Federal Court Rules Employee Waived ERISA Claims Through Severance Agreement

On March 7, 2023, in Schuyler v. Sun Life Assurance Co. of Canada (Sun Life), the US District Court for the Southern District of New York found ERISA rights were waived through an employment separation agreement.

The plaintiff in this case, Kristen Schuyler, filed a long-term disability (LTD) claim through her employer-sponsored plan insured by Sun Life, following an injury that left her unable to work. Sun Life denied the claim asserting insufficient information to support disability and upheld that denial on appeal. Schuyler then sued Sun Life, challenging the LTD benefit denial in court.

Sun Life argued that a separation agreement Schuyler signed with her employer released all legal claims she could have under ERISA, including those against Sun Life. In particular, the separation agreement called out ERISA twice, stating that any potential ERISA claims “arising out of or in any way connected with [Schuyler’s] employment” were released. The court agreed with Sun Life, noting previous cases where a release of ERISA claims was enforced even in severance agreements that did not specifically name the ERISA statute but contained an expansive release of all claims arising out of an employment relationship.

The court further found that while Sun Life was not an explicitly named party in Schuyler’s separation agreement with her employer, the released entities stretched to “parties-in-interest.” ERISA defines a “party-in-interest” to include plan fiduciaries, such as Sun Life, with respect to the LTD plan.

In upholding the release, the court noted several other factors that supported Schuyler knowingly and voluntarily waived her right to ERISA litigation, including:

• Her education and business experience.
• The time she took to review the agreement.
• Her role in negotiating a higher separation payment.
• Her disability attorney’s review of the agreement.

It is unclear whether Schuyler’s employer intended their separation agreement to release all ERISA claims under its group benefits plans, including Schuyler’s right to challenge Sun Life’s LTD denial in court. Release language in separation agreements is typically very broad. The Schuyler case serves as an important reminder for employers to work with their legal counsel when drafting and negotiating employment separation agreements to ensure claims are released only as intended.

Schuyler v. Sun Life »