Termination of employee on long-term disability

Question: Can the employment and benefits of an employee who has been on long-term disability for more than two years be terminated and to what is he entitled?

Answer: A two-year absence on long-term disability (LTD) benefits does not, on its own, justify termination of employment and benefits. A two-year period is often used in LTD insurance contracts as the time-frame for assessing the degree of the employee’s disability for the purposes of determining continuing eligibility. In the past, many collective agreements adopted a similar period and provided for automatic termination of employment once an employee had been absent for that period.

However, the automatic application of these deemed termination provisions was successfully challenged as discriminatory in a number of cases. It was found that such an approach failed to comply with the duty of an employer to accommodate a disabled employee to the point of undue hardship.

It was conclusively established by the Supreme Court of Canada in Syndicat des employés de l'Hôpital général de Montréal c. Sexton that the needs of a disabled employee must be assessed on an individual basis. However, the court did not go so far as to find termination provisions triggered by absence of a specific duration were necessarily discriminatory. It ruled the parties to a collective agreement or employment contract could negotiate a term that indicated their assessment of the length of absence that might effectively frustrate the employment relationship. Such a term could itself be considered an accommodating measure, the court said.

What they could not do was agree in advance to abridge a disabled employee’s right to equality or to reasonable accommodation under human rights legislation. If a stipulated period of absence was inadequate in the circumstances of the individual and in the context of the right to be free from discrimination on the basis of disability, an attempted termination would be improper.

The majority of the Supreme Court approved the arbitration ruling upholding the termination because the arbitrator had properly taken the three-year period into account together with other relevant circumstances, including the employer’s prior efforts to accommodate the employee’s absence and to facilitate her return to work, the employee’s medical condition at termination and the absence of medical evidence suggesting any reasonable prospect of her return to work in the foreseeable future. In the circumstances, the employee’s termination was justified.

Frustration of contract has been applied in cases of excessive innocent absenteeism. The concept recognizes a contract may be discharged when it becomes impossible to perform due to circumstances beyond the control of the contracting parties. In applying the doctrine of frustration in the employment context, the question asked is whether the employee’s incapacity is of such a nature or duration that future performance of her employment obligations would be impossible or radically different from the agreed terms of employment.

Relevant factors that play a part in frustration of contract include the nature of the illness or injury, its duration, the prospects for recovery, the length of the employment, the nature of the employer’s business and the terms of the employment. The length of the absence is simply one consideration in the equation.

Employment contracts have been found to be frustrated where an illness has rendered the employee incapable of performing her obligations under the contract for periods of varying lengths.

In Brandon v. Bennett & Emmott 1986 Ltd., a two-year employee suffered a heart attack and was unable to work after a short-lived attempt to return. Some four months later, the employer advised him it was looking for someone to fill his position and, about a month later, terminated him based on his inability to perform the requirements of the job. At the time of the termination, the employer’s staff were aware Brandon had expected to return to work within two months as they had assisted in the preparation of the LTD application. The court found the contract had been frustrated because the employee could not do the work that needed to be done; the medical prognosis for an ultimate return to work was tentative at best and merely established a possibility of recovery at some point; the employment contract was of short duration; and the contract contained no provision regarding sickness or sick pay.

In Demuynck v. Agentis Information Services Inc., an employee of 19 years was injured in an accident unrelated to work. She had been absent for more than 20 months at the time of termination. After the accident, she had returned to work but left again on disability leave after one-and-one-half years. There was a prognosis for another seven months of disability when the employer initiated the termination. Both short- and long-term disability benefits had been exhausted and the insurer had determined the employee was totally disabled.

The British Columbia Supreme Court found the employee’s absence at the date of termination was sufficiently lengthy as to qualify as a permanent absence. This fact, in combination with other relevant factors, was sufficient to bring about frustration of the employment contract.

It was suggested by the Newfoundland Trial Division Court in Mandavia v. Central West Health Care Institutions Board employment contracts that provide for sick pay or LTD benefits cannot be discharged by incapacity. However, in Wightman Estate v. 2774046 Canada Inc., the B.C. Court of Appeal took a different view, ruling that contractual provisions anticipating possible illness or disability do not preclude frustration of the contract. The critical question is whether the parties have provided that their contractual relationship will continue despite the radical change in circumstances brought about by the disability. If not, extended illness provided justification to discharge the contract if the necessary elements of frustration of contract are established.

It is certainly possible to use an absence of more than two years as the trigger for an assessment of the employee’s individual circumstances. If, at that time, there is no reasonable prospect of a return to work, no accommodation that can be made to allow the employee to return to work and the employee’s right to continued LTD coverage is not dependent upon continuation of the employment relationship, termination may be an appropriate course of action. However, employers should always obtain legal advice prior to terminating a disabled worker in any circumstances to be aware of any potential liabilities.

For more information see:

•Syndicat des employés de l'Hôpital général de Montréal c. Sexton, 2007 CarswellQue 110 (S.C.C.).
•Brandon v. Bennett & Emmott 1986 Ltd., 2000 ABQB 294.
•Demuynck v. Agentis Information Services Inc., 2003 CarswellBC 93 (B.C. S.C.).
•Mandavia v. Central West Health Care Institutions Board, 1997 CarswellNfld 219 (Nfld. T.D.).
•Wightman Estate v. 2774046 Canada Inc., 2006 CarswellBC 2376 (B.C. C.A.).