Request for Amendment to the City's Final

Release and Indemnity Form - Voluntary Exit

The Corporate Services Committee recommends the adoption of the Recommendation of the Personnel Sub-Committee, embodied in the following communication (October 23, 1998) from the City Clerk:

Recommendation:

The Personnel Sub-Committee on October 22, 1998, recommended to the Corporate Services Committee the adoption of the report (October 9, 1998) from the City Solicitor respecting the release form used in the City's exit program, wherein it is recommended that the release be retained in its present form.

Background:

The Personnel Sub-Committee had before it a report (October 9, 1998) from the City Solicitor providing comments on the communication (August 31, 1998) from Mr. David Neil, President, City of Toronto Administrative, Professional Supervisory Association (COTAPSAI) concerning the release form used in the City's exit program; that, in his letter, Mr. Neil refers in particular to the third paragraph of the release form, attached as Appendix "A" to this report; that this paragraph releases the City from all liability which could be imposed on it under the Income Tax Act, including any claims, charges, taxes, penalties or demands which the Minister of National Revenue could make under the Act, and with respect to similar claims which could be made by the Canada Employment Insurance Commission or the Canada Pension Commission; that Mr. Neil's letter specifically addresses only the references under the Income Tax Act and requesting that the third paragraph be deleted from the Release; and recommending that the release be retained in its present form.

The Sub-Committee also had before it a communication (September 14, 1998) from the City Clerk advising that The Corporate Services Committee on September 14, 1998, during consideration of a communication (September 2, 1998) from Mr. David Neil, President, City of Toronto Administrative, Professional Supervisory Association, Incorporated (COTAPSAI), requesting an amendment to the City's Final Release and Indemnity Form; advising that employees who have the option to voluntarily leave or are considering an exit package are asked by the City to sign a release; that COTAPSAI is concerned with the inclusion of the third paragraph in the Release; that the City has included this paragraph to indemnify itself from its obligation as an employer to deduct and remit the appropriate amounts of tax under the Income Tax Act; and recommending that in order to ensure that all employees are treated fairly and equitably, requesting that the Corporate Services Committee adopt the recommendation that the City amend its Final Release and Indemnity form and remove the third paragraph as discussed, referred the aforementioned communication to the Personnel Sub-Committee for consideration.

Mr. David Neil, President, City of Toronto Administrative, Professional Supervisory Association (COTAPSAI), appeared before the Sub-Committee in connection with the foregoing matter.

(Report dated October 9, 1998, addressed to the

Personnel Sub-Committee from the City Solicitor.)

Recommendation:

It is recommended that the release be retained in its present form.

Council Reference/Background/History:

At its meeting of September 14, 1998, the Corporate Services Committee considered a number of letters from COTAPSAI. Item number 9, a letter dated August 31, 1998 from David Neil, President of COTAPSAI, concerning the release form used in the City's exit programme, was referred to the Personnel Sub-Committee for consideration at its meeting of October 22, 1998. In his letter, Mr.Neil refers in particular to the third paragraph of the release form, attached as Appendix "A" to this report. This paragraph releases the City from all liability which could be imposed on it under the Income Tax Act, including any claims, charges, taxes, penalties or demands which the Minister of National Revenue could make under the Act, and with respect to similar claims which could be made by the Canada Employment Insurance Commission or the Canada Pension Commission. Mr. Neil's letter specifically addresses only the references under the Income Tax Act. He asks that the third paragraph be deleted from the Release.

Comments and/or Discussion and/or Justification:

Releases are signed by City employees whenever they receive payments from the City where there could be legal action in the future. A release makes it a condition of receiving payment that the employee forego future legal action and indemnify the City from all potential future costs.

Retiring allowances, which include payments under the City's exit programme, are subject to income tax. Paying income tax is ultimately the responsibility of the employee. Under section 153 of the Income Tax Act, employers however, have a legal obligation to withhold and remit a percentage of the retiring allowance payment for tax purposes.

If an employer fails to withhold and remit the correct amount to revenue Canada either on the retiring allowance or on salary, the employer may be required by Revenue Canada to remit the correct amount of tax upon demand. This may involve installment interest or penalties for failing to remit. The release requires the employee to indemnify the City for any of these occurrences. Under the terms of the Release, in the event that additional taxes, interest charges or penalties are owed on the sums paid to an employee under the exit arrangement, the employee agrees to indemnify the City for all such additional payments. If such amounts were not repaid by the former employee, this would result in an unanticipated benefit to that employee, as he or she would avoid this tax liability. The presence of this provision ensures that the City has a means to recover these amounts.

It is in the City's interest to have employees sign the broadest possible release, since this protects the City completely from future costs. It is also in the City's interest to have a clean severing of its legal relations with an employee who is leaving. The release confirms that the employee has had time to seek legal advice and understands what he or she is signing.

Respecting the suggestion that most employers are willing to delete or change reference to the Income Tax Act in a Release, I have no information that this is the case. It is difficult to accept that employers in similar circumstances acting on legal advice would agree to delete an indemnity provision from a Release. The matter of amendments to the Release has been raised by COTAPSAI. I am advised that a few Releases have been amended without legal advice including amendments to the indemnity clause in the Release for reasons that are not apparent to me. In my view, for consistency of treatment of exiting employees, the Release should not be amended in any respect unless for exceptional circumstances and on legal advice.

Conclusions:

It is recommended that the present form of the Release not be amended. It protects the City from further liability to exiting employees and additional costs that may arise from its statutory duties under the Income Tax Act.

Contact Name:

George S. Monteith - 392-8062.

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Appendix "A"

AND FOR THE SAID CONSIDERATION, I further covenant and agree to save harmless and indemnify the Releasee from and against any and all claims, charges, taxes, penalties or demands which may be made by the Minister of National Revenue requiring the Releasee to pay income tax, charges, taxes, or penalties under the Income Tax Act (Canada) in respect of income tax payable by me in excess of income tax previously withheld; and in respect of any and all claims, charges, taxes, or penalties and demands which may be made on behalf of or related to the Canada Employment Insurance Commission and the Canada Pension Commission under the applicable statutes and regulations with respect to any amounts which may in the future be found to be payable by the Releasee in respect to the Releasor.