A recent decision of the Ontario Superior Court of Justice illustrates the challenges employers can face when attempting to enforce a signed release. In Swampillai v. Royal & Sun Alliance Insurance Company of Canada, 2018 ONSC 4023 (CanLII), the Court was asked to consider on a motion for summary judgment on whether or not the release signed by Mr. Swampillai at the time of the termination of his employment barred him from pursuing a claim for long term disability benefits. Justice Cavanaugh found that Mr. Swampillai had signed the release under circumstances that were unconscionable and, as such, the release could not prevent him from pursuing a claim for long term disability (LTD) benefits. Mr. Swampillai was thus free to continue his action against his former employer, Royal & Sun Alliance Insurance Company of Canada (RSA) and Sun Life Assurance Company of Canada (Sun Life), who acted as the administrator of RSA’s long term disability benefits program, even though the release signed by Mr. Swampillai specifically cited “long term disability benefits” as a released claim. So what went wrong for RSA? To understand the Court’s decision, we need to review the circumstances that existed at the time that RSA and Mr. Swampillai negotiated the severance package.
Mr. Swampillai had worked for RSA as first a contract employee and then a permanent, full-time employee since 2001. He worked as a distribution clerk and in the mail room, with some physical demands like lifting and moving. In or around 2013, he developed certain medical conditions that prevented him from working in his role as a distribution clerk. He first went on short term disability leave and then transitioned to long term disability leave, where he remained for a period of two years. Like many LTD plans, RSA’s LTD distinguished between being disabled from one’s “own occupation” and “any occupation.” After two years of disability, an employee would only qualify for continued LTD benefits if they could show that they were disabled from “any occupation.” If not, they were expected to return to work in some capacity.
Unlike many employers, RSA was self-insured for long term disability benefits. RSA retained Sun Life to adjudicate employee claims for LTD but Sun Life was not responsible for paying these benefits. RSA relied on Sun Life to communicate with employees regarding their claims, collect and review medical evidence and make a determination as to eligibility for benefits.
In March of 2015, Mr. Swampillai was notified by Sun Life that his eligibility for LTD benefits would cease as of July 22, 2015, on the basis that he was not disabled from performing “any occupation.” He was told he had until October 22, 2015, to appeal Sun Life’s decision. On May 12, 2015, Mr. Swampillai appealed the decision and provided further medical information to Sun Life in support of his claim. On June 2, 2015, he received a second denial letter. Again, he was advised that he had until October 22, 2015, to appeal. On June 19, 2015, Mr. Swampillai retained a law firm to assist him with his claim for LTD benefits. Meanwhile, RSA had conducted an evaluation as to whether or not it had alternative work for Mr. Swampillai that would fit his restrictions and had concluded that no such positions were available. Accordingly, it notified Mr. Swampillai by way of a letter dated June 24, 2015, that his employment with the company was being terminated. RSA offered Mr. Swampillai a severance package in exchange for a release of claims against the company. Notably, the June 24, 2015, termination letter from RSA confirmed that Mr. Swampillai’s LTD benefits would end as of July 21, 2015, and the RSA release listed “long term disability benefits” among the released claims. Mr. Swampillai was given until July 22, 2015, to review the offer and sign the release. Mr. Swampillai sent portions of the severance offer to his lawyer, whose assistant advised that he should speak to an employment law specialist about the offer. Mr. Swampillai did not do so. However, he did negotiate a more favourable severance offer with RSA before eventually signing the release on July 14, 2015. Mr. Swampillai gave evidence via affidavit that prior to signing the release, he had notified RSA in a telephone call that he disputed Sun Life’s decision regarding his entitlement to LTD benefits.
In June of 2017, Mr. Swampillai commenced an action against RSA and Sun Life for allegedly unpaid LTD benefits. RSA brought this motion for summary judgment, asking the Court to enforce the release and dismiss Mr. Swampillai’s claim. Mr. Swampillai’s counsel argued that the release was unconscionable and should be set aside. The test for showing that an agreement between two parties is unconscionable has four elements:
All four of these elements must be present for the agreement to be set aside. In considering whether Mr. Swampillai had met all four parts of the test, Justice Cavanaugh reviewed all of the circumstances that existed at the time Mr. Swampillai accepted RSA’s severance offer and signed the release and came to the following conclusions:
As Mr. Swampillai had satisfied the Court that all four elements of the unconscionability test had been met, he was permitted to pursue his claim for LTD benefits despite the signed release.
The implications of this decision could be troubling for employers, most particularly the findings regarding Mr. Swampillai’s “extraordinary” vulnerability and the importance Justice Cavanaugh placed on the fact that RSA did not specifically advise Mr. Swampillai as to the impact of his release on his LTD claim. Most employers are rightly very wary of providing employees with anything that could be construed as legal advice. Further, the termination letter specifically stated when Mr. Swampillai’s LTD payments would end and the release stated that by accepting RSA’s severance offer, Mr. Swampillai was releasing any claim to LTD benefits. Many would have regarded that as sufficient notice that the claim could not continue after the release was signed. With respect to the vulnerability assessment, the fact that Mr. Swampillai was about to lose a source of income and was experiencing health issues are factors that are commonly present at the time that severance negotiations are taking place.
Employers may be well advised to specifically recommend that employees obtain independent legal advice before signing a release of claims and to review their talking points and templates to determine if changes are needed to mitigate the risks presented by this decision. We also recommend reaching out to legal counsel before implementing the termination of any employee who is on or coming off of a disability claim, particularly where there may be a claim arising from the denial of benefits or accommodation issues.