Volume 1, Issue 5 September 2002

This Email Newsletter contains just a few of the many new cases and findings detailed for the Canadian Law community quarterly in David Harris's Canadian Cases On Employment Law Quarterly, available for purchase online from Carswell.

 

Topics Covered This Issue:	To :     Name    Email
Termination of the Disabled Employee Disability Insurance Paid Is there a Defence of Frustration? Does the Disability Insurer have the Right of Subrogation or Setoff Termination of Disabled Employee - Disability Insurance Not Paid    A.  Claims Against the Insurer    B.  Claims Against the Employer

Termination of the Disabled Employee

This subject is rapidly becoming a legal quagmire. The issues are all inter related and there does not appear to a single thread or philosophy to tie them together.
There are a host of questions to be asked, none of which can be readily and simply answered, at least not by this writer.

Disability Insurance Paid

     Issue #1 The interplay between disability insurance and severance payments

The profession thought this question had been answered very nicely by the Ontario Court of Appeal decision in McKay vs. Camco.

Simply put, McKay saw the purpose of disability insurance and severance payments as distinct and separate - each serving different purposes. All this made perfect sense. The receipt of disability payments put the notice or severance obligation on pause. Presuming the disability was temporary and hence avoiding the frustration defence ( more of this later ) then once the insurance payments stopped, then the severance or notice obligations kicked in.

An employee fired while medically disabled would receive insurance as medically justified and then the notice and corresponding mitigation obligations would be in effect.

Sylvster vs BC put an end to this logical approach. Sylvester had succeeded in convincing a trial judge in BC to award disability and severance payments concurrently - both yet from the same payor as disability insurance was self funded.

The Supreme Court then fixed something that was not broken. It disregarded McKay v Camco, perhaps because that approach was not used by the trial judge or apparently argued at trial.

Justice Major, speaking for a unanimous court yet, held that an employee, disabled when terminated could still claim severance benefits, notwithstanding his illness and his inability to seek alternative employment. Where this idea came from is news to all, but that was the decision.

Coupled with this ability to claim severance while ill, then the court held that insurance benefits to which the employee did not directly or indirectly contribute, would be deducted from the claim to avoid double recovery.

There was an opening which the court left open. The decision stated that the issue as what the law might be when the Plaintiff did indirectly contribute was left open, as that argument was not before the court. I expect it was not before the court, because no one anticipated this argument.

It might be expected that the Court had in mind its decision in Cunningham vs Wheeler where the court very liberally dealt with indirect consideration provided by employees to a group insurance plan to support non deductibility of third party insurance benefits in tort claims.

After Sylvester, followed a series of decisions in which the disability insurance benefits were not deducted. Such a decision was Skopitz v Intercorp Foods, where the plaintiff paid for the group insurance benefits directly. This was also the result in Sills v. CAS of Belleville and McNamara v.ACIL where in each case the employee was found to have provided indirect consideration through their services and have bargained for the group benefits in the hiring process.

In reality, all benefits can be argued to be part of the compensation an employee receives - whether as part of a collective bargaining process or a straightforward hiring of one individual. Benefits are important to the persons hired and indeed are taxed to the individuals. It strains the mind to consider any situation where the employee does not earn them though his work.

The Ontario Court of Appeal reduced the severance claim by the workers' compensation payments received in Antonacci, reasoning that the payments were by statute, as opposed to private contract. The employee argued unsuccessfully that the statutory payments in section 58 of the Employment Standards Act, should be without setoff, as defined in the Act. 

The problem in the macro sense is that McKay was correctly reasoned. Sylvester regrettably was not and now it faces considerable erosion. I expect that the argument of indirect consideration will prevail in each instance. If so, an employer will pay severance to an employee who is incapable of mitigation - which makes little sense.


Is there a Defence of Frustration

The long standing view that an employee, who was visibly permanently disabled, could be terminated with impunity ( at least at common law - human rights matters complicate all this ) was rejected by Justice Swinton in the recent decision of Antonnacci v A & P. The court determined that in view of the fact that long term disability benefits had been provided by the employer, the parties had thus contemplated the very event of a permanent disability. For that reason the "unforeseen event "requirement of the frustration defence was not met. Given the Sylvester decision as mentioned above, the employee's ability to mitigate would be irrelevant, hence entitling even the most severely impaired person the right to severance entitlements.

The issue can become more complicated. Many employers develop a practice or offer a written commitment to continue benefits and pension credits in place for those on disability. Indeed it may be argued that there is an affirmative obligation to do so, pursuant to human rights legislation or at common law. It also may argued that the implied term allowing the right to terminate on reasonable notice ought not to be permitted given a handicap as that term is defined under Human Rights legislation or even implied to be so at common law.

Alternatively, an employee terminated while disabled may argue that the notice period, given termination, should be enhanced a la Wallace. This was the very reasoning adopted by Justice Swinton in the Antonnacci case.

Does the Disability Insurer have the Right of Subrogation or Setoff

To make matters even more complicated, the insurer may have the right to claim back the severance payments as a set off under its own policy. It seems that this issue will be defined by the contract of insurance. There is little case law on the subject. Mandel J. did hold in Henderson v Canadian General Life, that there was no right of subrogation, a decision which revolves around the specific wording of the policy.


Termination of Disabled Employee - Disability Insurance Not Paid

A. Claim Against the Insurer

This subject is again not free from doubt. 

There are, however, a few clear issues. Once terminated, the employee does have the right to sue the disability carrier, provided that the disability arose within the period covered by section 57 of the Ontario act. Most insurers recognize their obligation to pay benefits where the illness does commence within this time period.

Once coverage is established, the disability must be continuous and permanent, subject to the 90 day window found in most policies. If so, a claim can be made against the insurer for the disability benefits. This is subject to the mandatory application for CPP disability which will reduce the claim and the altering test for benefits after 2 years from the commencement date - which typically changes to a medical disability which prevents the insured from any position for which he is reasonably qualified by education, work experience and skill. The unwritten rule adopted by most companies is that the alternate position should pay roughly 2/3 of the prior salary.


B. Claim Against the Employer

This claim is subject to some uncertainty. The argument advanced historically is that due to the termination without notice, the resultant disability, having commenced within the notice period, yet beyond the ESA period, would have been insured, had the employer complied with its working notice obligation. For that reason, the employer should be liable for the lost disability income not for the notice period, but for the entire duration of the illness, subject to an age 65 cap. This case is enhanced where there is evidence that the employer knew of some propensity to ill health.

This was the result of the court's decision in Prince v Eaton. The employer's liability can be quite severe.

A recent decision of concluded, however, that even had notice been given due to redundancy in the work force, there was no work to be done and the employee would have been required to go home in any event. For this reason, the insurer would not provide coverage as its insurance is given on the condition that its risk is an employee working defined hours and at a defined work location. The insurer argues that it does not insure risks where employees are other than at work, such as skiing or scuba diving, etc. ( Pioro v Calian Technology, Panet J. )

The court accepted this logic and concluded that there was no claim for lost disability benefits. This is based on the debatable presumption that there was no legal obligation on the employer to provide work. Many cases have held that the absence of active work duties is an act of termination.

(C) 2002 David Harris L.L.B. Barrister & Solicitor
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