Many factors to consider before cutting workers on leave
Question: As a result of the current economic downturn, our company will be implementing layoffs and we may need to close one of our plants permanently. We have several management and unionized employees who are currently absent on short-term or long-term disability leave. Can we lay them off or terminate their employment? If so, will this affect their ability to continue collecting disability benefits?
Answer: Care must be taken when laying off or dismissing employees who are on disability leave to avoid unnecessary exposure to potentially significant liabilities.
For management and non-union employees, a layoff will usually amount to a constructive dismissal unless the applicable employment contract allows the employer to lay the employee off. While many employment standards statutes allow an employer to lay off an employee temporarily without triggering statutory severance liabilities, courts have consistently held that there is no implied right at common law to lay off an employee for lack of work.
Where a non-union worker’s employment is terminated without cause, the employee must receive working notice or severance compensation in accordance with applicable employment standards legislation. If a significant number of employees is involved, group termination provisions may be triggered. Employment standards statutes in most jurisdictions provide that working notice of dismissal cannot be given to an employee who is absent on disability leave and the employer must pay statutory severance compensation when such an employee is dismissed.
When an employer is designing a severance package for an employee on disability leave, the employee’s potential entitlement to wrongful dismissal damages should be considered. If the employee is under a group benefit plan where the employer has paid the disability benefit premiums, the disability payments will usually be deducted from the employee’s wrongful dismissal damages under the principles expressed in Sylvester v. British Columbia.
If the premiums were paid by the employee through payroll deduction, however, they might not be deducted, depending on the jurisdiction in which the employee works.
In British Columbia, the courts have applied Sylvester in such cases and deducted the payments, as the B.C. Supreme Court did in Reid v. Specialty Motor Cars (1970) Ltd. In Ontario, however, the courts have limited Sylvester to situations where the employer has paid the disability benefit premiums and have refused to deduct disability payments where the employee paid the premiums. The Ontario Court of Appeal made such a refusal in Sills v. Children's Aid Society of Belleville (City), Hastings (County) & Trenton (City).
If the employee has been absent on disability leave for some time and is not expected to recover in the foreseeable future, the employer may wish to consider whether it can argue the employee is not entitled to any severance compensation because the employment contract has been frustrated under the principles outlined by the B.C. Supreme Court in Demuynck v. Agentis Information Services Inc.
Most disability insurance policies provide for a clawback of disability payments where the employee receives income, including severance compensation, while she is on disability leave. In some situations, it may be possible to structure the severance package in a manner that avoids this clawback.
The effect termination of employment will have on the employee’s ability to continue receiving disability payments will depend on the terms of the disability insurance policy. Under most plans, the employee will be able to continue receiving disability payments despite the termination of her employment, provided she became disabled before being dismissed and she continues to be disabled within the meaning of the plan.
Canadian jurisdiction prohibits an employer from dismissing or discriminating against an employee because of a disability. When an employer is choosing which employees will be laid off or terminated, it must ensure its decision is not tainted by the fact the employee is disabled. Otherwise, the employer may be found to have violated human rights legislation. In Morris v. B.C. Rail, the B.C. Human Rights Tribunal awarded significant damages to a management employee after finding the employer’s decision to terminate his employment as part of a restructuring and downsizing initiative had been influenced, at least in part, by his disability.
The rights of unionized employees in the event of a temporary or permanent layoff will usually be determined by the applicable collective agreement. Depending on the circumstances, the individual or group termination provisions in the relevant employment standards legislation may also apply.
It is generally accepted in arbitral jurisprudence that, in the absence of language in the collective agreement which expressly permits otherwise, an employer cannot lay off an employee who is off work on disability leave as was the case in U.A.W., Local 112 v. De Havilland Aircraft of Canada Ltd. However, this principle will usually not apply in the event of a plant closure, which was the case in Boliden Westmin Resources Ltd. v. CAW-Canada, Local 3018.
The right of a disabled, unionized employee to continue receiving disability payments after the termination of employment will depend on the terms of the collective agreement and the applicable disability benefit plan.
For more information see:
•Sylvester v. British Columbia, 1997 CarswellBC 1025 (S.C.C).
•Reid v. Specialty Motor Cars (1970) Ltd., 2000 CarswellBC 321 (B.C. S.C.).
•Sills v. Children's Aid Society of Belleville (City), Hastings (County) & Trenton (City), 2001 CarswellOnt 1448 (Ont. C.A.).
•Demuynck v. Agentis Information Services Inc., 2003 CarswellBC 93 (B.C. S.C.).
•Morris v. B.C. Rail, 2003 B.C.H.R.T. 14 (B.C. Human Rights Trib.).
•U.A.W., Local 112 v. De Havilland Aircraft of Canada Ltd. (1970), 21 L.A.C. 236 (Ont. Arb. Bd.).
•Boliden Westmin Resources Ltd. v. CAW-Canada, Local 3018, 2000 CarswellBC 2989 (B.C. Arb. Bd.).
