An Ontario court is allowing a terminated employee to continue with an action for long-term disability benefits despite signing a document that released such claims.
When Joe Swampillai was terminated, he was pursuing an appeal for the denial of his benefits against his employer, Royal & Sun Alliance Insurance Co. of Canada, and against Sun Life Assurance Co. of Canada, the administrator of RSA’s self-insured program.
Eventually, the employer negotiated a settlement of Swampillai’s severance claim. He signed a document specifically releasing any claim for long-term disability benefits. It didn’t, however, make specific reference to the outstanding appeal.
Justice Peter Cavanaugh of the Superior Court ruled Swampillai could continue his appeal despite signing the release. Cavanaugh reasoned that Swampillai had signed the released in “unconscionable” circumstances.
Carl Cunningham, an employment lawyer at Bennett Jones LLP in Toronto, believes the decision is of significant concern as “most employers and their lawyers would not expect a release to be set aside in these circumstances.”
According to Cunningham, the circumstances included:
- The fact that the termination letter and release provided some specificity as to the release of LTD benefits, including the date on which the benefits would cease and a specific release of claims for them. “The document here was not a simple or short-form general release with broad non-exhaustive language such as ‘any and all claims,’” says Cunningham.
- Swampillai had negotiated an increase in the original severance compensation package offered. “This would typically indicate that there was not an imbalance in bargaining power,” says Cunningham.
- And Swampillai had hired legal counsel, although he hadn’t obtained employment law counsel as suggested by the lawyer he had hired, who was a disability law expert.
Still, Cunningham believes the decision doesn’t represent a major shift in the law.
“This was a relatively unique scenario, including the fact that Royal was self-insured and that it’s not uncommon for employees to be terminated, settle and continue their claims against third-party insurers,” he said. “As well, Royal knew when it terminated Swampillai that he had appealed the denial of his LTD benefits and the judge made several references concerning the employee’s ‘confusion” about exactly what he was releasing.”
Natalie MacDonald, a lawyer at Toronto employment law boutique MacDonald & Associates, notes Swampillai’s personal circumstances were decisive factors in Cavanaugh’s reasons.
“Whenever there is a possibility that an employee may be left without benefits, it’s incumbent upon the employer to recognize the particular circumstances and insert special provisions that make it clear the employee will understand whether or not he or she is going to abandon their claim,” she says.
Indeed, MacDonald suggests that employers may choose to go so far as to pay for appropriate independent advice and indicate that the employee chose not to have such advice if that turns out to be the case.
The takeaway from the case is clearly that employers should not be slaves to precedent, particularly where unique facts such as self-insurance exist.
“While the termination letter and release were well constructed in referencing the cessation of LTD benefits and included a release of such, they should have included an express statement that the employee understood that by accepting the settlement he was withdrawing or abandoning his appeal of long-term disability benefit and would have no right to any such benefits going forward,” says Cunningham.