This subject is a mine field of confusion and complications.
Impact of a Medical Disability on a Common Law Notice Claim
In 1986, a long time ago, the Ontario Court of Appeal in McKay and Camco decided the following principles: (This link will go to a BC Court of Appeal decision quoting McKay – but be careful as this BC Court of Appeal in Sylvester was reversed later by the Supreme Court of Canada. The link is intended only to show the McKay and Camco decision).
- The purpose of the employer’s obligation to give notice is to allow the employee a chance to find other employment.
- An employee who is disabled on termination or who becomes disabled during the period of working notice cannot, ergo (a fancy Latin word thrown in, here ), look for alternative employment.
- Therefore, for example, should a person normally be entitled to a 12 month notice and is medically unable to seek employment in months 2, 3 and 4, then the notice claim should be suspended for those months and then kick in for a further 3 months at month 13, 14 and 15.
- He would then be entitled to disability insurance payments for months 2, 3 and 4.
This, of course, made perfect sense and was the common law of all 9 common law provinces for ages.
Regrettably this was changed in 1997 by the Supreme Court of Canada decision in Sylvester v The Queen (Province of BC). Quite frankly, this was a bad decision, but last time we looked, no one here were judges on the Supreme Court of Canada.
Sylvester decided that an employee who was terminated and could not work for medical reasons, was nonetheless entitled to damages representing the salary he would have earned in the notice period. The fact that he could not work was irrelevant. There was a distinct lack of any legal analysis as to why McKay v Camco was not followed. This was clearly new law and was fixing something that just was not broken.
The decision also dealt with issues involving the interplay between a claim for severance and disability benefits received for the same time period, but more of that later.
A more recent decision of the Ontario Court of Appeal in Egan v Alcatel must be examined in some detail as it would appear to restore McKay and Camco principles – a tough result as clearly the Court of Appeal is supposedly bound to follow Sylvester by stare decisis.
The trial judgment in Egan made the following findings:
The plaintiff was entitled to 9 months common law notice on her termination on July 3, 2002.
- The plaintiff became medically disabled due to a major depressive disorder on October 1, 2002 which continued to the end of her common law notice period and in fact, beyond it.
- In that the trial judge awarded 100% salary during the full common law period, the fact that she was unable to claim short and long term disability benefits was irrelevant as this would allow for double recovery (again more of this later).
This decision followed Sylvester reasoning – i.e. it did not matter that she was able to seek work or not, the full sum for salary to be paid in the notice period should follow.
The Ontario Court of Appeal, however, took a different view. The Court of Appeal mapped out conceptually what the plaintiff would have received in the notice period, such being initially her full salary and then her short and long term disability benefits in the period which followed. As a side matter, because the plaintiff remained disabled past the notice period, an additional sum of long term disability payments was ordered. Also it is to be noted that the disability sums claimed were actually higher than the salary payments as they were intended as tax free payments and hence grossed up in the judgment – although this should not effect the reasoning.
The plaintiff had cross appealed, seeking full salary as in Sylvester for the notice period and also an award of disability income without offset. This was dismissed.
The case is significant, however, as the Court of Appeal did not follow Sylvester by allowing for salary irrespective of the medical disability. In that sense, it is much more akin to McKay v Camco than Sylvester. The employer’s application for leave to appeal to the Supreme Court was dismissed.
Double Dipping – Wrongful Dismissal Award and Disability Income
Care should be taken in reviewing this section as the relevant case law was pre-Egan as above. Egan appears to conclude that no double dipping is possible and in doing so, effectively ignored the Supreme Court of Canada decision in Sylvester. Had Sylvester been followed, the court should have awarded full salary for the notice period and then dealt with the issue of an additional award of disability benefits.
In Sylvester, the plaintiff recovered full salary for the notice period, in which he was medically unable to work and then deducted the disability payments which were paid to him in this time period. In that case, It was the employer that paid the disability benefits, not an insurer. The Supreme Court, however, left the issue open as to whether future cases may allow for both wrongful dismissal damages and disability sums to be received concurrently and without offset:
The parties to an employment contract can obviously agree that the employee is to receive both disability benefits and damages for wrongful dismissal. There may also be cases in which this intention can be inferred. However, absent an intention by the parties to provide otherwise, an employee who is dismissed while not working but receiving disability benefits and an employee who is dismissed while working should be treated equally.
McNamara v Alexander Centre Industries, at trial and on appeal, allowed just that. In McNamara, the employer paid all the premiums for the disability plans. McNamara, on termination, was medically disabled. He had received the sum of $163,000 in disability benefits from August of 1995 to January 15, 1997. McNamara had testified at trial that had the employer not offered the benefits it did when he was first hired, he would have requested a higher salary. This provided an argument of consideration for the benefits, as consideration had not been proven in Sylvester. This reasoning is similar to the personal injury cases which allow the plaintiff to sue for full wage loss, even though disability payments were made by a third party insurer.
McNamara was awarded his full notice period of 26 months without disability offset.
It is very debatable as to whether this case would be followed today, given the decision in Egan v Acatel. While Egan may be a fair decision, and Sylvester wrong, the latter is a Supreme Court of Canada decision.
A few closing remarks on this topic- namely (1) medical and health benefits are a taxable benefit and included in every T4 issued to that effect. There should be thus no issue in showing consideration. McNamara had direct evidence which was credible as to why the medical and health benefits were so important to him – namely, that his wife was ill at the time he was considering the offer of new employment. This evidence likely would not typically be required, given the T-4 issue. Where the evidence shows that the employee paid for the disability premiums himself – as is often the case to make the disability sum nontaxable income – the consideration is apparent.
The flip side of this issue is that quite often insurers stipulate as a policy term that payments made by the employer contemporaneous with the disability period give the insurer a disability holiday for the period represented by the employer’s payments. This will then be a matter of careful construction of the wording of the policy. ( see for example, Henderson v Canadian General Life in which case the wording was held to allow for double dipping). The prospect of double dipping is looking more and more remote. The wiser strategy, where practical issues my allow it, would be to pursue the disability claim to its conclusion and then commence the severance claim. This, of course, may be very often, not possible to manipulate.
The Defence of Frustration – when does a medical disability end the employment relationship ?
Essentially the defence of frustration allows either party to the bargain to be released from the contract, where there is an event which makes the performance of the contract impossible. The event must be one which was not foreseen by the parties.
The decision of Justice Sachs in Skopitz v. Intercorp Excelle Foods provided a good review of the law relating to frustration and when it may be said that a medical disability may end the employment contract. Skopitz involved a promotions manager who had been off on disability for 15 months due to back problems. No frustration was found.
Whether a contract of employment has been frustrated by an employee illness or incapacity depends on whether or not the illness or incapacity was of such a nature or likely to continue for such a period of time that either the employee would never be able to perform the duties contemplated by the original employment contract or that it would be unreasonable for the employer to wait any longer for the employee to recover. To determine if a contract has been frustrated, regard must be had to the relationship of the term of the incapacity or absence from work to the duration of the contract, and to the nature of the services to be performed: Lafreniere v. Leduc (1990) 66 D.L.R. (4th) 577 (Ont. H.C.); Yeager v. R.J. Hastings Agencies Ltd. (1985), 5 C.C.E.L. 266 (B.C.S.C.).
The test is hence contextual and the question must be examined in each individual circumstance.
In Dragone v Riva Plumbing, Mr. Justice Perell found that the absence of an office clerk for 14 months due to breast cancer was not a frustrating event. As noted, the event argued as frustration must be one which is unforeseen. The argument hence emerges that the employer ought not to be able to raise this defence, given that the event of possible disability was contemplated by the existence of the disability policy.
The court in Dragone stated that the presence of such a policy may be seen as showing greater tolerance for the employee’s medical absence and referenced but offered no conclusion to the argument that it was foreseen and hence not arguable.
Justice Swinton, then sitting as a trial judge in Antonacci v A&P, came to a similar conclusion, confirming that the existence of the disability policy demonstrated that the event was foreseeable and further showed that the employer contemplated a long period of absence. The trial decision provides a good review of prior cases on the subject of frustration. Antonacci went to the Court of Appeal but not on this issue.
The court at trial also determined that the defence of frustration should be based on the medical prognosis then available and that subsequent facts showing the actual length of disability should be irrelevant.
See also Yeager v R. J. Hastings in which a two year absence was not seen as frustration, White v F.W. Woolworth in which the Newfoundland Court of Appeal found the actual absence of 10 months not to be frustration and also stated a period of 18 to 24 months absence would be within the contemplation of the parties and not a defence, and Wilmot v. Ulnooweg Development Group in which the plaintiff, an administrative assistant was absent intermittently from April 2002 to June 2003 for a 130 days and a further period of April to June 2003 on unpaid sick leave, was again not frustration. In Bishop v Carleton Co-operative the plaintiff was absent from May of 1990 to February of 1991 and no frustration was found.
It is to be noted that in Dragone, supra, the court hypothecated that the time period of absence to find frustration may be less for senior management employees, given the impact on the corporation and that of positions of lesser responsibility should be allowed longer absences before a conclusion of frustration can be found.
Medical Disability and the Statutory Payment
Under Ontario’s legislation, the employer was excused from making the statutory payment of severance ( not notice or termination pay but severance pay ) in circumstances where the employment relationship was frustrated due to a medical disability. The Ontario Court of Appeal in Ontario Nurses Association and Mount Sinai Hospital found that the relevant provision was contrary to Section 15 of the Charter of Rights and Freedoms. Accordingly the defence of frustration is no longer a bar to receipt of the statutory severance sum in Ontario. It is to be noted that the purpose of the severance pay provision is philosophically distinct from that of the common law wrongful dismissal claim. The severance pay due under the statute is intended to act as an acknowledgment of past service. It is clear that there is no mitigation obligation required to receive the statutory severance payment.
