Denial of severance pay for disabled discriminatory: court

Decision could have costly consequences for employers that let go of employees due to an illness or disability
By Uyen Vu
|Canadian HR Reporter|Last Updated: 04/05/2004

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Toronto nurse who was off work due to a long-term disability has won the right to severance pay in a case that may change employer obligations when disabled workers are let go.

The recent decision by the Ontario Divisional Court, if upheld on appeal, would have costly consequences for employers that let go of employees on the premise that their contracts have been frustrated due to an illness or disability.

“Frustration of contract” is a common strategy used by employers aiming to get rid of disabled workers without the obligations that come along with other forms of termination. Generally, it applies to situations where circumstances make it impossible for one party to carry out the terms of a contract.

In Ontario’s Employment Standards Act, frustration of contract due to a disability exempts employers from obligations such as severance pay and notice pay. That exemption was declared discriminatory in the court ruling. Employees whose contracts have been frustrated by any reason other than disability are entitled to a severance pay, noted the court; the exemption, therefore, violates the Canadian Charter of Rights and Freedoms by making a distinction on the grounds of disability.

“Denying a benefit based on past contributions to employees who are unable to continue their employment due to disability cannot help but send the message that the contributions of those employees were not as valuable as the contributions of able-bodied employees. This perpetuates negative stereotypes and devalues the contributions of this group of employee,” judges R.S.J Blair, J. Epstein and J. Gravely found on appeal from the Board of Arbitration.

The case was launched by Christine Tilley, a neonatal intensive care nurse who, by 1998, had worked at Mount Sinai Hospital for 13 years. In 1995, she was away from work for four months due to an illness. After a brief return to modified duties, Tilley suffered a relapse and discontinued work in January 1996.

The hospital terminated Tilley’s employment in 1998, just after Tilley’s doctor had indicated that she would eventually return to work but was unable to provide an estimated date of return. At the time, Tilley was receiving long-term disability benefits as negotiated in the collective agreement between the hospital and the Ontario Nurses’ Association.

The hospital claimed that the needs of the severely disabled are different because they are already financially protected by a long-term disability benefits. The hospital also invoked subsection 58 (5) (c) of the Employment Standards Act, which states that employers are exempt from severance obligation if the employee’s contract of employment becomes impossible to carry out due to illness or injury.

To the first argument, the divisional court said whether employees are already entitled to long-term disability is irrelevant, as severance pay serves a different purpose — that of compensating long-serving employees for past services and their investment in the employer’s business.

The court also found the exemption in the act as discriminatory, in that it “singles out the severely disabled to deny them an employment benefit to which they would have been entitled but for their disability.”

The decision, said lawyer Stuart Rudner Toronto-based Miller Thomson law firm, stands as the “decision that most boards, including labour boards and arbitration boards, are likely to follow.” He added that since the court didn’t reference any other case, this is likely the first time the act’s exemption was brought to court.

He noted that employment lawyers often advise businesses to invoke the “frustration of contract” exemption in dealing with workers with long-term disability. “Otherwise you’re looking at termination and then you’ve got all the obligations that go with that.

“What employers should take away from this is if they have an employee in this situation and they bring the contract to an end, they should pay severance.”

For further information, see

O.N.A. v. Mount Sinai Hospital

, 2004 CarswellOnt 171 (Ont. Div. Ct.).

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