Termination and severance pay not payable to employee who can't perform as required in the contract of employment
An employee is diagnosed with a terminal illness. He leaves work in May due to his illness, his employer sells its business in early September, and the employee dies of his illness in mid-September. Within that four-month span, perhaps unaware of the gravity of the illness, the employer advised the employee that he would still have a job when he was able to return to work. The employer subsequently informed the employee that he would be able to meet with the new owners of the business on his return, and they would determine whether to continue his employment.
The employee’s estate sued the employer for damages for wrongful dismissal which it argued arose at the time the business was sold. The claim also sought moral damages for a bad faith termination. In addition, and what became the most important component of the claim, the estate also sued for termination and severance pay under the Ontario Employment Standards Act, 2000.
This case, Estate of Cristian Drimba v. Dick Engineering Inc.,proceeded by way of summary judgment before Mr. Justice Douglas Gray, a former partner of a management-side labour and employment law firm. Justice Gray dismissed the claim of wrongful dismissal and noted that there was no evidence to support a claim for a bad faith termination. However, he concluded that the nature of the employee’s illness frustrated the contract of employment before the plaintiff died. As a result, he concluded that the employer was obliged under the Employment Standards Act, 2000 to provide the employee (and now estate) with both termination pay and severance pay.
Termination pay is not payable to an employee if the "contract of employment has become impossible to perform or has been frustrated by a fortuitous or unforeseeable event or circumstance" (Ont. Reg. 288/01, s. 2(1)12.). This exemption "does not apply if the impossibility or frustration is the result of an illness or injury suffered by the employee" (Ont. Reg. 288/01, s. 2(3)). In this case, Justice Gray concluded that it was evident, even before the employee’s death, that the severity of his illness frustrated the employment.
Severance pay is also not payable to an employee if the contract of employment "has become impossible to perform or has been frustrated" (Ont. Reg. 288/01, s. 9(1)2.) This exemption does not apply, however, in the following circumstances:
- a permanent discontinuance of all or part of the employer’s business because of a fortuitous or unforeseen event,
- the employer’s death, or
- the employee’s death, if the employee received a notice of termination before his or her death; or
- the impossibility or frustration is the result of an illness or injury suffered by the employee.
Ordinarily, the employee’s death (if he or she was not previously given notice of termination) would not trigger an obligation to pay severance pay. In this case, Justice Gray concluded that the contract of employment was frustrated before the employee’s death.
An employer is in a no-win situation in a case like this. Aside from the impending sale of business, the employer may have limited information about the severity of an employee’s illness. This case involved a rapid deterioration of the employee’s health. It is an undoubtedly emotional and difficult time for the employee and his family. An earlier termination of the employment might have triggered a legitimate claim for wrongful dismissal or a claim that the employer breached the Human Rights Code. It would ultimately be viewed as an insensitive action when the employee and his family was most vulnerable.
Other cases involving serious illness of injury may not occur in such a short window of time. An employer is wise to consider whether the nature of an illness, injury or disease is so severe that the contract of employment has become frustrated. It may have been easier, in the circumstances of this case and certainly on others, to explore a mutual agreement that the employment has become frustrated due to illness and to provide termination and severance pay at a time that is more advantageous to both parties.
For more information see:
• Drimba Estate v. Dick Engineering Inc., 2015 CarswellOnt 6833 (Ont. S.C.J.).
Rob Boswell is counsel to CCPartners in Barrie, providing support to the firm's clients primarily on workplace safety and insurance matters. He can be reached at (705) 719-1433 or [email protected]