When can LTD benefits frustrate an employment contract?

The decision of Roskaft v. RONA Inc., 2018 ONSC 2934, sheds some light on when an employer can successfully claim frustration of contract when an employee is in receipt of long-term disability benefits.

The facts of this case were fairly straight forward. The Plaintiff began working for RONA in 2002 in a clerical role. In 2012, he started a leave of absence due to a medical condition. The Plaintiff had access to short-term and long-term disability benefits provided by Sun Life. Sun Life approved the Plaintiff’s claim for LTD benefits. RONA had no involvement with the Plaintiff’s LTD claim. In December, 2014, Sun Life allegedly advised RONA that the Plaintiff was “permanently” disabled from his own occupation and any occupation. In September, 2015, three years after the onset of his disability, RONA terminated the Plaintiff’s employment due to frustration of contract. RONA relied on Sun Life’s December, 2014 letter and the fact the Plaintiff continued to receive LTD benefits. He was paid his statutory minimum entitlements under the Employment Standards Act, 2000. The Plaintiff commenced an action for wrongful dismissal. He alleged that RONA failed to obtain information from the Plaintiff which would have indicated his condition was improving at the time of dismissal.

On a summary judgment motion, Pollak J., found that the contract of employment between RONA and its employee of 13 years was frustrated by the employee’s 3 year absence.

Interestingly, Pollack J., concluded that the December, 2014 letter from Sun life, on its own, was insufficient to conclude that the Plaintiff was “permanently” disabled. Notably, there was apparently no reference to “permanent” disability in the correspondence. However, due to the following points, he found that it was reasonable to conclude that there was “no reasonable likelihood” that the plaintiff would return to work within a reasonable period of time:

1. Sun Life’s determination that the plaintiff was sufficiently disabled to receive long term disability benefits;
2. The Plaintiff’s post termination representations to Sun Life that his medical condition had not improved; and
3. The Plaintiff’s continued receipt of LTD benefits.

While employers are usually unable to rely on post termination medical documentation to support their claim for frustration, Pollack J., allowed the representations to Sun Life in as evidence. It is likely this post termination evidence that carried the day for the employer. Pollack J., specifically indicated it directly contradicted the plaintiff’s assertion that he would have provided further evidence had RONA asked and have been able to return to work in a reasonable period of time.

Closing commentary

It is apparent that Pollack J., was unwilling to let the Plaintiff have his cake and eat it too. On the one hand, the Plaintiff was reporting to Sun Life that his condition remained stable and unchanged. On the other hand, he alleged that had RONA asked for additional medical information, he would have advised that he was improving. Both were unlikely to be accurate.

It is unfortunate that Pollack J. sidestepped the issue of which party had the obligation it is to submit or request medical information. Notably, the Plaintiff dropped his claim under the Human Rights Code, and so Pollack J., did not have to address the issue of accommodation by RONA. While there is case law that suggests an employer may suffer repercussions if they request information too frequently, many employment lawyers will vehemently argue that simply relying on the conclusion of the LTD insurer is insufficient to justify a claim of frustration without more. This decision would suggest that a determination by the LTD carrier of ongoing disability, coupled with the continued receipt of LTD benefits may be a sufficient basis for employers to allege frustration of contract.

The Plaintiff’s receipt of long-term disability benefits for three years suggests his disability was severe enough that he was unable to engage in any employment for which he was reasonably suited. Those in the long-term disability industry recognize that this is a stringent test to meet and would be compelling evidence for employers to consider a frustration argument. However, as best practices, employers should request additional information from time to time from their employee and seek legal advice prior to making a final determination. While RONA was ultimately successful, their decision to dismiss the employee resulted in costly litigation.

The decision Roskaft v. RONA Inc., 2018 ONSC 2934, can be found here.

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Devan Marr

Lawyer at Strigberger Brown Armstrong LLP

Devan Marr is a lawyer at Strigberger Brown Armstrong LLP. With two offices located in Toronto and Kitchener/Waterloo, the firm offers a full range of legal services to our industry partners in insurance and risk management. The firm aims to provide its clients with focused, practical, and cost efficient legal advice. Devan primarily defends insurance claims with a particular interest in the intersection of the contractual, statutory and common law obligations of parties in long-term disability and employment practice liability claims. His practice also includes providing employment related legal advice to both employers and employees in the context of contract negotiations, evaluation of termination clauses, workplace investigations, and assessment of exposure to wrongful dismissal claims.

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