Using employment contracts to address post-employment issues

Without the proper wording, recent case law suggests employers will be on the hook for lost disability benefits and a dismissed employee will have no duty to mitigate

Stuart Rudner

By Stuart Rudner

Last summer, I wrote a post — titled “Check your employment contracts” — in which I reported on an Ontario Court of Appeal decision which stood for the proposition that if an employment contract has a termination clause, but does not say anything about mitigation, then the employee is not required to mitigate her damages during the notice period.

Furthermore, unlike the situation at common law, any income earned during the notice period would not be deducted from the amounts owing by the former employer. This approach was recently confirmed by the Quebec Court of Appeal.

Regular readers will know that one of my mantras is to encourage employers to use employment contracts for every single employee, and specifically to address the employer’s obligation in the event of dismissal without notice. This removes the uncertainty of the common law requirement of “reasonable notice” and can also be used to manage the employer’s costs in the event it chooses to dismiss an employee on a without cause basis. 

In addition, I have written and commented on the issue of how certain benefits, such as long-term disability (LTD) coverage, are treated post-termination. By default, all forms of compensation, including benefits, are to continue throughout the notice period. Despite this, most employers and HR professionals will know that insurance companies typically refuse to provide disability coverage for dismissed employees.

While Ontario's Employment Standards Act requires that this type of benefit continue for the statutory notice period, it does not address any notice period beyond the statutory minimum. As a result, in many dismissals the employee is left without coverage for a substantial portion of the notice period. 

While this was an issue that went largely under the radar for decades, it has come to the fore in several recent decisions. The most recent of these decisions is Brito v. Canac Kitchens, in which the employer cut off disability benefits, and was ultimately required to pay:

•$9,078.94 arising out of the loss of short-term disability (STD) coverage

•$5,916.67 for the loss of LTD benefits for the period Nov. 6, 2004, to May 15, 2005

•benefits at the rate of $2,096.04 from March 4, 2005, to March 5, 2007

•$146,723 for lost LTD coverage from March 6, 2007, to the start of trial

•$47,941 to take the employee to his 65th birthday. 

As you can see from these numbers, the cost to an employer for failing to continue LTD coverage can be substantial, and can dwarf the damages arising out of the "basic" wrongful dismissal claim in many cases.

When I work with clients, I help them to mitigate (no pun intended) these potential costs through the use of employment agreements. With respect to the mitigation issue arising out of the Bowes decision, it is simply a matter of including a mitigation requirement in the termination provisions. Unfortunately, this was not common in the past and many employers will need to review and update their contracts.

With respect to the LTD issue, the parties are free to agree that such benefits will only continue for the statutory notice period and no further. If that is included in an enforceable contract of employment, then the employer will not have to be concerned about this at the time of termination. Otherwise, they will either have to enter into negotiations and obtain a full and final release, arrange alternative coverage or take their chances and hope the employee does not become disabled.

My strong recommendation is to address these issues at the outset of employment through a well drafted contract.

Stuart Rudner is a leading HR Lawyer and a partner in the Labour & Employment Law Group of Miller Thomson LLP, a national law firm. He provides clients with strategic advice regarding all aspects of the employment relationship, and represents them before courts, mediators and tribunals. He is author of You’re Fired: Just Cause for Dismissal in Canada, published by Carswell. He can be reached at (416) 595-8672 or [email protected]. You can also follow him on Twitter @CanadianHRLaw and join his Canadian HR Law Group on LinkedIn.

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