Ontario employers liable for terminated employees’ disability, Part 1

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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 Norton Rose Canada ‘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 Act2000 (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.

Read Part 2 for details on the appeal decision and the lessons for employers.

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