Court refuses to clawback wrongful dismissal award for employee on disability

Employer argued that allowing worker to collect disability benefits and wrongful dismissal damages amounted to getting paid twice for the same time

Employers have argued that when an employee on disability is fired, any amount received from the disability plan during the notice period should be deducted from damages for wrongful dismissal.

After all, to allow an employee to collect disability benefits and be compensated for the notice period would mean the worker was getting paid twice for the same time — something known in legal circles as double recovery.

In Sylvester v. British Columbia, a 1997 decision, the Supreme Court of Canada ruled the employer could deduct money paid from short-term and long-term disability plans to the employee during the notice period because the disability benefits in that case were funded entirely by the employer.

The court said the employment contract did not provide for the employee to receive both disability benefits and damages for wrongful dismissal and no such intention could be inferred.

But it said there might be cases where an employee will seek benefits in addition to damages for wrongful dismissal on the basis the disability benefits are akin to benefits from a private insurance plan the employee has contributed to.

Such a case recently came before the Ontario Superior Court of Justice. In Dowling v. TNT Logistics North America, the court ruled an employee could collect both disability benefits and damages for wrongful dismissal during the notice period.

Lorne Dowling started working for TNT on Feb. 1, 1993, as a dispatch supervisor. In December 2001, at the age of 62, he went on medical leave and received short-term disability (STD) benefits until May 2002. In June 2002 he began receiving long-term disability (LTD) benefits.

The disability benefits coverage was provided by TNT. Dowling contributed a portion of his salary to both the STD and LTD.

In May 2002 TNT terminated Dowling without reasonable notice or pay in lieu of notice. Dowling filed an action for wrongful dismissal.

TNT took the same position as the employer in Sylvester — that any money paid to Dowling under the LTD plan should be deducted from any damage award. It said the terms of the plan specifically prohibited double recovery.

But Dowling argued TNT was not a party to the plan and that, because he contributed premiums, there should be no deduction from damages for wrongful dismissal.

In making its decision, the court looked at Sills v. Children’s Aid Society of Belleville (City), a 2001 decision by the Ontario Court of Appeal. In that case the judge said:

“I consider it reasonable to assume an employee would not willingly negotiate and pay for a benefit that would allow her employer to avoid responsibility for a wrongful act. I consider it reasonable to infer that parties would agree that an employee should retain disability benefits in addition to damages for wrongful dismissal where the employee has effectively paid for the benefits in question.”

The Sills decision was also followed in Zorn-Smith v. Bank of Montreal, a 2003 Ontario decision. In that case the court considered whether an employee who had paid the premiums for disability benefits should receive reduced damages because of payments under STD and LTD plans. As in Dowling, the disability benefit plan in Zorn-Smith included terms calculating the maximum “income” an employee could receive.

In making its decision the court said TNT did not solely pay the premiums for the LTD provisions of the plan.

“Indeed, I am not sure that TNT paid anything for them,” said Justice Gertrude Speigel. “I do know that Dowling paid premiums for them.”

She said there was nothing in Dowling’s employment contract that would indicate he could not receive both employment benefits and LTD benefits. Further, the provisions of the plan are contractual provisions with the insurer, not with TNT, said Justice Speigel.

“They are the usual provisions that state that an employee on LTD has his or her benefits reduced if the employee is earning money elsewhere,” said Justice Speigel. “I do not interpret these provisions to apply to an employee receiving damages for wrongful dismissal — an insurer under an LTD policy would be hard-pressed to deduct these damages.”

Therefore, the court ruled there should be no deduction in the damages for wrongful dismissal because of any money paid to Dowling under the STD or LTD plans.

For more information see:

Dowling v. TNT Logistics North America, 2005 CarswellOnt 2089 (Ont. S.C.J.)

Sylvester v. British Columbia, 1997 CarswellBC 1024, 29 C.C.E.L. (2d) 1 (S.C.C.)

Sills v. Children’s Aid Society of Belleville (City), 2001 CarswellOnt 1448, 8 C.C.E.L. (3d) 232 (Ont. C.A.)

Zorn-Smith v. Bank of Montreal, 2003 CarswellOnt 4845, 31 C.C.E.L. (3d) 267 (Ont. S.C.J.)

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