A recent decision from Ontario's Court of Appeal (Swampillai v. Royal & Sun Alliance Insurance Company of Canada, 2019 ONCA 201) confirms a release signed by an employee should only be overturned for unfairness with clear evidence of a lack of fairness.
The employee was a labourer who became disabled and unable to work. The employee applied for and received short term disability ("STD") benefits. When the STD benefits ran out, the employee applied for long-term disability ("LTD") benefits. His application was denied by the insurer providing LTD benefits. The employee hired a lawyer to assist him with an appeal of that denial.
The employee's employment was terminated a month later, and he was offered a severance package. As part of the offer, the employee was required to sign a release of claims. Included in the release was a statement releasing claims to LTD benefits. The release did not mention that the employee was still engaged in his LTD appeal. The employee asked his lawyer to help him with the termination of his employment. The lawyer said he did not practice employment law, and suggested the employee contact another lawyer. The employee chose to deal directly with the employer, and ultimately signed the release.
The employee sued the employer and the insurer for LTD benefits. The employer brought a motion for summary judgment. The employer asked the court to dismiss the claim because the release included LTD claims. The court refused. The court decided the release of LTD claims was unfair to the point of being unconscionable, and therefore void. The employer appealed.
What did the Court Decide?
The Court of Appeal said the following factors must be met to overturn a release as unfair to the point of unconscionable:
- a grossly unfair and improvident transaction;
- a lack of independent legal advice or other suitable advice;
- an overwhelming imbalance in bargaining power caused by ignorance of business, illiteracy, ignorance of the language of the bargain, blindness, deafness, illness, senility, or similar disability; and
- the other party knowingly taking advantage of this vulnerability.
The court said the first judge:
- heard no evidence about the fairness of the severance package provided to the employee;
- heard no evidence about the LTD appeal proceedings or the potential for the success of the LTD claims. This was required to understand what the employee had given up in signing the release; and
- failed to properly consider that the Plaintiff admittedly failed to closely read the release before signing it.
The court overturned the decision, and sent the issue of the enforceability of the release back for a trial.
Overturning releases for unconscionability should only be done in narrow circumstances where there is sufficient evidence of unfairness. The court specifically cautioned against making conclusions on motions without sufficient evidence. This may cause plaintiffs and defendants alike to reconsider under what circumstances the court will grant summary judgment.
Where employers offer a severance package to an employee with a LTD claim and/or appeal underway with an insurer, they should mention that in the release. This may prevent an employee pleading ignorance of what was released. Employers may also wish to consider express language permitting them to disclose the release of LTD claims to the insurer. This will help ensure a consistent approach to the LTD claims by the employer and the insurer.