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Long Term Disability Claims in the Notice Period

Posted On: January, 21 2015

In the 2012 case of Brito v. Canac Kitchens, 2012 ONCA 61, the Court of Appeal considered what would be a nightmare scenario for many employers.

In this case, the employee was covered under an employer-sponsored benefit plan, which included short- and long-term disability benefits.  The employee was dismissed without cause.  He was 55 years old and had 24 years of service, meaning that his common law notice period would be at the higher end of the spectrum.

The employer elected to pay only the statutory minimum standards for pay in lieu of notice, instead of the common law notice period, and did not therefore secure a release from the employee.  The employer contested the employee’s entitlement to common law notice.  The employer also permitted the policy of insurance to lapse once the employee was no longer actively employed.

During what would have been the common law notice period, the employee was diagnosed with cancer and became disabled from working.

The employee claimed against the employer, not only for pay in lieu of notice, but also for the value of the disability benefits he would have received up to age 65, had the insurance policy been in effect throughout the notice period.  The trial judge, Justice Echlin, found that the insurance policy was an employment benefit that ought to have been continued throughout the notice period, and that the employer was therefore responsible for the inability of the worker to qualify for benefits under the plan.

In this specific case, the employee was 55 years old, and therefore had only 10 years of future disability benefit eligibility under the terms of the policy, which stops paying benefits at age 65.  However, it is easy to imagine a case where the employee is 30 years old and develops a serious health condition during the notice period.  In that scenario, the employer could be exposed to 35 years of liability for lost income under the disability benefit plan, if the employer permits the policy coverage to lapse during the notice period.

What could the employer in this case have done differently to avoid liability for 10 years of lost benefits under the policy? First, the employer could have negotiated a settlement of the common law notice period at an early stage post-dismissal, and obtained a release from the employee, which could have released the employer from liability for any long-term disability claims.  By paying only the minimum standard, and choosing to litigate the common law notice period, the employer exposed itself to further liability.

Second, the employer could have purchased a long-term disability policy that continued in effect after the termination of employment, or maintained a policy that included an option for the employee to continue the policy at his or her own expense, after employment ceased. A written employment contract can be drafted to make it clear to the employee that disability coverage ends when active employment ends, and does not continue beyond the statutory notice period.

We recommend that both employers and employees seek legal advice, particularly where disability coverage is an employment benefit.

 

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