Dismissal of employee on medical leave

Question: If an employee goes on medical leave while being investigated for misconduct, is it appropriate to implement discipline or dismissal once the investigation is complete or wait until the employee returns to work? Can an employee be dismissed while on medical leave if there is just cause?

Answer: It is almost always best to wait for the employee’s return to work before implementing discipline or discharging the employee. Employees on medical leave are usually more vulnerable physically or mentally, and therefore a dismissal at that time may cause harm by and of itself to the employee and therefore may attract aggravated or moral damages. Keays damages are available when the manner of dismissal causes mental distress that was in the contemplation of the parties. To be compensable, the hurt feelings caused by the employer’s bad-faith conduct must exceed what would flow from the loss of employment.

The employee in Mulvihill v. Ottawa (City), was awarded damages for bad-faith dismissal, in part because, according to the trial judge, her employer made a “mistake” by dismissing her during her sick leave. The Ontario Court of Appeal reversed this decision, on the basis that a “mistake” is not evidence of bad faith. The employer was found to have terminated the employee based on an honest, reasonable belief that the employee’s conduct constituted insubordination amounting to just cause for dismissal. The termination during sick leave, by itself, was not evidence of bad faith or malice.

Even when Keays damages are not an issue, the dismissal of an employee during sick leave can impact the reasonable notice period. In Deyonge v. Liberty Mutual Insurance Co., the Ontario Superior Court of Justice delayed commencement of the reasonable notice period until after payment of disability benefits, which were required to be paid post-termination. The underlying rationale for the suspension of the notice period is that the employee should be given an opportunity to find employment, and in some situations this opportunity is compromised by the sickness. However, if the employee was afforded a fair and reasonable opportunity to prepare for termination during a period of disability, there would be no reason to delay the period of reasonable notice.

In some cases it may be appropriate to suspend an employee on medical leave (the employee is suspended “pending investigation”). However, all such suspensions must be reasonable and justified. Recently, in Potter v. New Brunswick Legal Aid Services Commission, the Supreme Court of Canada found that an indefinite suspension, which began when the employee was on sick leave, was a constructive dismissal of the employee. However, the fact that it commenced during medical leave was not a major factor. Instead, the court’s reasoning focused on the fact that the suspension was unilateral, indefinite and without reasons, and therefore not reasonable or justified.