and treat the agreement as no longer binding (a concept known in law as repudiation).
The decision confirms that repudiation is a high threshold, and that delayed or partial payment, without more, does not undo a binding settlement or revive the original claims.
Case Background: Settlement Agreement
Following a wrongful termination, an employer resolved the dispute with their former employee by entering into a settlement agreement. The employer agreed to, among other things, make 12 bi-weekly salary payments and continue benefits for a defined period.
Only 6 of the 12 payments were made. Some were late and the other 6 remained outstanding.
The employer repeatedly explained the delays as stemming from cash-flow problems and assured the employee that payment would resume once funds became available. When the balance remained unpaid, the employee sued.[ii]
Rather than confining his claim to enforcement of the unpaid settlement amounts, the employee advanced a broader theory. He argued that the employer’s failure to complete payment amounted to a repudiation of the settlement agreement. The employee also argued that the non-payment constituted a breach sufficiently serious to justify rescission; essentially treating the agreement as if it never existed.[iii] It is arguable that if this argument was won, the employee may be entitled to the original amount claimed, instead of a lower amount because the matter settled.
In this post, we will only focus on the issue of repudiation.
If the court finds that the contract was repudiated, the employee becomes free to sue the employer for the wrongful dismissal (as the settlement agreement, which includes the obligation not to sue on this matter, is terminated).
Why Non-Payment of the Settlement Was Not Repudiation
Not every breach of a contract allows the other side to walk away. Where a party’s words or actions show an intention to not abide by the terms of the settlement, they are deemed to have “repudiated” the agreement. A breach of a contract does not always show an intention to not abide by the agreement.
In the Clark case, the employer never denied that the settlement existed or that it was required to pay. In fact, it had already made several payments, even though they were late. When payments stopped, the employer explained that it was struggling financially, not that it was refusing to pay. It also repeatedly said it intended to resume payments. The employee had accepted delays in the past, which made it harder to argue that strict timing was critical.
Taken together, the court concluded that the employer’s behaviour showed financial trouble and not an intention to abandon the settlement. Terminating a settlement entirely is an extreme remedy, and the court found that this situation did not justify it.[iv]
The Significance of this Decision
This decision clears up a common misunderstanding about settlements: if one side misses a payment, that does not automatically bring the original claim or lawsuit back to life.
Courts are generally unwilling to undo settlement agreements, especially where the party who missed payments still accepts that the settlement exists, has made at least some payments, explains the delay, and does not clearly refuse to be bound by the deal.
In practical terms, this means that the usual outcome for a party who is not paid is an order enforcing the settlement instead of a chance to restart the original case. On the other hand, for parties experiencing financial trouble amidst settlement obligations, the decision shows that being open and consistent about such payment issues can protect you from losing the settlement and its protections, even though it does not excuse failing to pay.
Ultimately, courts focus on what the parties’ conduct objectively shows about their intentions.
Navigating Settlement Breakdowns with Walker Law
Disputes over non-payment of settlement agreements often raise difficult strategic questions, including whether to pursue strict enforcement, attempt renegotiation, or argue that the agreement itself has been fundamentally breached.
The civil litigation and employment litigation lawyers at Walker Law regularly advise employers, employees, and businesses on contract disputes, settlement enforcement, and post-settlement disputes. If you are dealing with unpaid settlement obligations or facing claims arising from alleged non-payment, contact Walker Law to assess your options and develop a practical path forward.
Tags: Contract Disputes, Civil Litigation Law, Employment Litigation Law
[i] Clark v 189557 Ont. Inc., 2016 ONSC 3241.
[ii] Ibid at paras 10-30.
[iv] Ibid at paras 68-76.