Termination of LTD benefits before the reasonable notice period is up could end up costing an employer more in the long run
Banking on health during notice
Employers have certain financial obligations to dismissed employees which are designed to help the employee get through a period of unemployment until they can find comparable work again. Though employment standards legislation outline minimum required notice periods, it’s fairly common knowledge that longer-term employees are usually entitled to longer notice periods as have been established by courts and adjudicators. However, it’s not just the basic paycheque employers are responsible for.
While on the job, employees can also enjoy various benefits and protections, such as short-term and long-term disability insurance for if they become disabled and can’t work. Since the reasonable notice period is supposed to protect an employee between jobs, this type of insurance, if normally supplied to employees, may also need to continue during the period the employee is supposed to be protected. If an employer doesn’t also continue this type of coverage, it’s gambling the employee won’t need it. But if something does happen to the employee that prevents her from returning to work or continuing her job search, that gamble might go south.
Employment is a game — wrongful dismissal is a gamble! Often, employers opportunistically impose on dismissed employees a “statutory minimums” bet in an attempt to capitalize on otherwise expected losses prescribed by the common law. In response, some employees fold their rights and walk away, while others up the ante and litigate. The pot: recovery of significant damages, which may include the value of long-term disability (LTD) insurance benefits for the entire period of reasonable notice and beyond.
A case in point is Brito v. Canac Kitchens, in which the Ontario Superior Court of Justice dealt with the vexing question of whether employers are required to continue employees’ LTD insurance coverage during the period of reasonable notice. The court found they do. The implication of this decision is of significance to both employers and employees, albeit from different legal perspectives: It entitles dismissed employees, who become disabled during a notice period, to sue their former employers for the value of LTD benefits they would have received had they worked during the notice period and it refines a mechanism of converting employers into insurers liable for LTD coverage, thereby exposing them to substantive damages for terminating LTD coverage during the reasonable notice.
Dismissed employee received minimum severance pay and LTD coverage
On July 15, 2003, after nearly 24 years of service, Luis Romero Olguin, 55, was dismissed without cause due to restructuring by his employer, Canac Kitchens. Upon Olguin’s dismissal, the defendant chose to go the “bare minimum” route. It provided Olguin with only the statutory minimums in pay and eight weeks of LTD coverage, and “then gambled that he would get another job and stay well.” Approximately 16 months into what would be his common law notice, disaster struck, causing Canac Kitchens to lose its gamble. Specifically, Olguin became totally disabled.
On Nov. 5, 2004, Olguin underwent surgery for laryngeal cancer, received chemoradiation treatment, and a tracheostomy tube was inserted in his throat until June 1, 2005. Although Olguin secured alternate employment at a much lower rate of remuneration on Aug. 1, 2003, he received no disability benefits. As a result, Olguin sued his old employer for wrongful dismissal. Justice Randall Echlin found Canac “lost (its) gamble” and awarded Olguin 22 months’ notice period at law together with “all benefit coverages for the entirety” of the notice period.
In arriving at his decision, Justice Echlin chastised Canac for consciously choosing not to make alternative arrangements to provide its loyal, long-service employee with replacement disability coverage during the entire notice period. When confronted with its potential significant exposure, Canac raised the predictable argument that Olguin failed to mitigate his potential damages by purchasing a replacement disability policy. The court rejected this idea, stating that the onus is upon the employer to establish the employee’s failure to mitigate, which it failed to do. Subsequently, Canac argued that pursuant to the language of the LTD policy, he was a “notional employee” who was disentitled to receive the disability coverage, because he failed to satisfy the “actively at work” requirement contained in the policy. With his usual profundity, Justice Echlin dismissed this argument as “circular logic.”
“If (Olguin) was to be deemed a ‘notional employee,’ then how can it be asserted that he was ‘not actively at work?” said Echlin.
As a consequence, Canac conceded Olguin was eligible for 17 weeks of short-term disability (STD) coverage. Predictably, the language of LTD policies may soon be revised to address Justice Echlin’s view.
The court was then required to determine whether, following the expiration of his STD coverage, Olguin was entitled to receive damages for loss of LTD coverage. In this regard, Canac argued the insurance policy contractually prohibited recovery of LTD damages. Relying on the Supreme Court of Canada’s 1997 decision in Sylvester v. British Columbia, which stands for the proposition that the value of LTD benefits is deductible from damages if they are paid for solely by an employer, Justice Echlin determined Olguin was entitled to the value of LTD benefits, because he contributed to the costs of his disability coverage. As a result, the court found Canac was liable for 22 months’ salary equalling $71,000, $9,078.94 for STD entitlement and $194,214 for loss of LTD benefits up to Olguin’s 65th birthday. In addition, the court slapped Canac with $15,000 in punitive damages for its: “cavalier, harsh, malicious, reckless, outrageous and high-handed treatment” of Olguin.
Lessons for employers
Brito is a classic case of the employer being “penny wise but pound foolish.” An award of $289,292 in damages sends a clear and loud message of the court’s disapproval of employers’ opportunistic gambling with dismissed employees’ benefits upon dismissal. What lessons are there from this case?
The language of the policy confining the dismissed employee’s entitlement to LTD to her statutory notice might no longer serve as a shield for employers, but it will likely be exploited as a sword by employees. As such, review of the language of the LTD policy prior to dismissal of an employee is a must.
If LTD coverage is unavailable following the completion of the statutory notice, the employer should draw this to the dismissed employee’s attention and request the employee, in writing, to purchase a replacement disability policy, if she so wishes. Such a considered approach may assist the employer in discharging the onus the dismissed employee failed to mitigate.
Employers who resort to hardball tactics — commonly manifested by a desire to litigate when confronted with potential significant exposure in order to exhaust an employee financially — play such a “game” at their own economic peril.
In cases of a younger employee who becomes totally disabled during her reasonable notice period with no LTD coverage, the financial impact on the employer’s business may be devastating, as the employer may be found to be liable to pay the value of LTD benefits, potentially indefinitely.
For more information see:
•Brito v. Canac Kitchens, 2011 CarswellOnt 934 (Ont. S.C.J.).
•Sylvester v. British Columbia, 1997 CarswellBC 1025 (S.C.C.).
