Rolling the dice on disability, Canadian HR Reporter (June 6, 2011)

Employment is a game and wrongful dismissal is a gamble. Employers sometimes roll the dice by opportunistically offering just the statutory minimum to dismissed employees instead of what workers might be entitled to under the common law.

Sometimes it works — employees fold their rights and walk away. But, in other cases, workers up the ante and litigate. The pot: Recovery of significant damages, which may include the value of long-term disability (LTD) insurance benefits for the entire period of reasonable notice and beyond. A case in point is Brito v. Canac Kitchens, in which the Ontario Superior Court of Justice dealt with the vexing question of whether employers are required to continue employees’ LTD insurance coverage during a period of reasonable notice. The court found they are.

This has significant ramifications for both employers and employees, albeit from different legal perspectives. It entitles dismissed employees, who become disabled during the notice period, to sue their former employers for the value of the LTD benefits they would have received had they worked during the notice period. It also refines a mechanism of converting employers into insurers liable for LTD coverage, thereby exposing them to substantive damages for terminating LTD coverage during the reasonable notice period.

Dismissed employee received minimum severance pay, LTD coverage

On July 15, 2003, after nearly 24 years of service, Luis Romero Olguin, 55 — who was one of the seven plaintiffs in Brito v. Canac Kitchens — was dismissed without cause due to organizational restructuring at Canac Kitchens. Upon Olguin’s dismissal, the employer chose to go the “bare minimum” route. It provided Olguin with only the statutory minimums in pay and eight weeks’ LTD coverage, and “then gambled that he would get another job and stay well,” said Justice Randall Echlin. About 16 months into what would be his common law notice, disaster struck, causing Canac Kitchens to lose its gamble — Olguin became totally disabled. On Nov. 5, 2004, Olguin had a tracheostomy tube inserted in his throat, underwent surgery for laryngeal cancer and received chemoradiation treatment until June 1, 2005. Although Olguin secured alternate employment at a much lower rate of remuneration on Aug. 1, 2003, he received no disability benefits.

As a result, Olguin sued his old employer for wrongful dismissal. Canac lost its gamble, said Echlin, who awarded Olguin 22 months’ notice period at law together with “all benefit coverages for the entirety” of the notice period.

In arriving at his decision, Echlin chastised Canac for consciously choosing not to make alternative arrangements to provide a loyal, long-service employee with replacement disability coverage during the notice period. When confronted with its potential, significant exposure, Canac raised the predictable argument Olguin failed to mitigate his potential damages by purchasing a replacement disability policy. But the court stated the onus is on the employer to establish the employee’s failure to mitigate. Subsequently, Canac argued that, pursuant to the language of the LTD policy, Olguin was a “notional employee” who was disentitled to receive the disability coverage because he failed to satisfy the “actively at work” requirement contained in the policy. Echlin dismissed this argument as circular logic.

“If (Olguin) was to be deemed a ‘notional employee,’ then how can it be asserted that he was ‘not actively at work?’” he said. As a consequence, Canac conceded Olguin was eligible for 17 weeks of short-term disability (STD) coverage. Predictably, the language of LTD policies may soon be revised to address Echlin’s view. The court was then required to determine, following the expiration of his STD coverage, whether Olguin was entitled to receive damages for loss of LTD coverage. In this regard, Canac argued the insurance policy contractually prohibited recovery of LTD damages.

Relying on the Supreme Court of Canada’s 1997 decision in Sylvester v. British Columbia — which stands for the proposition the value of LTD benefits is deductible from damages if they are paid solely by an employer — Echlin determined Olguin was entitled to the value of LTD benefits because he contributed to the costs of his disability coverage.

As a result, Canac was liable for $71,000 for 22 months’ salary, $9,079 for STD entitlement and $194,214 for loss of LTD benefits up to Olguin’s 65th birthday. In addition, the court slapped Canac with $15,000 in punitive damages for its “cavalier, harsh, malicious, reckless, outrageous and high-handed treatment” of Olguin.