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Can a Company be liable to a former employee for long term disability benefits after termination?

by Leanne E. Standryk

Many employers in Ontario provide employees with long term disability benefits through a third party carrier as a term of compensation during the employment relationship. Most often when an employer decides to terminate the employment relationship without cause, they terminate ongoing disability coverage either as of the last day worked or upon the expiry of the minimum statutory notice period. Can an employer be liable for the lost value of long term disability benefits when a former employee becomes totally disabled after the termination of the employment relationship?

The Ontario Court of Appeal in the unanimous decision of Brito v. Canac Kitchens upheld the Ontario Superior Court decision of Justice Echlin confirming that employers may be held liable. Canac Kitchens terminated Mr. Brito without cause at age 55 and after 22 years of service. The Employer provided Mr. Brito with the statutory minimum entitlement to 8 weeks’ termination pay in lieu of notice and continued participation in the Company benefit plan for the corresponding period. Mr. Brito commenced an action against the Company for wrongful dismissal and approximately 16 months’ post termination was diagnosed with cancer and became totally disabled.

Justice Echlin of the Ontario Superior court found that Mr. Brito was entitled to common law reasonable notice of 22 months. Compensation for lost long term disability benefits was a central issue of the case. The Court found that the Employer was responsible for the lost value of the long term disability benefits that Mr. Brito would have received under the long term disability policy had his coverage continued during the common law notice period. Accordingly, the company was placed in the position of the “private insurer” for the life of the disability until Mr. Brito turned 65 valued at approximately $200,000.00. The Court award can be summarized as follows:

  • $94,666.00 representing 16 months’ salary to the date of disability less the statutory payments received by the employee and less income earned from alternative employment;
  • $9,078.00 in lieu of short term disability benefits;
  • $146,723.00 in lieu of lost long term disability benefits from the date of disability to the date of the trial;
  • $47,941.00 in lieu of lost long term disability benefits to the employee’s 65th birthday;
  • $15,000.00 in punitive damages.

The case has serious implications for employers. In order to manage this risk, employers are encouraged to:

  • Ensure that your employment contracts contain language that expressly limits post-termination entitlement to long term disability benefits. It may not be enough to simply say that benefit coverage is conditional upon active employment.
  • Inquire of your insurance provider to determine the availability of long term disability benefits beyond termination.
  • In the absence of a valid and enforceable termination clause contained in an employment contract, ensure that you provide employees with reasonable notice of termination or pay in lieu thereof and consider providing compensation in lieu of benefit coverage.
  • Ensure that you obtain a full and final release from the departing employee.
  • Consider the risk of disability during any reasonable notice period and the ability to arrange for alternative disability coverage with another insurer.

While obtaining alternative coverage through another insurer may be considerably more expensive than the cost associated with a group LTD plan, it may be an appropriate means of minimizing the risk of financial liability demonstrated in the particular case of Brito v. Canac Kitchens, 2012 ONCA 61 (CanLII).

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