When you are leaving a job, severance agreements can feel like a welcome financial cushion. But what if signing that severance agreement could unintentionally forfeit your right to ERISA long-term disability (LTD) benefits worth hundreds of thousands of dollars? This hidden risk is more common than you think. Most people focus on the dollar amount in severance agreements, give the legal language a quick scan, and sign—without realizing they may be signing away critical disability benefit rights.
Real-World Consequences: Two Critical ERISA Cases
This isn’t just a hypothetical risk. A recent federal court decision, Schuyler v. Sun Life Assurance Company, No.23-498 (2d Cir. Aug. 14, 2025) shines a bright light on this very issue, offering a crucial lesson for anyone signing severance agreements while dealing with a serious medical condition.
This case, when contrasted with Thomas v. Prudential, highlights how a few simple questions can make all the difference in protecting your ERISA rights.
If you are navigating a job exit and have a long-term disability (LTD) claim, understanding these cases is essential.
The Hidden Trap: General Releases in Severance Agreements
At the heart of nearly every severance agreement is a “General Release” clause. This is the section where you agree not to sue your employer for any reason related to your employment. On its face, this seems straightforward. However, these releases are often written in incredibly broad terms.
They typically state that you release the company and its “parents, subsidiaries, related or affiliated entities, agents, insurers, and plan administrators” from “any and all claims.” That broad language is the trap. Your company’s long-term disability insurer, like Sun Life or Prudential, is often considered an “insurer” or an “affiliated entity” under the terms of these agreements. Without careful review, you could sign away your right to pursue a legitimate ERISA disability claim against the insurance company—even if that claim is your financial lifeline.
The Case That Changed the Conversation: Schuyler v. Sun Life
Kristen Schuyler was an employee at Benco Dental Supply Company when she suffered a traumatic brain injury. She eventually went on medical leave and filed a claim for long-term disability benefits with Sun Life, the insurer for Benco’s ERISA-governed LTD plan. While her claim was pending, she negotiated her exit from the company.
Benco presented her with a severance agreement containing a standard, broad general release. But Ms. Schuyler did something smart: she asked questions.
Concerned about how the agreement would affect her disability claim, she specifically asked Benco’s attorney about it. In writing, Benco’s counsel gave her two critical assurances:
- “Sun Life is a separate and independent third-party entity in charge of LTD.”
- “…this agreement should have absolutely no effect on your ability to appeal your LTD…”
Relying on these statements, Ms. Schuyler signed the agreement. When Sun Life later denied her appeal, she filed a lawsuit under ERISA.
One of Sun Life’s defenses was simple: it argued Ms. Schuyler had already signed away her right to sue them. The insurer claimed it was an “related or affiliated entity” covered by Benco’s severance agreement. The trial court agreed and entered summary judgment for Sun Life.
The U.S. Court of Appeals for the Second Circuit disagreed. The court didn’t just look at the words on the page; it conducted a “totality of the circumstances” analysis to determine if Ms. Schuyler had knowingly and voluntarily waived her rights, a key element to a valid release. The court found that Benco’s explicit, written assurances were the most important factor. Because her employer told her the release would not impact her disability claim, she could not have “knowingly” signed away her rights to that claim. The court ruled in her favor, reversed the entry of judgment in favor of Sun Life and remanded her ERISA LTD claim to the District Court.
A Different Story: When the Release Is a Problem
The outcome in Schuyler is a huge victory for employees, but it’s not always how these disputes end. Consider the contrasting case of Thomas v. The Prudential Insurance Company of America, No. 17-4522 (E.D. Pa. May 8, 2018).
Thomas signed a severance agreement with his employer that released claims against the company and its “insurers” and “plan fiduciaries.” Prudential was the insurer for the company’s long-term disability plan. Unlike Ms. Schuyler, there was no evidence before the court that Mr. Thomas asked his employer whether the release would apply to his disability benefits.
Making matters worse, his severance agreement contained a specific exception, or “carve-out,” for his “vested benefits under a retirement plan governed by ERISA.” However, it included no such carve-out for long-term disability benefits.
When Mr. Thomas later sued Prudential for denying his LTD claim, Prudential filed a counterclaim, accusing him of breaching the severance agreement by filing the lawsuit. Thomas moved to dismiss Prudential’s counterclaim, arguing that the release didn’t apply to the insurance company. The court denied the motion to dismiss. It found that Prudential’s argument was plausible and survived the motion to dismiss.
The court focused on the plain language of the contract: since Prudential was clearly an “insurer,” the release appeared to apply to them. The court also noted that because the agreement specifically carved out an exception for retirement benefits but not for disability benefits, it was reasonable to infer the parties intended to release the disability claim. While this was not a final ruling on the merits, it allowed Prudential’s breach of contract counterclaim to proceed.
Key Lessons from Schuyler and Thomas
The difference between these two cases provides a clear roadmap for anyone facing a similar situation:
- Never Assume. Do not assume that a general release in a severance agreement excludes your ERISA long-term disability claim. The default assumption should be that it does include it unless stated otherwise.
- Ask Questions and Get It in Writing. As Schuyler’s case proves, asking direct questions about the impact of the release on your LTD benefits can save your claim. A simple email to your employer’s representative asking for clarification can become a powerful piece of evidence, but it should not be your only evidence.
- Negotiate a Specific “Carve-Out.” The safest and most effective strategy is to negotiate a specific provision in the severance agreement that explicitly excludes your disability benefits from the release.
- Consult an Experienced ERISA Attorney. Severance agreements are legally binding contracts with serious financial implications. Before you sign anything, especially if you have a potential or pending long-term disability claim, it is crucial to have the document reviewed by an attorney who has significant experience in ERISA and employment law. An experienced attorney can spot these hidden traps and help you negotiate the protections you need.
Protect Your Future
Your health and financial security are too important to leave to chance. The Schuyler decision provides a powerful shield for employees, but only for those who are proactive. By understanding the risks hidden in severance agreements and taking the right steps, you can ensure that the dotted line you sign leads to a secure future, not a forfeited one.
If you are leaving your job and have questions about a severance agreement or a long-term disability claim, contact The Garner Firm, Ltd. today online or at (215) 645-5955. Our experienced ERISA attorneys regularly negotiate severance agreements under similar circumstances and are here to help you navigate these complex issues and protect your rights.
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