Settlement Privilege — Ontario Employment Law
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About Settlement Privilege
When an employment relationship breaks down, the parties often engage in negotiations to resolve issues like severance, constructive dismissal, or human rights complaints without going to court. In Ontario, these negotiations are generally protected by a legal concept known as "settlement privilege." Often identified by the phrase "without prejudice," this evidentiary rule ensures that communications made for the purpose of settling a dispute cannot be used as evidence against either party in future litigation. The primary goal is to encourage employers and employees to communicate candidly and make compromises without fear that a low offer, or an admission of weakness, will be weaponized against them in front of a judge.
However, settlement privilege is not an impenetrable shield. Ontario courts have frequently had to navigate disputes—often arising as interlocutory motions to strike out parts of a legal pleading—where one party attempts to introduce these "without prejudice" communications into the public record. While employers might try to use a rejected settlement offer to argue that an employee failed to mitigate their damages, courts will carefully scrutinize whether this breaches privilege. Conversely, employees sometimes seek to pierce the veil of settlement privilege when an employer's negotiation tactics cross a line. If an employer uses a "without prejudice" communication to issue malicious threats, hide behind statutory obligations, or act oppressively, Ontario judges may allow the employee to present these communications as evidence to support claims for bad faith, moral, or punitive damages.
Understanding exactly when a negotiation is shielded from the court's view and when the protection is lost requires a nuanced grasp of evidentiary rules. Simply slapping "without prejudice" on an email does not automatically guarantee absolute secrecy, especially if the contents are abusive or if a binding settlement was actually reached. Because mismanaging these communications can severely impact the outcome of a wrongful dismissal claim, individuals facing termination or workplace disputes should consult skilled legal counsel before engaging in back-and-forth negotiations.
Frequently Asked Questions
What does 'without prejudice' mean on my severance offer?
When an employer marks a document 'without prejudice,' it typically means the offer is made for the purpose of settlement and cannot be used against them in court if a deal is not reached. It protects the employer from having a judge view the offer as an admission that they legally owe you that amount.
Can I show a judge the lowball settlement offer my employer made?
Generally, no. Under the rule of settlement privilege, initial offers and counter-offers are kept out of court proceedings so that both sides can negotiate freely. Disclosing these details in a lawsuit usually leads the other side to file a motion to strike those paragraphs from your claim.
Are there any exceptions where settlement privilege doesn't apply?
Yes. A court may lift the privilege if the communication contains explicit threats, demonstrates severe bad faith, or if it is necessary to prove that a binding settlement agreement was actually reached between the parties.
What if my employer threatened me during a 'without prejudice' meeting?
If an employer uses settlement discussions to act maliciously or make improper threats, an Ontario court may allow you to use those communications as evidence. The courts do not allow settlement privilege to be used as a cloak for abusive or bad faith conduct.
Can an employer use my rejection of an offer to prove I didn't mitigate my damages?
This is a highly contested area of Ontario employment law. Employers sometimes try to reference rejected settlement offers in their defense to argue you failed to minimize your losses, but employees frequently challenge this by bringing motions to protect the communications under settlement privilege.
When should I involve a lawyer in my settlement negotiations?
It is wise to seek professional legal guidance as soon as you receive a severance package or termination letter. Navigating what is and isn't protected by evidentiary rules is complex, and a lawyer can ensure you don't inadvertently waive your rights or mishandle privileged information.
Common Scenarios
- An employee receives a termination letter marked 'without prejudice' that states they will only receive their basic Employment Standards Act (ESA) minimums if they sign a full release, threatening to withhold legally required pay otherwise. The employee sues and points to this letter as proof of bad faith, bypassing the privilege.
- During a constructive dismissal lawsuit, an employer files a Statement of Defence claiming the employee failed to mitigate their damages by rejecting a previous 'without prejudice' offer to return to work on modified terms. The employee files a motion to strike those paragraphs, arguing they violate settlement privilege.
- An HR manager and an ousted executive have a candid, off-the-record phone call to discuss a buyout. The executive later attempts to use the HR manager's verbal concessions in court to prove wrongful dismissal, but the judge rules the conversation is inadmissible due to settlement privilege.
What You Should Know
- Always clearly label written counter-offers or negotiation emails with 'Without Prejudice' at the top to establish your intention that the communication is strictly for settlement purposes.
- Do not assume that writing 'without prejudice' gives you or your employer a free pass to make threats or act in bad faith; courts can and will pierce the privilege for egregious behavior.
- Keep conversations regarding mandatory statutory entitlements (like unpaid vacation pay or basic ESA notice) separate from conditional settlement offers, as absolute legal entitlements cannot be held hostage in negotiations.
- Be cautious about sharing details of 'without prejudice' offers publicly or on social media, as mishandling the rules of confidentiality and privilege can harm your legal position.
Featured Cases
K. v. N.
2025 ONSC 6742 (CanLII) · 2025-12-05This is a procedural ruling on a motion to strike pleadings and an application for leave to amend in an employment-related action. The court addressed whether references to without-prejudice settlement communications could be pleaded, dismissed the motion to strike for pleading evidence, and denied leave to amend the plaintiffs' claims against individual directors due to lack of particularity.
R. v. Onyx Homes Inc.
2020 ONSC 7722 (CanLII) · 2020-12-11Constructive Dismissal: Settlement Privilege & Mitigation
This is an interlocutory motion in a constructive dismissal action where the plaintiff sought to strike paragraphs from the Statement of Defence. The defendant had referenced 'without prejudice' settlement communications to argue that the plaintiff failed to mitigate damages by rejecting settlement offers. The court addressed whether such communications were protected by settlement privilege and whether their inclusion in the pleadings was scandalous, frivolous, or vexatious under Rule 25.11.
I. v. Canadian Professional Sales Association
2019 ONSC 7332 (CanLII) · 2019-12-18Wrongful Dismissal: Settlement Privilege vs Bad Faith Pleadings
This is an interlocutory motion to strike portions of a Statement of Claim in a wrongful dismissal action. The employer sought to strike paragraphs referencing settlement offers, arguing they were protected by settlement privilege. The court held that while settlement privilege is an evidentiary rule, the plaintiff's allegations that the offers constituted threats supporting bad faith and punitive damages raised a triable issue, allowing the claims to proceed subject to amended pleadings.
C. v. SPS Commerce Canada Ltd.
2018 ONSC 5017 (CanLII) · 2018-08-22Workplace Harassment: Constructive Dismissal & Privilege
This case addresses whether an employer's conduct during a workplace harassment investigation can support claims of constructive dismissal or bad faith, and whether settlement privilege protects communications regarding statutory obligations. The court considered whether pleadings referencing without prejudice settlement discussions should be struck under Rule 25.11 of the Rules of Civil Procedure.
P. v. CIBC
2018 ONSC 1458 (CanLII) · 2018-03-02Settlement Privilege in Wrongful Dismissal Bad Faith Claims
This is an interlocutory motion to strike decision in a wrongful dismissal action. The plaintiff sought to strike paragraphs in the statement of defence that referenced a without prejudice termination offer, arguing it was irrelevant and protected by settlement privilege. The court dismissed the motion, ruling that the termination offer was relevant to the plaintiff's allegations of bad faith conduct in calculating severance and pay in lieu of notice, and thus settlement privilege did not bar its inclusion in the pleadings.
T. v. Hamburg Olson LPC
2017 ONSC 7532 (CanLII) · 2017-12-18Wrongful Dismissal: Motion to Remove Counsel for Conflict
This is an interlocutory motion in a wrongful dismissal case addressing whether counsel should be removed due to a conflict of interest arising from their personal involvement in employment negotiations. The court found that the counsel's personal attachment undermined objectivity and granted the motion to remove counsel, while dismissing the defendant's cross-motion to strike the record for bad faith.
R. v Zoomermedia Limited
2015 ONSC 1120 (CanLII) · 2015-02-19Settlement Privilege in Employment Contract Negotiations
This is an interlocutory motion regarding the striking of paragraphs from an Amended Statement of Claim in a dispute over employment contract negotiations. The court addressed whether settlement privilege applied to communications made during negotiations for a contract extension involving lump sum severance and sabbatical entitlements, holding that privilege applied only after litigation was reasonably contemplated in November 2011.
A.M. v. Zoran International, Inc.
2010 ONSC 4582 (CanLII) · 2010-09-20Wrongful Dismissal: Relevance of Other Severance Packages
This interlocutory motion addressed whether severance packages provided to other employees were relevant and producible in a wrongful dismissal claim regarding reasonable notice. The court held that damages are based on individual circumstances, rendering other severance packages irrelevant, and upheld settlement and litigation privilege over the defendant's termination documents. The plaintiff's motion for production was dismissed, and the defendant was awarded costs.
Ministry of Correctional Services v. M.
2010 ONSC 3896 (CanLII) · 2010-07-07Judicial Review: Human Rights Tribunal Settlement Privilege
This is a judicial review of a Human Rights Tribunal adjudicator's decision ordering the Ministry of Correctional Services to produce settlement documentation related to prior racial discrimination remedies. The Divisional Court upheld the adjudicator's decision, finding the documentation relevant and necessary for the proper resolution of the matter and rejecting arguments regarding settlement privilege and procedural impropriety.
Lakeside Steel Corporation v. W.
2007 CanLII 19424 (ON SC) · 2007-05-29Employment Termination Case: Bad Faith and Settlement Privilege Dispute
A motion to strike pleadings in an employment contract dispute regarding the termination of employment and alleged bad faith in the termination process. The court addressed whether discussions during a termination meeting were protected by settlement privilege and whether the paragraphs in the Statement of Defence and Counterclaim could be struck under Rule 25.11(b). The court declined to strike the paragraphs, as privilege could not be determined without factual findings.
L. v. Ontario Human Rights Commission
2005 CanLII 36441 (ON CA) · 2005-10-11HR Commission Discretion: Settlement Privilege & Review
This is an appeal to the Court of Appeal from a Divisional Court decision dismissing an application for judicial review. The employee filed a human rights complaint alleging disability discrimination against his former employer. The Ontario Human Rights Commission decided not to refer the complaint to a board of inquiry because the employer had made a reasonable settlement offer. The Divisional Court upheld the Commission's decision. The Court of Appeal dismissed the appeal, holding that the Commission has the discretion to consider settlement offers when deciding whether a referral is appropriate and that the offer was not protected by settlement privilege.