A Question of Law Do employers have to factor long-term disability benefits into severance packages?

With conflicting court rulings, employers may wish to play it safe

Q Must employers have to factor long-term disability benefits into severance packages?

A The Ontario Superior Court has released what appear to be conflicting decisions on this question.

In one case, the court has given employers a break on reasonable-notice damages: Even if they fire someone wrongfully, the court says, employers in the province do not have to provide alternative long-term disability benefits that extend beyond termination. However the employee in the case, Stanley Pioro, is appealing the decision.

During his 19-year career at Calian Technology Services, Pioro worked his way up from technician to manufacturing manager. But then he found himself restructured out of a job.

Calian carried a typical life and LTD insurance policy. It said that employees could extend coverage by electing to do so within 31 days of termination. Pioro refused the termination package and therefore did not make the election for coverage, even though he had suffered a heart attack and would not have had to undergo any medical assessment, or otherwise qualify, to extend coverage.

Of course, finding comparable insurance on his own posed a serious problem for him. In fact, while looking for other work, he ended up in the hospital with renewed heart problems. He then experienced depression and further heart problems which rendered him unemployable.

In his wrongful dismissal suit against Calian, Pioro claimed that he had become disabled during the notice period, and that LTD benefits made up part of his compensation. Therefore, he said, Calian was responsible for his insurance premiums.

While Justice Antoine de Lobtinière Panet said that Calian acted unfairly toward Pioro, he held that Calian was not obliged to provide the insurance. The company was wrong to have labeled Pioro a production supervisor when prospective employers called for a reference check on Pioro. On this latter basis, Justice Panet awarded Pioro 22 months’ notice pay, or nearly $86,000. As for the insurance benefits, he was out of luck.

The second case focused on constructive dismissal, but in the course of ruling for the employee, the judge baldly stated: “Counsel for Royal (the employer) acknowledge that disability benefits survive the termination of employment.” And because Royal itself was an insurance company, and self-insured its employees, the judge took a particularly stern view of its conduct toward Suzanne Menard.

Menard had been a valued employee at Royal for 14 years. The insurer had kept her on during major restructuring in the 1980s that took the staff down in the Sudbury, Ont. office from 90 to 15.

Menard had some trouble coping with the stress of the downsizing, but her supervisor, Dave Peeling, refused her 1985 request to be made redundant. Instead, he talked to her about disability insurance and encouraged her to take as much time off as she needed.

When Menard returned to work, she performed well for several years, despite being the most senior person in her office, with only the Ottawa division to report to for advice, support and direction. Then in 1990 Peeling wrote her advising that she had handled a file badly and that if such performance continued, Royal might well fire her.

Despite a reminder about the matter, Menard did not reply for two months, and then only in writing — a letter of resignation.

“Unfortunately,” she wrote, “I’m unable to cope with the system, workload, changes within the company and industry. I therefore feel that my resignation will be accepted without any hesitation.”

She was right. Royal accepted the resignation immediately, without contacting Menard personally until Peeling conducted her exit interview. At the time, she was in treatment for a major depression. But Peeling made no mention of disability benefits.

Ontario Superior Court Justice Patricia Hennessy has held that it was perfectly all right for Royal to accept the resignation, but its conduct in not discussing with Menard the possibility of going on disability or providing other support amounted to constructive dismissal.

Although Menard’s difficulties were similar in 1985 and 1990, the corporate reaction was dramatically different. “Peeling came to (Menard’s exit) interview,” Justice Hennessy wrote, “with all of the corporate memory of this defendant and also as administration manager with responsibilities for human resource functions...

“Royal is a large, sophisticated, national company. It does not rely on machines, equipment or natural resources to create wealth. It relies on people. Consequently, we see the rather detailed approach to human resource management they demonstrated. There are checklists, memos to file, written confirmation of every discussion between employee and supervisor.

“Most significantly, Royal is in the insurance business. It knows the importance of disability insurance to employees who rely on their income to live.”

In not discussing with Menard the alternatives to employment, particularly considering her fragility at the time, Royal demonstrated “an intention not to be bound by the employment agreement and to repudiate its agreement with Menard.”

Arguably, Justice Hennessy’s remark about disability benefits surviving termination are not really on point — the case, after all, is about wrongful dismissal. However, given the ambiguity between the two cases and until a higher court gives clearer direction, it is perhaps safer to assume that disability benefits should be part of the severance package.

For more information: Pioro v. Calian Technology Services Ltd., Ont. Superior Court file 98CV7400, May 16/00; Menard v. Royal Insurance Co. of Canada, Ont. Superior Court file C328/94, June 7/00.

Jeffrey Miller is editor of Canadian Employment Law Today. For subscription information, call (416) 609-3800 or (800) 387-5164.

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