The Ontario Court of Appeal decision in Swampillai v Royal & Sun Alliance Insurance Company of Canada (2019 ONCA 201) has confirmed that a release signed by an employee should be overturned for unfairness only if there is clear evidence of a lack of fairness.
The employee was a labourer who became disabled and unable to work. He applied for and received short-term disability benefits. When these ran out, he applied for long-term disability (LTD) benefits. However, his application was denied by the insurer providing LTD benefits. The employee therefore hired a lawyer to assist with an appeal of the denial.
The employee's employment was terminated one month later, and he was offered a severance package. As part of the offer, the employee was required to sign a release of claims, which included 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 with the termination of his employment. The lawyer said that he did not practise employment law and suggested that 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, asking the court to dismiss the claim because the release included LTD claims. The court refused, holding that the release of LTD claims was unfair to the point of being unconscionable and therefore void. The employer appealed the decision.
The Court of Appeal stated that the following factors must be met in order to overturn a release as unfair to the point of unconscionable:
- There was a grossly unfair and improvident transaction.
- There was a lack of independent legal advice or other suitable advice.
- There was an overwhelming imbalance in bargaining power caused by:
- ignorance of business;
- illiteracy;
- ignorance of the language of the bargain;
- blindness;
- deafness;
- illness;
- senility; or
- a similar disability.
- The other party knowingly took advantage of this vulnerability.
The court found that the first-instance judge had:
- 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, which was required to understand what the employee had given up in signing the release; and
- failed to properly consider that the plaintiff had admittedly failed to read the release closely 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 be done in only narrow circumstances where there is sufficient evidence of unfairness. The court specifically cautioned against making conclusions on motions without sufficient evidence, which 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 an LTD claim or appeal underway with an insurer, they should mention it in the release. This may prevent the employee from pleading ignorance of what was released. Employers should also consider express language permitting them to disclose the release of LTD claims to the insurer. This will help to ensure that both the employer and the insured take a consistent approach to the LTD claims.
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