A recent decision from the Court of Appeal for Ontario has overturned a lower court’s decision which would have allowed an employer to rely on a document signed by an employee up on their termination to release the employer from claims for long term disability. Rather than issuing its own decision on what should happen, the court has ordered a new trial.

The original trial

The employee worked for the employee for 14 years in the employer’s mailroom. He became disabled and received short-term disability benefits for the full two years he was eligible (2013-2015). The plan was funded by the employer but was administered, adjudicated and paid out by an benefits company. On March 31, 2015 the benefits company advised the employee that he was not eligible for long-term disability benefits because he did not meet the definition of disabled from “any employment,” meaning he could perform jobs other than that which he originally had. He appealed that decision, but it was dismissed. On June 19, 2015 he hired a law firm to represent him on further appeals.

The employee was advised on June 24, 2015 that he was being terminated from his employment effective July 22, 2015. Included with the notice was a severance offer which included a release of all claims against the employer. The law firm he hired advised him to seek advice from another lawyer or law firm since they didn’t practice employment law. Instead of following that advice, the employee negotiated with the employer on his own. These negotiations led to some improvement in the terms, but the employee admitted to not reading the document closely.

The employee continued to pursue his long-term disability claim. However, the benefits company asked for a summary judgment dismissing the action based on the release signed by the employee.

After reviewing the release, which included a release of long-term disability claims, the motion judge found the release was unconscionable based on criteria set out in a 2007 decision from the Court of Appeal for Ontario. The decision outlines four elements necessary to find unconscionability. They are:

1. a grossly unfair and improvident transaction;
2. the victim’s lack of independent legal advice or other suitable advice;
3. an overwhelming imbalance in bargaining power caused by the victim’s ignorance of business, illiteracy, ignorance of the language of the bargain, blindness, deafness, illness, senility, or similar disability; and
4. the other party knowingly taking advantage of this vulnerability.

As a result, the motion judge set aside the release and declared it unenforceable.

The case goes to appeal

The benefits company appealed the motion judge’s decision, and the court of appeal determined that the case should not have been determined via summary judgment. The court provided two reasons for this.

The first reasons was that the record before the motion judge was insufficient to permit him to determine that the release reached the threshold of “grossly unfair and improvident” just because it included a release of long-term disability claims. The court wrote,

“The absence of any information in the record about the appeal proceedings or the potential merit of those proceedings left a critical factual void. 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.”

Secondly, the motion judge did not take into account the employee’s failure to closely read the release he negotiated.

It is critical to obtain proper legal advice when negotiating termination or other employment-related matters. Through early and forward-thinking consultation with a knowledgeable employment lawyer, parties can proactively address the legal implications of a situation such as what we discussed today. At HMC Lawyers we endeavor to offer exceptional service at reasonable rates, allowing our customers to minimize risk while saving money. Call 1-800-480-3534 or contact us online to schedule your appointment today.