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Sometimes a Full and Final Release is not all that Final

The Ontario Superior Court of Justice recently applied the doctrine of unconscionability to a full and final release signed by a terminated and disabled employee, thereby allowing his dispute over the reinstatement of his Long-Term Disability (LTD) benefits to proceed. The case, Swampillai v. Royal & Sun Alliance Insurance Company of Canada, 2018 ONSC 4023, stands out because the signed release clearly stated that all claims, including those for LTD benefits, would be released. Nonetheless, the circumstances under which the plaintiff had singed the release ultimately led to a finding of unconscionability in his favor. 

THE FACTS

Mr. Swampillai had worked for Royal and Sun Alliance Insurance Company of Canada (“RSA”) since 2001. In early 2013 he developed spinal stenosis and osteoarthritis. Since these degenerative diseases caused him severe pain and prevented him from being able to work at his occupation, Mr. Swampillai was approved for Short-Term Disability (STD) benefits.

RSA was also Mr. Swampillai’s provider of LTD benefits. RSA would have their LTD claims processed and adjudicated by Sun Life. In September 2013, Sun Life decided that Mr. Swampillai was no longer capable of performing his work duties with RSA and approved him for LTD benefits effective July 2013. He received LTD benefits for approximately two years without interruption.

On March 31, 2015, Mr. Swampillai was notified by Sun Life that his LTD benefits would be coming to an end in July that year. Pursuant to the conditions of his LTD plan, the definition of “disabled” under which employees were approved for continuing LTD benefits changed after two years of receiving payments. By July 2015, Mr. Swampillai would need to be incapable of performing the work duties of any occupation, not just those of his own occupation, in order to continue receiving LTD benefits until he’d turn 65. Sun Life’s position was that Mr. Swampillai did not meet this requirement and was therefore no longer eligible for benefits. Mr. Swampillai appealed Sun Life’s denial. In June 2015, after his appeal was rejected, he retained a personal injury lawyer to represent him in his next appeal. Mr. Swampillai was told that October 22, 2015 was the last day on which he could appeal further. After that, Sun Life’s decision would be final.

Days later, Mr. Swampillai received confirmation from RSA that his employment would be terminated effective July 22, 2015, days after his last LTD payment. He was offered a severance package in exchange for signing a release that specifically released RSA from all claims, including his LTD benefits. He attempted to seek advice from his lawyer before signing, but was told by an assistant at the firm that he should consult with an employment lawyer instead. 

Mr. Swampillai did not seek another lawyer’s advice. Instead, he negotiated with RSA by himself. He managed to increase his severance package, but did not ask to change the wording of the release. He eventually accepted RSA’s final offer and signed the release, unaware that he’d settled for an amount significantly smaller than his potential LTD benefit award, should he be approved.

Mr. Swampillai had not given up on his LTD benefits. In June 2017, he commenced a lawsuit against RSA and SunLife for his unpaid benefits. When the defendants alleged before the court that he’d signed away his entitlement to those benefits in the release upon his termination, Mr. Swampillai’s new lawyers claimed the release had been unconscionable and should therefore be set aside.

SUPERIOR COURT OF JUSTICE’S OPINION

In determining whether the release signed by Mr. Swampillai was unconscionable, the court applied well established principles set forth in the Ontario Court of Appeal case of Titus v. William F. Cooke Enterprises Inc. In the context of employment, the following four features must be present for unconscionability to be found:

1. the transaction is grossly unfair and improvident;
2. the victim did not have independent legal advice or suitable advice;
3. there was an overwhelming imbalance of power caused by the victim’s ignorance of business, illiteracy, ignorance of the bargain’s language, blindness, deafness, illness, senility, or other similar disability;
4. the other party knowingly took advantage of the victim’s vulnerabilities.

The court found that all four elements were present in this case.

The transaction entered into by Mr. Swampillai was grossly unfair and improvident because both RSA and Sun Life knew that Mr. Swampillai was in the process of appealing the denial of his benefits. His severance package and release were offered to him just after he’d been notified that his final date for an appeal was October 22, 2015. Then, while negotiating severance with Mr. Swampillai, RSA knowingly failed to advise him that his appeal of Sun Life’s decision would be released. Because of RSA’s maneuver, Mr. Swampillai mistakenly forfeited an LTD claim with a potential value of close to $300,000 (his LTD benefits until he would turn 65 years old) for a severance package that amounted to much less than that amount.

Mr. Swampillai had also lacked independent legal advice and professional advice prior to signing the release. The lawyer he had retained at the time did not read his severance package or the release. Further, it was not unreasonable for Mr. Swampillai to assume that he didn’t need another lawyer because he believed the release did not pertain to his appeal for LTD benefits and dealings with Sun Life.

The court found that there was an overwhelming imbalance of power present. At the time he’d been asked to sign the release and severance package, Mr. Swampillai’s LTD benefits were coming to an end. Further, Mr. Swampillai was suffering from health impairments so severe that they had prevented him from working at his own occupation for two years.

Finally, the court found that RSA indeed took advantage of Mr. Swampillai’s vulnerability. While negotiating severance with Mr. Swampillai, RSA knew that he was in the midst of dealing with Sun Life’s decision to deny his LTD benefits, yet they knowingly failed to inform him that his appeal would be forfeited upon signing the release.

OUR THOUGHTS

Employers that are also LTD benefit providers might try to use termination packages to do away with their LTD responsibilities towards their employees. In the above discussed case, the employee was fortunate that the signed release was deemed unconscionable, despite its clear wording and the fact that he’d knowingly forgone retaining a new lawyer. Any employee in a similar situation would be highly encouraged to persistently request that a lawyer read all of the package’s documentation to ensure that no claims are being forfeited.

The above article is for general information purposes only and does not constitute legal advice. If you have concerns with regard to the foregoing issues, please make an appointment with one of our lawyers or a qualified legal practitioner elsewhere.