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Second Circuit Clarifies ERISA LTD Waiver Protections in Schuyler v. Sun Life 

In a significant victory for individuals with long term disability ("LTD") claims, the Second Circuit Court of Appeals ruled in Schuyler v. Sun Life Assurance Company of Canada that ERISA benefit rights cannot be waived through a standard separation agreement unless the waiver is knowing and voluntary. This ruling reinforces ERISA鈥檚 protective framework and delivers an important warning for employment attorneys advising clients with disability claims.

糖心直播, in partnership with Kantor & Kantor LLP, proudly served as co-counsel for the plaintiff in this pivotal case.

Why the Schuyler Case Is So Important

Separation agreements often include broad language waiving 鈥渁ny and all claims鈥� the employee may have against their employer and related entities. But in the context of a pending ERISA-governed disability claim, those waivers may not have the effect insurers expect 鈥� particularly when the employee relies on representations that the claim is unaffected.

This case confirms that:

• • The employee鈥檚 understanding matters. Courts will examine the circumstances under which the employee signed the agreement, including what they were told by the employer. If the employee relied on the employer鈥檚 assurances that their disability claim would not be impacted, the release may not be enforceable.
  • A general release may not always cover a disability claim. When a release doesn鈥檛 specifically mention disability benefits or the insurer, courts may find that the employee didn鈥檛 knowingly give up their rights 鈥� especially if the claim involves a third-party insurer. However, the absence of specific language alone is probably not enough to invalidate a waiver without other supporting context.
  • Insurers cannot rely blindly on release language. An insurer like Sun Life cannot defeat a benefit claim by pointing to a separation agreement if the claimant reasonably believed the claim was preserved 鈥� and had no reason to think otherwise.

Case Background: A Question of Reliance and Scope

The plaintiff in Schuyler suffered a traumatic brain injury ("TBI") in 2015 that left her unable to return to work. She filed a claim for long term disability benefits under her employer鈥檚 group insurance plan, which was insured and administered by Sun Life. The claim remained pending when she later separated from her job.

As part of her separation, she was offered a $25,000 severance payment in exchange for signing a separation agreement. The agreement included standard language releasing 鈥渁ll claims鈥� against her employer and its 鈥渞elated or affiliated entities.鈥�

Concerned about her LTD claim, the plaintiff asked her employment attorney whether signing the agreement would affect her disability benefits. Her attorney told her it would not, relying on assurances received from the employer鈥檚 counsel that the release would have 鈥渁bsolutely no effect鈥� on her pending claim.

Relying on this legal advice, the plaintiff signed the agreement. Soon after, Sun Life denied her LTD benefits. When she filed suit under ERISA Section 502(a) to challenge the denial, the district court dismissed her case, finding that the separation agreement barred her claim.

The Second Circuit鈥檚 Ruling: ERISA Rights Must Be Knowingly Waived

The Second Circuit vacated the lower court鈥檚 ruling, finding that the plaintiff had not knowingly and voluntarily waived her ERISA rights. The court emphasized that courts must look beyond the text of the release and consider the context and representations surrounding its execution.

Here鈥檚 why the Court ruled in the plaintiff鈥檚 favor:

1. Assurances by the Employer鈥檚 Counsel Were Material

The plaintiff relied on the advice of her employment attorney, who told her the release would not affect her LTD benefits 鈥� relying in turn on assurances from the employer鈥檚 counsel that the release would have 鈥渁bsolutely no effect鈥� on her pending claim. These representations carried significant weight in the Court鈥檚 analysis of whether the waiver was knowing and voluntary.

2. Disproportionate Exchange of Value

The Court noted that the $25,000 severance payment was modest when compared to the potential value of the LTD benefits, which could amount to hundreds of thousands of dollars. A waiver of such significant rights must be deliberate and clearly understood.

3. False Distinction Between Appeal and Lawsuit

Sun Life argued that even if the release didn鈥檛 bar her ability to appeal internally, it did bar her ability to file a lawsuit. The Court rejected this distinction. It explained that either the claim was waived entirely, or it wasn鈥檛 waived at all. The release could not logically apply to one type of remedy (lawsuit) but not the other (administrative appeal).

The Dissent: A Different View of Contractual Language

Chief Judge Debra Ann Livingston dissented, arguing that the release should be enforced as written. In her view, the plaintiff鈥攚ho was sophisticated and represented by an attorney鈥攌new the risks and made a conscious bargain in accepting severance. She pointed to the inclusion of 鈥渞elated entities鈥� in the release and emphasized contractual certainty.

While the dissent would have enforced the release as written, the majority concluded that a waiver of ERISA rights must be knowing, voluntary, and informed 鈥� and found that this standard was not met.

Key Lessons for Employment Attorneys

This decision carries important implications for employment lawyers who counsel clients through terminations, severance packages, and exit negotiations:

• • Assurances from the employer matter. Courts will consider not only the language of the release, but also any representations made by the employer or its attorneys about how the agreement will affect benefit claims. If the employee relies on those assurances, the waiver may not be enforceable.
  • Be cautious with boilerplate releases. Generic language releasing 鈥渁ll claims鈥� may not be enough when ERISA-protected rights are involved. Err on the side of clarity.
  • Consider a clear carve-out. If your client has a pending or anticipated disability claim, include a clear carve-out stating that the release does not apply to any claim under the employer鈥檚 disability insurance plan or under ERISA Section 502(a).

What This Means for Employees With Disability Claims

If you鈥檙e leaving your job and considering signing a severance agreement, be aware that:

• • The agreement may contain broad language that could affect your right to LTD benefits.
  • If you already have a pending claim or are considering filing one, it is critical to get legal advice from a disability attorney, not just an employment attorney.
  • Even if your employer says your claim is unaffected, that may not be enough. The insurer鈥攚hich is often a separate company鈥攎ay later argue that you waived your rights.
  • Fortunately, courts may protect you if the waiver wasn鈥檛 fully explained or if you relied on incorrect legal advice.
  • Always seek the advice of qualified legal counsel before signing a severance agreement.

Our Role in the Schuyler Case

糖心直播 served as co-counsel for the plaintiff in this matter, working closely with Kantor & Kantor LLP. We are proud to have contributed to this important appellate victory that strengthens protections for employees navigating disability claims.

The ruling offers a clear reminder: ERISA disability claims are governed by their own legal standards, especially when it comes to waivers. Courts will not enforce a release if the employee did not clearly understand they were giving up their right to disability benefits 鈥� particularly when the employee was advised otherwise.