Can A Claim Be Brought Even When There is A Full and Final Release?

Hi, Stuart Rudner here with another Rudner Law video Employment Law update.

So, normally when there’s a termination of employment or any potential legal claim, what the potential defendant wants is a signed full and final release, by which the plaintiff, or potential plaintiff, confirms they will not bring a legal action. When the employer, or the potential defendant, gets that signed release, they can usually sit back, breathe a deep sigh of relief, knowing that they’re not going to have to worry about a claim coming through the door for the next two years.

However, the question that I ask today, and I will answer today, is whether, despite having that full and final release, a claim can be brought. And the simple answer is yes, there are circumstances where courts will allow someone to bring a claim even after they signed a full and final release.

One example of that is a recent decision out of the Ontario courts brought by Mr. Swampillai against Royal and Sun Alliance as well as Sunlife Insurance. Now Mr. Swampillai was employed by Royal and Sun Alliance, he went off on long term disability, there’s a lengthy history there that’s not really relevant for the purposes of this discussion, but what is relevant is that ultimately his benefits were denied and subsequently Royal and Sun Alliance terminated his employment. As is typical, and as we certainly do with our clients, when the termination package, or the severance package was presented, it included a full and final release, and in order to receive all the compensation and consideration that was offered, Mr. Swampillai had to sign the release. There was some discussion back and forth, some negotiation, ultimately he signed and as the court reported, he signed on approximately July 14, 2015, and he commenced an action against Royal and Sun Alliance just under two years later on June 13, 2017.

Now the interesting thing here is that the action was not for wrongful dismissal, it was for disability benefits, but the release that he signed was a very typical, all-encompassing release, which did address long-term disability benefits, so when the claim was filed Royal and Sun Alliance did what any typical defendant would do –  they brought a motion to have the claim dismissed, on the basis that he had signed a full and final release, and the claim should be barred. The motion went ahead and the court considered whether there was any legal or equitable basis upon which to allow the claim to proceed, and what the court said in that case is that there is a doctrine of unconscionability. If an agreement, such as a release, is unconscionable, then the court will not hold the parties to it.

In this case, the court had to assess whether the agreement not to proceed on any claim, including disability benefits, was unconscionable, and the court referenced a number of previous cases, including Black and Wilcox from 1976, in which the court said essentially that to set aside a transaction, the court must find that the consideration offered was so inadequate, given the relative bargaining positions of the parties, that it should be set aside.

The court also referenced a recent case of Cain and Clarica Life Insurance, where that court in that case set out four criteria for a finding of unconscionability. The first criteria: there must be a grossly unfair and improvident transaction. Second, the victim must have had a lack of independent legal advice or other suitable advice to inform them. Third, there must be 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 other similar disability, and finally, fourth, the other parties knowingly taking advantage of that vulnerability.

So the threshold is quite high, which is not surprising, because our courts do not like to set aside agreements that parties have entered into unless there’s a very strong reason to do so. In this case, the court went through the analysis of those four factors and what they found was quite interesting, because ultimately it concluded that the fact that Mr. Swampillai not only signed away his rights for wrongful dismissal- he accepted a severance package –  but he also signed away any right to bring a claim on the basis of a loss of disability benefits. And he didn’t receive anything in exchange for that part of the agreement. He signed away all of his rights and all he got was the severance portion of his potential claim.

So as a result, there was a four factor analysis and what the court found was that the terms were so unfair that it made sense for the court to overturn or ignore that release. They also found there was a lack of legal advice on the issue. They found, and what I think is particularly interesting, is that Royal and Sun Alliance failed to alert Mr. Swampillai, either directly or indirectly through the insurance broker, that he would be giving up his claim, or any potential claim for LTD benefits, as a result of signing this. Because of the fact that they didn’t advise him of this, the court found that they essentially took advantage of his lack of knowledge. So, extremely unfair bargaining position, extremely unfair bargain, a lack of knowledge, and a finding of the court that Royal and Sun Alliance deliberately took advantage of that lack of knowledge, meant that ultimately the court found that the release would not be upheld, that the plaintiff in this case was allowed to proceed with his claim.

So this is one example of where, even though a full and final release was signed after some negotiation, it was not upheld, and ultimately the plaintiff was allowed to proceed. Lesson for employers: even if you do get a full and final release, that may not be the end of the story and you need to make sure that the agreement that you entered into is not going to be found to be unconscionable. Lesson for employees: first of all, be very careful what you sign – get legal advice. Second of all, even if you did sign a release, it may be possible to bring a claim anyways, so seek legal advice, even if the response you get initially is that you sign a release and therefore you have no claim. That’s all for today, thanks for tuning in.   

Stuart Rudner

I am the founder of Rudner Law. In 2016, 2017 and 2018, I was selected by my peers for inclusion in ‘The Best Lawyers in Canada’ in the area of Employment Law and have been repeatedly named in Canadian HR Reporter’s Employment Lawyers Directory (a comprehensive directory of the top employment law and immigration law practitioners in Canada), and was also named one of Canada’s top Legal Social Media Influencers.