This article originally appeared on our sister publication, SmallBizAdvisor.ca.
Ontario employers may be liable to pay the full value of an employee’s short-term and long-term disability benefit entitlements, according to the recent confirmation of an Ontario Court of Appeal decision.
The decision only applies in certain cases. Employers are liable in cases where an employee is terminated without cause, his or her benefits are terminated and he or she becomes disabled within the notice period.
The Court of Appeal also confirms that, in the appropriate case, an employee can collect both wrongful dismissal damages and disability benefits during an overlapping period.
The original case
As outlined in a Legal Update on the Court’s decision, Luis Olguin, an employee by Canac Kitchens for 24 years, was terminated without cause in July 2003. Canac Kitchens provided him with his statutory entitlements as set out by the Ontario Employment Standards Act, 2000 (ESA). It included eight weeks’ pay in lieu of notice of termination, 24 weeks’ severance pay, and the continuation of his benefits for an eight-week period. As is common practice among many employers, the benefits, including his short-term and long-term disability benefits, came to an end at the end of the eight-week statutory notice period.
Within two weeks, Olguin found another job that did not provide him with any short-term or long-term disability insurance coverage. About 16 months after his termination, Olguin learned he had cancer and began treatment. It was then that be brought a claim against Canac Kitchens for wrongful dismissal, claiming damages for common law reasonable notice and the value of his lost benefits during the common law notice period.
The trial judge decided in favour of Olguin, who received wrongful dismissal damages over a 22-month period. He also received the value of the short-term and long-term disability benefits that he was unable to collect because they had been terminated at the end of the statutory notice period (e.g., before the end of the common law notice period). The trial judge found that had the benefits not been terminated, Olguin would have been eligible to receive them based upon the medical evidence at trial.
In addition, the court found that Olguin would have received long-term disability benefits until the age of 65. So he was awarded damages on account of lost long-term disability benefits beyond the end of the common law notice period until the date on which he would have turned 65 years of age (he was 55 at the time of his termination).
The court rejected the argument that Olguin should have applied for replacement disability benefit coverage in an effort to mitigate the loss of his benefits. This potentially leaves open the possibility that such an argument would be successful in future cases, the court held that there was no evidence in this particular case that comparable coverage would have been available had Olguin sought it out.
In the original case decision, Olguin received an award in excess of $200,000 on account of his long-term disability benefits over an eight-year period and approximately $9,000 on account of short-term disability benefits. As a result of statutory entitlements paid and mitigation earnings, his wrongful dismissal damages were only approximately $5,500. In addition, the trial court awarded $15,000 in punitive damages.
The appeal case
The Ontario Court of Appeal largely upheld the decision of the trial judge.
To come to its decision, the Court of Appeal relied on provided medical evidence to demonstrate that Olguin was totally disabled within the definition of the long-term disability plan. Although the employer attempted to argue that he did not participate in vocational rehabilitation and job search exercises that were prerequisites to obtaining benefits under those plans, the court found that it was unfair to expect him to do so in light of his complete disability.
One thing the Court did overturn was the punitive damaged awarded by the trial judge.
Lessons for employers
In the Legal Update, lawyers Madeleine L. S. Loewenberg and Shannon Robinson write that employers need to be aware that meeting the ESA standards may not protect them from liability.
“This decision highlights the discrepancy between ESA requirements and the obligations imposed by the courts. Simply put, while the ESA requires employers only to continue the benefits of a terminated employee for the statutory notice period, Ontario courts will award benefit entitlement throughout the entire common law notice period. An employer complying with the statute alone may, therefore, find itself unintentionally in the situation faced by Canac Kitchens,” write the authors.
Compounding these difficulties, they add, “is the refusal of many insurers to continue employee benefits beyond the statutory notice period. While the trial court and the Court of Appeal found that Olguin would have been eligible to receive short- and long-term disability benefits had those benefits been continued, neither court makes it clear whether the insurer would have been willing to extend the benefits beyond the statutory notice period had Canac Kitchens attempted to secure benefits for Olguin.”