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Commencement of notice period when employee is dismissed while on disability leave

disabilityleavetermination15Sometimes, individuals will be dismissed from their jobs at a time when they are on disability leave. There is nothing wrong with this, as long as the decision to dismiss is entirely unrelated to the employee’s disability. For example, if an organization decides to eliminate a department of ten people, one of which is currently on disability, that individual is not entitled to greater protection than his or her colleagues.

Although it is accepted that an individual can be dismissed while they are on disability leave, some practical issues arise. First, does the period of notice commence while the individual is disabled and unable to work, or does it only start running once their leave ends? Furthermore, how is pay in lieu of notice to be calculated if the individual is unable to work? Do they get their full salary, or the value of disability benefits?

With respect to the first issue, it is well established that, in the ordinary course, the notice period starts as soon as the employee receives notice that their employment will terminate. This is true regardless of whether the employee stops working immediately, or is provided with a period of working notice. However, some individuals and their lawyers have taken the position that notice should not be effective at a time when the individual is unable to work. In other words, their position has been that the period of notice should only include periods of time during which the individual is able to work. That is consistent with the approach to individuals on pregnancy or parental leave; generally speaking, it is accepted that while an individual on pregnancy or parental leave may be provided with notice of dismissal, the period of notice will only start when they would otherwise have returned to work. However, such an approach is unworkable in the context of disability leave, which is open-ended and can continue indefinitely. As a result, our courts have confirmed that whether or not the employee is on disability leave, the notice period commences when they receive notice that their employment will end.

The second issue that arises relates to the calculation of pay in lieu of notice, or “severance pay” as it is colloquially referred to. In the past, several cases have considered situations where an individual received disability benefits during their notice period. In those cases, employers have typically argued that the individual’s entitlement to pay in lieu of notice should be reduced by the amount of disability benefits received. They have argued that to permit otherwise would be to allow for “double dipping”, and would be unfair to the employer. This reasoning has not always been followed, and there continues to be some uncertainty, but the prevailing view is that the Supreme Court’s decision in Sylvester v. British Columbia should be followed. Essentially, where the evidence is that the disability plan was to indemnify the employee for lost wages when they could not work, and there is no evidence that the parties intended that the employee would ever be entitled to receive salary and disability benefits concurrently, then any disability benefits received during the notice period should be deducted from the damages arising out of the dismissal.

According to the Supreme Court in Sylvester,

the fact that an employee could not have worked during the notice period is irrelevant to the assessment of these damages”.

However, some parties have taken the position that if an individual is unable to work during a period of notice, then they should be entitled to disability benefits, assuming that they are eligible, but not pay in lieu of notice during those times when they would not be able to work. In other words, if the period of notice is twelve months, but the individual is disabled for the first six months, then the argument has been made that the individual should receive their disability benefits for the first six months, and pay in lieu of notice for the last six. This line of reasoning was applied by the Ontario Court of Appeal in Egan v. Alcotel Canada Inc., in which the Court overturned a trial Judge’s decision which awarded the individual her full salary during the notice period, even though she could not have worked throughout it.

The decisions in Sylvester and Egan are directly at odds with each other. Sylvester is a decision of the Supreme Court of Canada from 1997. Egan was decided by the Ontario Court of Appeal nine years later and, interestingly, the Court explicitly referenced Sylvester. Some lower courts have recognized the contradictory precedents and, to date, most have followed Sylvester. However, there is an open question as to how the issue will be treated in the future, and this creates uncertainty in any case with facts of this nature.

These issues can severely complicate an otherwise straightforward dismissal. Counsel advising employers and employees must ensure that they advise their clients properly.

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Rudner Law, Employment / HR Law & Mediation

Employment Lawyers and Mediators at Rudner Law
Rudner Law specializes in Canadian employment law and mediation. Rudner Law provides clients with strategic advice regarding all aspects of the employment relationship, and represents them before courts, mediators and tribunals. Stuart Rudner is a leading HR Lawyer and founder of Rudner Law. Stuart and his team speak and write frequently on HR Law issues. Read more
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