Ms. Brink was the Chief Revenue Officer for ElectraMeccanica Vehicles Corp., a Canadian designer and manufacturer of electric vehicles. Readers may be familiar with the three-wheeled single-seat vehicle called “SOLO”.
In 2024, ElectraMeccanica was acquired by Xos, Inc. – a manufacturer of electric medium- and heavy-duty trucks based in Los Angeles, California.
After the end of the plaintiff’s employment, Ms. Brink sought to avoid payment of taxes on her severance settlement.
Following arbitration, as part of a settlement, the employer – Xos Services (Canada), Inc., EMV Automotive USA Inc., and Xos Inc. (collectively “Xos”) – offered the employee – Ms. Brink – a lump sum payment of $441,667 USD, less applicable deductions.
We wrote about the lower court decision earlier:
The employee agreed to the amount, but requested that the settlement funds be paid in a “tax effective manner” – without tax withholdings, using a 1099 U.S. income tax form. Ms. Brink wanted to avoid payment to CRA of $143,300 in taxes.
The parties disagreed on whether there was a binding settlement agreement. The employer argued that the employee’s request to alter the payment method, using an IRS tax form, and in effect avoid paying Canadian taxes, was a counteroffer. The plaintiff disagreed, arguing that a deal had been reached.
At first instance, the judge found that there was no binding settlement agreement. In other words, no settlement had been reached. As a result, there was no basis to enforce the settlement of her wrongful dismissal claim, and a genuine issue for trial.
Also, at first instance, the Court held that the employee’s demand that settlement funds be paid in a “tax effective manner” was “not standard practice”. The parties were never in agreement on a condition of fundamental importance to both parties – the deductions of tax (para 18 in Associate Justice Hughes’ reasons for judgment).
In Canada, employers are liable to pay taxes on a severance amount, and the employer can be made to pay those taxes if the employee fails to do so. So typically, the employer withholds and remits the tax amount directly to CRA, to avoid liability for taxes.
On appeal, a Justice of the British Columbia Supreme Court held:
1. On the facts, there was a concluded settlement agreement (para 43). Justice Dion, sitting as an appeal judge, also held that neither party was “firm” or “made any demand” on what [the tax treatment] would look like (para 47).
The appeal judge also found that the employer did not make any specific reference to “tax deductions” on the amount offered. However, in the exchange of communications which led to the settlement, the employer did refer to paying a lump sum, “less applicable deductions”.
Ms. Brink accepted the amount, and then suggested, in her words, a method to obtain payment in the most cost-effective manner; and
2. The plaintiff’s request for payment in a “tax effective manner” was not a counteroffer.
Ms. Brink asked that the settlement sum be paid using a U.S. tax form 1099 (no withholding at source), with some amount to be paid as legal fees. The reviewing court found the tax request to be a “request”, not a “demand”.
The company had said that it would be “confirming” payment details, and the judge seized on this language en route to finding that the parties had agreed to a settlement amount.
In an earlier decision, our Court of Appeal held: “on the issue of withholding taxes, in the absence of an agreement to not withhold taxes, taxes would have to be withheld…” (Fieguth v. Acklands Ltd., 59 DLR (4th) 114, 37 BCLR (2d) 62) (BCCA). [italics added]
In the present case, Brink, there was a reference in the settlement communications to “less applicable deductions”, which customarily would mean a deduction of taxes owing to the Receiver-General (CRA).
So, arguably, the settlement agreement in Brink was not silent on taxes.
The judge on appeal effectively found that there was no agreement on taxes. This result appears to be inconsistent with the rule that, in the absence of an agreement not to withhold taxes, taxes would have to be withheld.
The Court in Brink held that the parties were not required to agree on final and specific tax treatment in order to reach a binding agreement on a settlement amount.
Finally, the Court held that the plaintiff is entitled to punitive damages of $5,000, plus special costs, in an amount to be determined.
Punitive damages awards are rare in contract cases.
In British Columbia, in a contract case, a successful claim for punitive damages requires the existence of, what is called, an “independent actionable wrong”.
Some time after the arbitration, the defendants attempted to repudiate the settlement agreement by changing the settlement amount from $441,667 to $140,000. The defendants asked the employee to accept a reduced amount based on the defendants’ difficult financial circumstances. They sought to reduce the amount paid to Ms. Brink by withholding taxes, plus, a further amount.
An award of special costs is also rare. Here, the Court appears to have awarded special costs because the parties reached, what the judge held, was a valid settlement agreement, and the defendants attempted to back out of the deal.
Settlement negotiations, especially in employment disputes, can be complex. The parties should ensure they reach an agreement on all essential terms, especially tax deductions.
Additional details, such as referring to withholding taxes, and naming the Income Tax Act (Canada) and Income Tax Act (BC), as applicable to the settlement, could reduce or eliminate disagreement.
There should be a clear communication as to acceptance or rejection of the offer by the other party. Otherwise, as the case shows, the disagreement might result in litigation and an unexpected tax bill.
As always, parties should contact a lawyer for legal advice, as the information here is for general information only.
Link to judgment:
https://www.canlii.org/en/bc/bcsc/doc/2025/2025bcsc2002/2025bcsc2002.html
