Employer’s Requirement to Release Them Of LTD Benefits Deemed Unconscionable

It’s comforting to know that long-term disability benefits are available if an accident, injury, or illness prevents someone from working. Unfortunately, the process of applying for and receiving benefits can be complicated, overwhelming, and unfair. The importance of having legal representation when dealing with matter of long-term disability was recently highlighted in a decision from the Ontario Superior Court of Justice. The issue at trial was whether an employer had acted unfairly towards an employee when terminating him and releasing their obligations to provide long-term disability benefits.


The employee worked for the employer from August 7, 2001 to December 2, 2007. He did so under fixed-term contracts and had no employee benefits. He became employed by the employer on December 3, 2007, at which time he began to receive employee benefits, including long-term disability, which was administered by “the insurer.” Included in the plan was what is known as an “own occupation” clause, under which the insurer determines whether someone who is injured is capable of performing their current duties at work. If not, they are eligible to receive two-years of long-term disability benefits. After that two-year period, the insurer then assesses whether the employee is capable of performing any work at all.

In 2013 the employee was diagnosed with a “degenerative disc disease, spinal stenosis of his lumbar spine and osteoarthritis.” This left him unable to perform his duties for the employer, which included lifting and moving objects.

The employee began to receive short-term disability benefits prior to applying for long-term disability benefits. He was approved for long-term disability benefits on July 22, 2013. These were effective for two years. On March 22, 2015, the employee received a letter from the insurer advising him he did not meet the definition of disability under the “any occupation” eligibility for long-term disability benefits, and that the benefits would cease on July 22, 2015. He was advised that he could appeal the decision. He hired a law firm to represent him in his appeal.

On June 24, 2015, the employee received a letter stating his employment would cease effective July 22, 2015. The employer offered him a severance package, which included minimum employment standards entitlements based upon employment from December 3, 2007. In addition, they offered him an additional 26.5 weeks of pay in exchange for his signing of a final release. The employee was given until July 22, 2015 to sign the release. His lawyer for the insurance appeal was not aware that the release contained a clause stating the employee was releasing the employer from any future LTD benefits. The lawyer was only sent the first page of the agreement, and assumed it was an employment law issue. The lawyer advised the employee to seek the help of an employment lawyer.

The employee did not get proper legal advice on the release, and signed it on July 14, 2015.

The employee later sued the employer and the insurer for breach of contract under the doctrine of unconscionability.

The court’s analysis

The court began its analysis by highlighting that the employee was involved in an appeal of the insurer’s decision to deny him long-term disability benefits up to his 65th birthday. Had he been successful in this appeal, his benefits would have been substantial (about $300,000).

The court then found that he employer had known about the employee’s inability to perform any work at the workplace, having unsuccessfully looked for jobs that could be performed sitting down.

The court then turned to the release. The court first noted that the letter to the employee did not disclose that he would be required to abandon his appeal after signing the release. It stated only that he would be granted the statutory minimum severance if he failed to sign. The employee submitted that “in these circumstances, where he received nothing in exchange for releasing his rights in relation to his appeal from (the insurer’s) denial of his LTD benefits, a substantial claim, the transaction was grossly unfair and improvident.” Meanwhile, the employer submitted that “it was reasonable for the employer to propose a release in the context of a reasonable settlement offer and it was then up to the plaintiff to accept, reject or renegotiate any component of the offer, including the release.”

The court disagreed with the employer’s stance, writing “ In these circumstances, I conclude that the settlement of (the employee’s) LTD claim on terms that provided for payment of nothing in exchange for a release of this claim as part of an overall settlement of claims in respect of the termination of his employment with (the employer), in circumstances where (the employer) and (the insurer) knew that (the employee) was appealing the denial of his LTD benefits, was grossly unfair.”

The court also found there to have been an “overwhelming imbalance of power” between the employee and the employer at the time his employment was terminated. Additionally, the court found the employer to have knowingly taken advantage of the employee’s vulnerability, stating “By failing to alert (the employee), either directly or through (the insurer), that he was required to abandon his claim for LTD benefits as part of the severance package that it offered, (the employer) knowingly took advantage of (the employee’s) vulnerability.”

As a result, the court found the release as it related to the employee’s long-term disability claim is set aside and deemed unenforceable.

It is best to contact an experienced lawyer when faced with a denial of a disability claim in order to ensure limitation periods are not missed. At Derfel Injury Law we help put together the evidence our clients need to support their claims and help resolve the conflicts they face. We work tirelessly on behalf of our clients, leaving no possible avenue towards compensation unexplored. Please call us at 416.847.3580 or reach us online to schedule an appointment with us today.