Court rules employer not liable for LTD benefits to employee who becomes disabled during notice period

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If an employer provides long term disability (LTD) benefits, and a wrongfully dismissed employee becomes disabled following termination but during the notice period, is the employer liable for damages to compensate the employee for the lost LTD benefits? Some observers believed that under employment law, the answer was “yes”. Now, however, a recent decision of the Ontario Superior Court of Justice points to the opposite conclusion.

Pioro v. Calian Technology Services Ltd. (May 16, 2000) concerned a managerial employee dismissed on July 29, 1997, after 19 years of service, due to closure of the division in which he worked. On being terminated, he was offered 30 weeks’ salary. His termination letter also indicated that his employee benefits would cease on September 23, 1997, at which time “the onus will be on you to obtain replacement coverage if you so choose”.

Pioro notified the employer that he considered this offer inadequate in view of his position and years of service. Calian responded that the offer was reasonable and proceeded to pay out the amount indicated in the termination letter.

In December 1997, Pioro was diagnosed with heart disease. In April 1998, he had to give up working due to fatigue and his physician considered that he was no longer able to work. In his wrongful dismissal action, one of Pioro’s claims was for LTD benefits to compensate him for the disability he suffered during the notice period.

THE BENEFITS PLAN

The Employee Handbook describing the insurance policy offered by Calian indicated that employees were eligible for coverage, provided they had “been at work continuously, actively, in full-time employment” with the employer. “Full-time” was defined as “performing as an employee in the required manner for the required number of hours each week all the regular duties of the employment either at the customary place of employment or at some other location required by the employer’s business”. Benefits were to terminate “on the date you would cease to be eligible to become insured except as required by law”.

NO CLAIM UNDER TERMS OF THE POLICY

The Court heard evidence on LTD insurance policies and found that the policy offered by Calian and its insurer was “in accordance with industry standards and was an average benefits contract similar to many in the industry”. The Court noted that, under the terms of the policy, coverage terminated on the date a person ceased to be eligible to become insured. That date is when the person is no longer actively at work full-time and for full pay with the employer.

In this case, Calian had terminated Pioro without notice. However, according to the Court, even if the employer had chosen to give Pioro actual notice, continuing to employ and pay him throughout the notice period, it is doubtful that he would have been eligible for benefits during the notice period:

“[During actual working notice, Calian] might have required Pioro to continue his work, but without the consent of Pioro, it could not have required Pioro to perform a different function as that would amount to constructive dismissal. Because there was no work in the division, as it had been closed, Calian could have continued to carry Pioro as an employee, … however he would not have been required to report for work. Under either event, under the terms of the insurance policy in force, Pioro would not have been entitled to LTD coverage.”

Therefore, the Court held, as the policy was a standard one within the industry, and Pioro would not have been eligible for coverage even if he had remained at work throughout the notice period, he had no claim against the employer because his disability commenced following his termination.

To arrive at this result, the Court had to distinguish a 1992 decision of the British Columbia Court of Appeal, Prince v. T. Eaton Co. In that case, the policy originally had provided that coverage ceased once the employee was no longer actively employed at the customary place of employment. However, the employer took over the policy and undertook to provide benefits that were to cease upon “the termination of employment”. The Court of Appeal interpreted that to mean the lawful termination of employment – or the end of the plaintiff’s notice period.

This case was different. Under the terms of the insurance policy, Pioro’s coverage would have ended on the date of his termination (or possibly in September 1997, as advised in the termination letter) even if he had been given “working” notice, without being required to work.

The Court concluded by observing that Pioro had been advised that his benefits were to cease on September 23, 1997. There was no obligation on the employer to provide any other coverage at the end of his employment.

In Our View

This case would appear to indicate that, provided the coverage being offered is otherwise within the industry standard, and the employee has been informed of the terms of the plan, language restricting coverage to employees actively at work will exclude terminated employees during the period of reasonable notice.

An appeal has been filed in the case. Pending a decision on appeal, employers should exercise caution in relying on the Superior Court judgment. FOCUS readers will be kept informed of any further developments.

For further information, please contact Colleen Dunlop at (613) 563-7660, Extension 222.