Ontario Court of Appeal upholds nearly $200,000 in damages for loss of disability benefits during common-law notice period

Download Télécharger

Reasonable notice under the common law requires employers to dismiss their employees with proper notice or pay in lieu thereof. If the employer chooses the latter it must make the employee whole for the common law period of reasonable notice.  The decision of the Ontario Court of Appeal in Brito v. Canac Kitchens (January 2012) demonstrates the extent of an employer’s obligations to dismissed employees during the common law notice period.  In Brito, the Court of Appeal upheld an award of almost $200,000 in damages for loss of long-term disability benefits during the common law notice period.  The case highlights the risk that an employer is exposed to when providing only the statutory minimum notice period when terminating employees without cause.

Canac terminated the plaintiff`s employment as a kitchen cabinet and door maker and woodshop production lead hand as a result of restructuring in July 2003. At the time of termination, the plaintiff  was 55 years of age and had worked for Canac for 24 years.  Canac paid the plaintiff the minimum statutory requirement for pay in lieu of notice and severance.  This amounted to nearly 32 weeks’ salary.  The plaintiff’s disability coverage, provided under a company-sponsored disability benefit plan, was terminated after eight weeks.

Following his dismissal, the plaintiff quickly mitigated his damages by securing alternate employment in August 2003, albeit at a much lower rate of remuneration, and without disability benefits.  In November 2004, 16 months after his dismissal from Canac, the plaintiff was diagnosed with cancer of the larynx.  He had the first of a number of surgeries and treatments to remove the cancer.

The plaintiff eventually sued Canac for damages for wrongful dismissal and associated benefits, including short-term disability (STD) and long-term disability (LTD) benefits.  The plaintiff claimed that he would have been entitled to these benefits under the employer’s disability benefit plan but for his wrongful termination. 

WRONGFUL DISMISSAL AND REASONABLE NOTICE

At trial, Justice Randall Echlin of the Superior Court of Justice held that the plaintiff was wrongfully dismissed.  In determining the appropriate notice period, he applied the factors from the oft-quoted decision in Bardal v. Globe & Mail Ltd. (1960):

There could be no catalogue laid down as to what was reasonable notice in particular classes of cases.  The reasonableness of the notice must be decided with reference to each particular case, having regard to the character of the employment, the length of service of the servant, the age of the servant, and the availability of similar employment, having regard to the experience, training and qualifications of the servant.

Based on the Bardal factors the judge set the period of notice at 22 months.  He awarded cash employment compensation from the date of dismissal to November 2004, the date when the plaintiff became disabled.  This amount was reduced by Canac’s statutory payments, and the amount the plaintiff actually earned from his alternate employment. 

DISABILITY AND DAMAGES DURING NOTICE PERIOD

For the period between the date of the plaintiff’s disability and the end of the 22-month notice period, the judge stated that the goal was to place the plaintiff into the position he would have been in had Canac provided him with working notice.  This would require that the plaintiff receive his employment compensation, plus all benefit coverages, for the full 22-month notice period.

The judge found that the plaintiff’s evidence in relation to his medical condition established that he was “totally disabled” for the purposes of the employer’s disability benefit plan.  He found that the plaintiff’s total disability continued from November 2004 until the date of trial.  As a result of this finding, the judge awarded approximately $9,000 in damages for the loss of STD coverage under the disability benefit plan.  In addition, the judge ruled that the plaintiff was entitled to damages for the loss of LTD benefits from the expiry of the STD benefits to his 65th birthday.  This amounted to almost $200,000.  The judge went on to award the plaintiff $125,000 in legal costs, as well as $15,000 in punitive damages for Canac’s “hardball approach” in its treatment of the plaintiff. 

BEFORE THE COURT OF APPEAL

Canac appealed the trial judge’s award of “ancillary damages” for lost LTD benefits and the award of punitive damages.  It argued that the plaintiff was not “totally disabled” within the meaning of the disability benefit plan.  Canac also claimed that the plaintiff failed to mitigate his damages by failing to seek alternative employment after March 2005, while the plaintiff was receiving post-surgical treatment. 

The Court of Appeal disagreed.  In its view, there was sufficient evidence before the trial judge to support the conclusion that the plaintiff was totally disabled within the meaning of the disability benefit plan.  In light of this finding, the appellate court also rejected the assertion that the plaintiff failed to mitigate his damages.  The Court stated, “there can be no obligation to mitigate damages by finding alternate employment where the employee is totally incapable of working.”     

Canac did however succeed in appealing the punitive damages award.  The Court of Appeal set aside the $15,000 award on the basis that the plaintiff did not claim punitive damages in his statement of claim, thereby preventing the trial judge from making that award.

In Our View

Most employers who provide disability coverage to their employees do so through third-party insurance providers.  Many insurers will not extend disability benefit coverage beyond the statutory minimum notice period.  As was the case in Canac, this can lead to a gap in coverage for the period between the end of the statutory-notice period and the end of the longer common law notice period.  During this period employers are essentially self-insuring against the risk of claims for disability benefits by dismissed employees.  Employers can attempt to mitigate this risk in a number of ways.  First, prior to dismissal, an employer can request ongoing LTD coverage from the insurer.  If the costs are too high, the employer can attempt to find alternate coverage with another insurer.  If additional benefit coverage cannot be obtained, employers can address the risk through the termination package offered to the dismissed employee.  The employer can seek a release from the employee confirming his or her understanding that the disability benefit coverage has ceased, and waiving any future claims for such coverage.  Employers should be prepared to provide more monetary compensation where such a release is obtained.

For further information, please contact Sheri Farahani at (613) 940-2745 or Sébastien Huard at (613) 940-2744.