Release Reaches Farther than Expected

The phrase caveat signator means "beware what you are signing." It is an appropriate warning when signing a Full and Final Release of liability.

If an employee signs a full and final release of all liability at the request of and in favour of his or her employer, can that release be used to disentitle the employee to the receipt of third-party disability benefits?

In the case of Zelsman v. Meridian Credit Union Limited, 2012 ONCA 358, upholding the earlier decision of the Honourable Justice Kendra Coats, reported at 2011 ONSC 1680, the Court of Appeal for Ontario answered that question with a “yes.”

Facts

In Zelsman, the employee was insured for long term disability (LTD) by the Great-West Life Assurance Company (GWL). The plaintiff employee, Ms. Zelsman was employed by the College of Family Physicians of Canada. Ms. Zelsman’s employment with the College was terminated in April 2008; however, she remained covered under the GWL policy for an additional month in which period she applied for LTD benefits.

While GWL was adjudicating her claim for LTD benefits Ms. Zelsman was disputing the termination of employment, by filing a complaint with the Human Rights Tribunal. Ms. Zelsman settled her Human Rights complaint and signed a release in favour of her employer, which included a provision by which she agreed to release Great West Life from any and all claims, except those arising from a policy of insurance that she purchased after her termination from the College.

The question was whether GWL could rely upon the release signed by Zelsman in favour of the College, in a case to which it had not been a party, in order to thwart the employee’s claims for benefits.

Application Decision (2011 ONSC 1680)

On the original Application to sort out these questions, Justice Kendra Coats held that although GWL had not been a party to the settlement or to the release, the language of the release was clear and unambiguous (para. 43).

When the employee’s arguments with respect to privity of contract and agency failed, she argued that the release had the effect of disentitling her to the benefits to which she was entitled as guaranteed by the provisions of the Ontario Employment Standards Act. Under Ontario employment law a dismissed employee is entitled to the benefit of the benefits to which she would be entitled as an employee through her notice period. (For more on this subject consider the post The Requirement to Maintain Disability Benefits on Dismissal.)

At paragraph 59 of her reasons for decision, Justice Coats summarized the employee’s position as follows:

1. Pursuant to sections 54 and 57 of the ESA, an employer cannot terminate an employee who has been employed for more than three months without written notice and for an employee who has been employed for more than one year and less than three years, the required period of notice is a minimum of two weeks.

2. Sections 60 and 61 of the ESA provide that during the statutory notice period, an employer cannot alter any terms and conditions of employment and must continue to make whatever benefit plan contributions are required to maintain the employee’s benefits until the end of the notice period. This applies even if employment is terminated effective immediately and the employer pays termination pay instead of continuing the employment.

3. Pursuant to section 5 of the ESA, employers and employees cannot contract out of or waive an employment standard. Any such contracting out or waiver is void.

4. The plaintiff submits that the subsequent letter of resignation does not change the fact that the plaintiff was terminated in April of 2008 and that the College was required to comply with the ESA, including continuation of the LTD plan for at least two weeks after April 22, 2008 which the College did, in fact, do and exceed.

5. The effective date of the plaintiff’s disability was April 24, 2008, during the statutory notice period. The plaintiff submits that her right to claim LTD benefits crystallized at that point.

6. The plaintiff argues that by purporting to include a release of claims for LTD benefits in the Minutes, the College was in effect requiring the plaintiff to waive her rights to the benefit of the LTD coverage during the statutory notice period. The plaintiff submits that the effect of such a release is to deny the plaintiff the benefit to which she is statutorily entitled and which she cannot waive.

Justice Coats’s decision was that coverage had, in fact, been maintained throughout the notice period and that what the employee had done, in settling her Human Rights complaint, was compromised her claim against Great West, resolving it for the consideration received from the College (para. 64.) The Court of Appeal for Ontario (Weiler, Blair and Juriansz JJ.A.) agreed, expressly endorsing Justice Coats’s analysis.

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As always, everyone’s situation is different. The above is not intended to be legal advice for any particular situation. It is always prudent to seek professional legal advice before making any decisions with respect to your own case.

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