Further guidance on deducting disability payments in wrongful dismissals, The Law Times (August 24, 2015, p. 7)

Further guidance on deducting disability payments in wrongful dismissals, The Law Times (August 24, 2015, p. 7)

By Nikolay Y. Chsherbinin

One vexing question that has been the subject of further judicial scrutiny is whether to allow the payment of disability income to wrongfully dismissed employees at the same time that they’re receiving their full salary for the reasonable notice period.

In a recent decision, Fernandes v. Peel Educational, Superior Court Justice Gordon Lemon determined that in cases where the employer, and not an insurer, is responsible for paying the disability benefits, the dismissed employee couldn’t receive both the disability and employment incomes at the same time despite paying the insurance premiums. Having been unable to infer the parties’ contractual intention for concurrent payments, Lemon concluded that the disability payments should begin immediately after the employee’s wrongful dismissal payments end.

Remy Fernandes was a well-regarded teacher at a private school, Peel Educational & Tutorial Services Ltd. After 10 years and three months, the employer terminated his employment for just cause for falsifying students’ marks and lying about how he had calculated them. After a 10-day trial, Lemon found the employer had wrongfully dismissed Fernandes and awarded him 12 months’ salary in lieu of notice. The court accepted that the school had knowingly sent out the false interim marks to the students and parents without commenting on their accuracy, something that in its view diluted the seriousness of Fernandes’ conduct.

In addition to the wrongful dismissal damages, Lemon found the school liable for the value of the long-term benefits that Fernandes had lost. Following his dismissal, Fernandes became disabled during the period of reasonable notice. Having dismissed him for cause, the school immediately discontinued his benefits coverage. Based on expert evidence, Lemon accepted that had Fernandes applied for the long-term benefits, he would have qualified for them.

In his reasons for judgment, Lemon thoughtfully invited the parties to make written submissions on the issue of determination or resolution of the disability benefits claims. In his submissions, Fernandes argued the court shouldn’t set off his disability benefits against the wrongful dismissal damages because he had paid the premiums. The basis for Fernandes’ argument finds support in the Ontario Court of Appeal jurisprudence that stands for the proposition that absent an express provision in the employment contract precluding double recovery, it’s reasonable to assume that an employee wouldn’t willingly negotiate and pay for a benefit that would allow an employer to avoid responsibility for a wrongful act.

In its turn, the school successfully argued that the disability payment should be payable on the termination of the 12 months’ salary for wrongful dismissal and not before. To allow the disability payments at the same time as Fernandes received his full salary for the notice period would amount to double recovery going over and above the objective of making him financially whole for his losses. Relying on the Supreme Court of Canada’s decision in Sylvester v. British Columbia in which the court deducted disability payments from the wrongful dismissal damages, the school argued it’s fundamentally inequitable to award double payment against a single defendant. The school rationalized that allowing the double payment would put Fernandes in a better position than he would have been in had the wrongful dismissal not occurred. Arguably, to compel an employer to do so would require a specific contractual provision in the employment contract. In this regard, Lemon found that Fernandes’ employment contract spoke directly against such an intention.

In many ways, it’s difficult to reconcile the Ontario Court of Appeal cases with Sylvester because they turn on their unique facts. The authorities that permit the dismissed employee to receive both the disability and employment incomes differ on the basis that they involve a third-party insurer and, unlike in Fernandes, the employer was seeking to take advantage of payments made by the insurer to reduce the wrongful dismissal damages.

In the present case, the significant fact was there was no third party insurer paying the benefits. Barring the deduction, the school would have to pay both the disability and the employment income. Having found no contractual evidence that the parties intended the school to pay both incomes concurrently, Lemon ordered the school to make the disability payments immediately after the wrongful dismissal amounts ended. In the court’s view, that would put Fernandes in the position he would have been in had the employer not breached the employment contract.

Consequently, where the employment and disability incomes are coming directly from a single source, this factor, absent a contractual term to the contrary, would bar the concurrent payments despite the fact that the employee had paid for the insurance premiums. It would also automatically distinguish such a case from others that held that the receipt of the disability payments from an insurer wouldn’t reduce the employer’s liability for wrongful dismissal payments.

Fernandes serves as a good reminder to employers that whenever they hastily terminate the dismissed employee’s disability coverage, they’re running the risk of stepping into the shoes of the insurer should the employee become disabled during the reasonable notice period.

In the present case, the school was rather fortunate that at the time of his dismissal, Fernandes was 62 year old and, as such, wouldn’t receive the disability benefits for a long period. Had he been 40, the school could have been liable for 25 years and millions of dollars in damages. Just cause is an assertion that’s easy to make but often difficult to substantiate. Employers that jump to the conclusion that they have cause do so at their own economic peril.

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