The U.S. Court of Appeals for the Second Circuit ruled, in Schuyler v. Sun Life Assurance Company of Canada, that an insurer failed to demonstrate that a long-term disability (“LTD”) plan participant had “knowingly and voluntarily” waived her ERISA rights.
Law. An individual can contractually waive his or her ERISA rights if the waiver is “knowing and voluntary.” However, under previous court decisions, a waiver of an ERISA claim “is subject to closer scrutiny than a waiver of general contract claims” because individuals releasing ERISA claims “are relinquishing a right that ERISA indicates a strong congressional purpose of preserving.”
Facts. An employee suffered a traumatic brain injury after she fell down a flight of stairs. At the time she terminated employment she had a pending claim for LTD benefits.
Before terminating employment, the employee signed a separation agreement with the employer in which she agreed to release the employer and its “parents, subsidiaries, related or affiliated entities…and their agents from any and all claims,” including those arising under ERISA. At that time, the employer’s representatives assured her that the insurer was a separate and independent third party, and that the agreement would not affect her ability to appeal any denial of her LTD claim saying, “[T]he decision as to whether to appeal the…denial is yours and yours alone. [The insurer] is a separate and independent third-party entity in charge of LTD.”
However, the insurer denied the LTD claim, stating that the employee could not bring a lawsuit under ERISA because the insurer was a party covered by the waiver in the separation agreement. The district court agreed with the insurer and dismissed the case.
Appeals Court. On appeal, the Second Circuit ruled that, before it reviewed whether the insurer was in fact covered by the separation agreement, it must first consider whether the employee knowingly and voluntarily released her ERISA rights, including the right to sue for LTD benefits.
The Second Circuit noted that in previous cases it had ruled that, a “totality of the circumstances inquiry” should guide the assessment of whether the relinquishment of ERISA rights is “knowing and voluntary.” This assessment should include at least six factors: 1) the plaintiff’s education and business experience, 2) the amount of time the plaintiff had possession of or access to the agreement before signing it, 3) the role of [the] plaintiff in deciding the terms of the agreement, 4) the clarity of the agreement, 5) whether the plaintiff was represented by or consulted with an attorney, and 6) whether the consideration given in exchange for the waiver exceeds employee benefits to which the employee was already entitled by contract or law. However, “none of these factors is necessarily dispositive and the list is not exhaustive.”
In this case, the Second Circuit noted that the employee contends that, because she signed the agreement only after being told by the employer’s attorney that the release would not impact her ability to pursue her LTD claim, “the evidence cannot support the conclusion that she knowingly waived her claims against the insurer.” This testimony, combined with examination of the other six factors, indicates that the employee had not “knowingly and voluntarily” waived her ERISA rights. Based on the foregoing, the Second Circuit vacated the district court’s decision to dismiss the matter and remanded the case back to the district court for further proceedings consistent with its opinion.