Gregory Dell and Cesar Gavidia explain a critical issue many disabled employees face: how signing a severance agreement with an employer can inadvertently destroy your right to pursue long-term disability benefits. This commonly arises when an employee has been out on medical leave, the employer can no longer hold their position, and a separation package is offered. The severance agreement typically contains broad release language waiving “any and all” claims, including ERISA-related causes of action, which can unknowingly encompass claims against a disability insurance carrier even if that carrier isn’t named in the agreement.

The attorneys illustrate the danger through a recent federal court case out of the Southern District of New York, with a sales representative who suffered a traumatic brain injury. After Sun Life denied her disability claim, her employer offered a severance package. Despite having a disability lawyer review the agreement and even getting reassurance from her employer’s HR department that the severance wouldn’t affect her disability appeal, the court ruled that she had knowingly and voluntarily released Sun Life from liability through the broad ERISA release language. She gave up over $1.5 million in potential long-term disability benefits for roughly $25,000 in severance pay.

The key takeaway is that anyone facing a severance agreement while also pursuing or planning to pursue disability benefits must insist on a specific carve-out — explicit language excluding the disability insurance carrier and any related claims from the release. Dell and Gavidia note that this costs the employer nothing, since the disability policy is typically funded by a separate insurer, and that employees should be prepared to walk away from a severance rather than unknowingly sign away far more valuable disability benefits.