The Saskatchewan Court of King’s Bench has held the Saskatchewan Indian Gaming Authority liable for more than $1.2 million in long-term disability benefits owed to a former employee whose benefits were cut off when he was fired and became permanently disabled during the notice period.
“This case illustrates the massive risk that an employer takes when they improperly halt important benefits like LTD or life insurance prematurely,” said Barry Fisher, a Toronto-based employment mediator and arbitrator who wasn’t involved in the case.
Read: Ruling against Blue Cross Life Insurance could affect LTD premiums: lawyer
Chadwick Pasap, a maintenance manager who had five years of service with the gaming authority, was dismissed in 2012. The employer claimed he resigned and took no steps to treat the departure as a termination without cause that would have entitled him to notice or pay in lieu of notice. Four months after his termination, Pasap, who had no personal disability insurance, was permanently disabled by what the court called a “catastrophic medical event.”
He sued for wrongful dismissal, seeking damages in lieu of notice as well as the value of compensation and benefits during the notice period, including the value of the LTD coverage he had received while employed.
Justice Janet McMurtry concluded Pasap had been dismissed without cause and awarded eight months’ notice. This meant the “catastrophic medical event” occurred during the notice period and that the employer was responsible for the LTD benefits that Pasap was wrongfully deprived of when he was dismissed without notice.
Read: Taking the long view on effectively dealing with LTD claims
The terms of the employer’s LTD coverage entitled Pasap to benefits until age 65, a period of 26 years from the date he became disabled. He also received damages in lieu of the eight months’ notice and $25,000 in punitive damages, because the court concluded the gaming authority had acted in bad faith.
Laurie Jessome, a labour and employment partner at Cassels Brock & Blackwell LLP who wasn’t involved in the case, says it’s “a dramatic illustration” of how courts will allocate risk when a disputed termination leaves an employee without disability coverage and they subsequently suffer a disabling event.
“Had this been a straightforward termination without cause, the employer may have been able to rely on an enforceable termination provision in an employment agreement to establish that it had no obligation to continue benefits during any common law notice period,” she says. “So this outcome may be a helpful reminder to employers of the potential advantages of extending certain termination entitlements on a without-prejudice basis even if they want to maintain a legal argument that the employee has resigned or was terminated for cause.”
Read: Half of Canadian employers have a policy to address benefits during disability: survey
However, as a practical matter and, absent an employment agreement containing a clause relieving the employer of the obligation to continue benefits during the notice period, extending insurance coverage of any kind once the employee is no longer on the payroll may be easier said than done.
“Employers in Ontario — or any other jurisdiction where employment standards legislation requires employers to continue benefits for the period of the statutory entitlement — are in a difficult position,” says Jessome. “Most coverage ceases when the dismissal occurs unless the insurer consents and, [while] some will extend additional coverage, it’s usually very expensive, so much so that many employers simply don’t provide the required benefit coverage during the statutory period.”
Fisher suggests employers try to work something out with their insurance brokers or perhaps provide a policy that converts to private coverage during the statutory and notice periods. For her part, Jessome recommends that, where possible, employers self-insure for the statutory period and the notice period.
Read: Arbitrability of LTD claims in Ontario’s hospital sector heading to Supreme Court