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Court of Appeal confirms entitlement to disability benefits

Most employers are familiar with the potential legal exposure to damages that arises from dismissing an employee without cause. The damages are normally quantified by the value of compensation the dismissed employee would have received during the agreed-upon or court-ordered period of reasonable notice. Employers expect that this compensation will include items such as car allowance, the value of health insurance and bonuses. However, most employers would not contemplate the possibility of having to pay the dismissed employee the value of disability benefits he or she would have received under a disability insurance policy until age 65. That is exactly what the Ontario Court of Appeal confirmed in a decision released on January 31, 2012, in the case of Brito et al v. Canac Kitchens.

In this case, the employee was terminated without cause. At the time of termination, the employee was 55 years old and had been working for the company for 24 years. Most employment lawyers would see danger signs flashing all over this situation. Unfortunately, the employer either did not consult with an employment lawyer, or if it did, it surely did not heed the advice it received. Rather, at the time of termination, the employer offered to pay the employee only the statutory minimum termination severance required under Ontario’s Employment Standards Act: 32 weeks’ pay, including 8 weeks of termination pay and 24 weeks of severance.

However, it was not the lack of adequate notice that gave rise to the litigation. The employee in fact found alternative employment fairly quickly. Unfortunately, while working for this new employer, the employee was diagnosed with cancer of the larynx, which required surgery for the removal of a tumour. The surgery and follow-up treatment resulted in the employee being unable to work. The new employer did not offer short- and long-term disability (LTD) benefits equivalent to the prior employer. The plaintiff therefore sued for the value of those lost LTD benefits.

At trial, the late Justice Echlin, an expert in employment law, voiced his obvious displeasure with the actions taken by the employer. In a classic example of judicial foreshadowing, he opened his judgment thus:

Over the past 200 years Canadian employment law has evolved dramatically. Workers in the 19th century sometimes faced jail for workplace transgressions. In other instances legalized corporal punishment was administered if servants displeased their masters. In British Columbia, legalized discrimination against Chinese workers was widespread and enshrined in legislation. Although it did not occur overnight, the 20th century witnessed significant changes in the way in which workers were treated.

Justice Echlin also referred to Canac’s history in the Ontario Superior Court, and the fact that Canac Kitchens had been a defendant in numerous actions. There are 25 reported decisions in the last 18 years in which Canac was a party, and almost invariably as a defendant. This would indicate that many more cases involving Canac were litigated, but did not reach trial.

At the trial in this case, Canac chose not to call any evidence on its own behalf, but relied solely on the cross-examination of the plaintiff’s witnesses. Canac didn’t challenge the evidence that the employee, having been fired due to a restructuring, was offered only eight weeks coverage under the company disability benefits, being the minimum required period under the Employment Standards Act.

At trial, Justice Echlin determined, based on the accepted criteria in the often quoted case of Bardal v. Globe & Mail (age, length of service and prospects of re-employment) that the employee should have been given 22 months notice of termination, or payment in lieu thereof. Implicit in that determination is the employee’s entitlement to continuation of benefits, including short- and long-term disability, for the same amount of time. Had the employer complied with its legal obligations, the plaintiff would have qualified for the long-term disability benefits available under the company’s policy of insurance when he became ill, and he would have received such benefits to age 65. Justice Echlin therefore felt that the loss of these benefits was a loss attributable to the wrongful dismissal, and awarded close to $200,000 to the employee for the loss of those benefits. He also awarded $15,000 in punitive damages to punish Canac for its actions.

Canac appealed the decision and, in reasons dated January 31, 2012, the Court of Appeal upheld the trial decision, with the exception of the award for punitive damages.

The first argument advanced by Canac at appeal was that the employee was never in fact “totally disabled” within the meaning of the policy, and therefore would not have qualified for disability benefits. The Court of Appeal reviewed the evidentiary record, including a detailed review of the medical evidence from the trial, and concluded that there was ample evidence on which Justice Echlin could conclude that the employee was totally disabled within the definition in the insurance policy. The Court of Appeal then confirmed Justice Echlin’s conclusion that, had the employee been given adequate notice, he would have received disability benefits under the policy until age 65.

The second argument advanced by the employer was that the trial judge erred in concluding that the employee had discharged his obligation to mitigate his damages. In a strongly worded portion of the judgment, the Court made it clear that this argument could not succeed. The Court found that when an employee is totally disabled, he obviously has no obligation to mitigate his damages, as he is totally incapable of working. The Appeal Court stated that it agreed with the employee that “it does not lie in the appellant’s mouth to assert mitigation failure.”

What can employers take away from this decision? First and foremost, great care must be exercised in preparing termination packages for long-term employees. The courts have repeatedly demonstrated little patience for poor treatment for what are clearly loyal and long-serving employees. Second, where it becomes obvious that an error has been made in the manner of termination, all available steps to rectify the error should be taken immediately. Employers should follow the course of greatest caution and obtain detailed legal advice as to the likely obligations to such employees.

Earl Altman
Garfinkle Biderman LLP

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Earl Altman

Legal consultant at EA Consulting
Earl Altman was a partner at Garfinkle, Biderman and now heads his own consulting firm. Earl has practiced commercial and employment litigation. Earl’s practice focuses on employment disputes, including acting for employees and employers in wrongful dismissal claims, and in breach of contract and breach of fiduciary duty claims. Read more
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