December 6, 2022

Employer Liability for LTD Benefits

When an employee has their employment terminated, they are entitled to certain things under the law and under their employment contract (if it rises above the minimum legal standards). Under Ontario’s Employment Standards Act (the “ESA”), for example, an employee’s health benefits must continue throughout the duration of their legally required termination (and severance, if applicable) pay.  

While we often think of extended health benefits in Canada as being a nice-to-have perk for employees (on top of publicly funded healthcare), the law treats benefits with the utmost importance. For example, if the employee is entitled to six weeks’ pay in lieu of notice after their employment ends, the employer is required to pay benefits for that period. 

If the employee is entitled to notice under common law, however, things can get a bit more complicated. A wrongful dismissal case, effectively a breach of contract issue, involves an allegation that an employee was provided inadequate notice of termination.  As such, the employee is entitled to be put in the position he would have been in had proper notice been provided.  Accordingly, case law has established that an employee is entitled to benefits throughout the entirety of their notice period – whether that becomes 2 months or 2 years, unless of course they secure alternate employment with equal benefits. 

Of course, the reality can often be more complicated, and benefits can sometimes be overlooked when there are other pressing issues to be resolved. Employers can sometimes be reluctant to include benefits when settling an employee’s termination dispute. However, should the employee fall ill during their notice period, the difference between maintaining or ending those extended benefits could be a costly one. 

When Things Go Wrong

As Canadians, we are used to our extended health benefits primarily covering a portion of those out-of-pocket medical expenses such as prescriptions, dental cleanings, eyeglasses, chiropractic visits, massages, etc. For those in good health, those benefits may be seen as a nice additional workplace perk, and ones that offset financial burdens for additional care. 

Yet there are often other benefits that are crucial in times of need. Short-term disability, long-term disability, accidental death and dismemberment etc. are benefits which we may never rely on, but if needed they can provide crucial income replacement during dire times of need. Without those benefits, a sudden disability can prove both physically and financially catastrophic for an employee and their family. 

That was the case in a famous 2012 legal decision known as Brito v. Canac Kitchens. The employee had worked for the employer for over two decades before his employment was terminated. He found re-employment several weeks later, but his new job was at a much lower wage, and did not provide long-term disability benefits to replace the ones he had lost.

A year and a half after his termination, the employee was diagnosed with cancer, and treatments left him disabled. He sued Canac Kitchens not only for wrongful dismissal, but for the loss of his benefits. He argued that Canac Kitchens had cut off his benefits when he was still entitled to them, and he would have used them had he still been employed during his illness.

The Court, and later the Court of Appeal, agreed. The employer may have been attempting to save on costs, but the decision to discontinue benefits cost them severely. Along with his lost wages, the employee was awarded over $200,000 to compensate for the loss of his disability benefits. This case has been a benchmark for decades of what can happen to employers when they wrongfully cut an employee’s benefits short upon termination. 

Another Recent Case

In a recent case from Saskatchewan, Pasap v. Saskatchewan Indian Gaming Authority, 2022 SKQB 200, the employee was a First Nations casino worker for a large portion of his career, including full-time between 2007 and 2012. The employee was off work with a back injury in 2011, and problems with his work after his return in 2012 led to his dismissal. 

After an analysis of the facts, the Court found that the employee was wrongfully dismissed. His employer had effectively told him to resign or his employment would be terminated, which is tantamount to dismissal. The Court ruled that the employee was entitled to reasonable notice of 8 months’ pay in lieu of notice.

Along with his pay, the Court ruled that “at termination, Mr. Pasap was entitled to the following employment benefits: life insurance; long term disability benefits; a dental plan; medical coverage for prescription drugs, vision care, and ambulatory services; employee and family assistance program and a pension plan.”  

Unfortunately, the employee suffered a catastrophic medical event in December, 2012, shortly after his termination. He spent nearly a month in hospital, two weeks of which were in the intensive care unit, and was left with significant medical complications afterwards. He was considered completely disabled for 3 years following, and has remained unwell ever since, which has left him unable to earn any significant income in the years since. 

The Legal Consequences

The ultimate question before the Court was whether the former employer, in light of cutting off the employee’s benefits, should be held to take the place of his insurer. The Court noted that the employee “overestimates his abilities and underplays his limitations,” but is still very much disabled.

His disability has left him unable to earn 66% of his pre-disability earnings – a status which would render him as ‘totally disabled’ under the terms of his former employer’s benefits plan. He had both physical and cognitive limitations, and needed assistance from family in performing tasks that he used to be able to do with ease. As the Court summarized:

“I am satisfied that, to the date of trial, Mr. Pasap was prevented from any gainful occupation, for which he was reasonably qualified, because of his disability. Moreover, the evidence does not show that further training or education would have enabled him to find employment other than what he did find. Finally, Mr. Pasap was unable to earn 66.67% of his pre-disability earnings, indexed or not.”

Along with damages for his termination pay and benefits, the employee claimed long-term disability benefits until his 65th birthday to account for his inability to work. Had he remained employed and on the benefits plan when he took ill he would have applied through the benefits plan, but since the employer cut him off unilaterally, they then became responsible for such coverage. 

The employee ultimately sought damages in lieu of long-term disability benefits, as well as moral and punitive damages for how egregiously the employer had behaved in handling the matter. In the end, the court agreed with his position.

The total price tag? $1.26 million dollars. 

The Upshot

While cases such as these are rare, they DO happen, and should serve as a stark warning for employers. Just as none of us can take our good health for granted, we cannot take an employee’s health for granted either. Illness or tragedy can strike at any time, and the healthiest person one day can become virtually incapacitated the next. 

The best protection for employees may be short and long-term disability benefits, and they can make a workplace more attractive for potential candidates. While there is no legal requirement to provide these benefits to employees in the first place, the legal requirement to leave them intact following termination is clear. 

This is not to say that employers must continue disability benefits coverage after the required statutory period.  In fact, most insurers won’t continue such coverage. However, the risk of being deemed to be an insurer underscores the importance of making reasonable and, at times, generous severance offers, in order to secure a full and final release.  That is the best and only protection against liability for disability benefits.   

In both situations, the employer has been effectively deemed as the terminated employee’s insurer – a costly mistake that is entirely preventable by closely following the law. Before terminating someone’s employment, consult with an employment lawyer to learn exactly what your legal obligations are, and how long those obligations run for. 
Don’t get caught in a costly and avoidable mess. Contact our office today to set up a consultation.