After a termination has occurred, employers are quick to offer their dismissed employees a full and final release to be signed whereby the terminated employees agrees to accept the terms of the release and withdraws the right to bring any further action against the employer. Employers after receiving these executed releases will remain content for approximately two years that they are safe. However, there are some instances whereby an employee can still bring a court action even if they signed a release.

One case in point is the Ontario decision of Swampillai v. Royal & Sun Alliance Insurance Company of Canada, 2018 ONSC 4023 whereby the Ontario Superior Court dismissed the employers motion for summary judgment for the Plaintiff’s claim for LTD benefits. The Plaintiff was employed by the Defendant and went on LTD. After some period of time, the Defendant terminated him and denied him his LTD benefits. The Plaintiff signed a termination package that had a full and final release that denied the Plaintiff any claim for LTD benefits. Just short of two years, the Plaintiff commenced an action.

Interestingly, the claim was not for wrongful dismissal but for LTD benefits. As any Defendant would do, a motion to dismiss the claim was brought on the basis that a full and final release had been signed. The motion commenced and the legal issue for the court was whether there was any equitable or legal basis on which the claim may proceed. In this case there was a doctrine of unconscionability. If the release was unconscionable, especially in regards to the LTD benefits, then the courts will void the release. To set aside the transaction the courts looked to the doctrine of consideration and whether consideration was given by the parties to uphold the agreement. If consideration was inadequate given the bargaining power of the parties, the agreement would be set aside.

To find unconscionability, four criteria must be present: a. there must be a grossly unfair and improvident transaction; b. the victim must have had a lack of independent legal advice or other suitable advice; c. there must be an overwhelming imbalance in bargaining power caused by the victim’s ignorance or illiteracy or disability and d. the other parties knowingly took advantage of that vulnerability.

Ultimately the court found that not only did the Plaintiff waive his right to a wrongful dismissal lawsuit by accepting a severance package, he also waived his right to LTD benefits to which he received no valid consideration for that part of the release. The courts found the terms of the contract to be unfair such that they would overturn the release. Furthermore, the Plaintiff had not received legal advice and the court commented that the Defendant failed to bring to the Plaintiff’s attention that he would be giving up his right for LTD benefits if he signed the release. There was an extreme disadvantage and unfair bargaining power between the parties which the Defendant took deliberate advantage of.

The lesson here for employers is that if there are any suspicions of unconscionability rising to the legal threshold, your full and final release may not in fact protect your organization from future claims. Ensure that you bring such clauses to the attention of dismissed employees. If you are an employee, seek legal advice from your wrongful dismissal lawyer as to what you are signing. Top Toronto employment lawyer, Stacey Ball can help you ensure you are getting a fair package. Contact us or call at 416-921-7997 extension 227.