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Obligations to disabled employees

Dealing with disabled employees can be a vexing issue for most employers. A number of questions arise when an employee takes time off either temporarily or permanently due to a disability, whether physical or mental. These issues include:

  • whether the employer must continue to pay the employee during the period of disability and for how long;
  • must the employer keep the employee’s position open, and if so, for how long;
  • to what extent must the employer accommodate the employee’s disability;
  • at what point can it be said that the employee is not capable of returning to work and can therefore be terminated; and
  • if the employee is terminated due to the disability, is he entitled to damages for wrongful dismissal and if so are these damages reduced by the amount of disability payments received during the period of reasonable notice.

It has long been the law in Canada that an employer has an obligation to continue paying regular wages during a period of temporary disability. In most companies, this obligation is covered by the employer providing access to disability insurance, whether paid for by the employer, the employee, or a combination of both. Regardless of who funds the insurance policy, the receipt of benefits under the policy, will absolve the employer of any further obligation to make salary payments during the period of temporary disability.

In the event the employer concludes that the employee is unable to work due to disability, and qualifies for benefits under a policy provided by the employer, are those benefits deductible from any entitlement to wrongful dismissal damages. In a decision in Sylvester v. British Columbia, the Supreme Court of Canada in 1997 held that disability benefits paid to an employee during the period of reasonable notice, if paid pursuant to an employer provided disability insurance scheme, are, in fact, deductible from any wrongful dismissal damages. However, in its reasons, the court outlined two exceptions to the rule:

  1. in the circumstance where there is an employment contract which specifically deals with the issue of deductibility of disability payments; or
  2. where the disability plan was not an integral part of the employment contract.

The Ontario Court of Appeal considered the Sylvester decision in the case of McNamara v. Alexander Centre Industries Limited. The Ontario Court found that the Sylvester decision, while good law, would not apply in three circumstances:

  1. where the employee paid money or other consideration to fund the disability benefits;
  2. where there was a provision in the employment contract indicating an intention of the parties that disability payments not be deducted; or
  3. where there was no such provision in the contract, and the similar intention could be inferred from the conduct of the parties.

In a number of Ontario decisions, the courts have distinguished the facts based on whether or not the disability payments are paid by the employer, or by a third party insurer. The logic applied by the courts is that where the employer pays the disability benefits, ordering the employer to pay wrongful dismissal damages for the same period of time would inflict an injustice on the employer in that it would be paying double benefits for the same period. However, recent Ontario decisions have rejected this distinction and have, once again, relied on the issue of the intention of the parties and the terms of the policy.

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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