The Ontario Court of Appeal has ordered a full trial for an employee who sued for $300,000 in long-term disability benefits despite signing a document that released such claims.
The decision in Swampillai v. Royal & Sun Alliance Insurance Co. of Canada reverses a lower court decision that summarily found the release to be “unconscionable.”
“What the Court of Appeal said was that the motions judge did not have enough evidence to make or reject the finding of unconscionability, and that a full trial was required to elicit the evidence,” says Naphtali Silverman, the lawyer at Linden & Associates in Toronto who represented Joe Swampillai before the court of appeal.
After Swampillai was terminated, he continued his appeal for 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. The document Swampillai signed specifically released any claim for long-term disability benefits. It didn’t, however, make specific reference to the outstanding appeal.
Ultimately, the internal appeals failed and Swampillai resorted to the courts with a lawsuit against RSA and Sun Life, which asked Justice Peter Cavanagh of the Superior Court of Justice to dismiss the claim on the basis of the release. But Cavanagh found the release was unconscionable and refused to dismiss the suit.
RSA appealed against the finding of unconscionability and again sought a summary dismissal of the case. Although the appeal court agreed Cavanagh had erred in making the finding of unconscionability, it refused to dismiss the case, saying more evidence was necessary before a conclusion could be reached one way or another.
As the Court of Appeal saw it, the absence of evidence about Swampillai’s unsuccessful internal appeals was critical to determining whether the release was “grossly unfair and improvident,” one of the tests releases must meet before they’re considered unconscionable.
“The absence of any information in the record about the appeal proceedings or the potential merit of those proceedings left a critical factual void,” stated the court. “Without that information, it is difficult to know the respondent’s risk in giving up his entitlement to a claim for long-term disability benefits or whether the admittedly enhanced severance adequately compensated for what may have been released. In other words, there was insufficient information against which the fairness of the transaction could be considered.”
Cavanagh had also erred by failing to take into account the impact of Swampillai’s admitted failure to read the release seen in the context of his refusal to secure independent legal advice about the consequences of signing it. That issue, the court decided, also fell to be determined by the trial judge.
But Natalie MacDonald, a lawyer at Toronto employment law firm MacDonald & Associates, maintains Swampillai’s circumstances put a high burden on the employer to ensure he obtained independent legal advice before signing the release.
“What we have here is an employee — with 14 years’ service in a mail room dealing with a $300,000 issue — whose benefits were denied and was still conducting an appeal at the moment he signed the release,” she says. “All of that suggests that the employer had a greater duty to ensure that Swampillai had proper legal advice before he signed.”
For his part, Silverman is somewhat disappointed the court of appeal didn’t offer more guidance on the unconscionability issue.
“It was open to the court to take a strong position that a person who doesn’t read a release is the author of his own misfortune, or it could have explicitly said that it’s very important that a party in a position of power ensure that the person signing the release understands it,” he says. “It would have been helpful for employees and employers had the court affirmed one principle or the other.”
That being said, Silverman believes this case has an important takeaway. “Employers should be careful not to bring summary judgment motions too early after the pleadings close, especially in the absence of discovery, which is often critical to creating the evidentiary record necessary to convince a judge that a trial is not necessary.”