In the context of a restructuring in 2003, Canac Kitchens terminated without cause a 55 year old employee with 24 years of service.   The employee was given the statutory minimum payment of 31.79 weeks and his LTD coverage terminated at the end of the 8 week statutory notice period.   He secured new employment in August 2003, albeit at a lower rate of remuneration.  In November of 2004 the employee underwent surgery for laryngeal cancer and was henceforth unable to work. He sued Canac for wrongful dismissal and his claim included disability benefits he would have been eligible to receive under Canac’s disability plans during the common law notice period.

The issues considered at trial were the appropriate period of notice that the employee was entitled to and whether there was additional damages entitlement. The Court found entitlement to a reasonable notice period of 22 months plus benefit coverage for the entire period, as well as punitive damages and costs.

Of note, the Judge rejected Canac’s argument that the employee had failed to mitigate by not purchasing replacement LTD coverage on the basis that “insufficient evidence was led to show that comparable coverage” was available.  The Judge also ruled that failure to satisfy the LTD “actively at work” requirement contained in the policy wording did not disentitled Olguin to coverage.

An appeal from the decision is scheduled to be heard on January 26, 2012.

Implications

This case serves as a warning to employers terminating long service employees without cause who are offering “bare minimums.” If an employee becomes disabled during the notice period where benefits should have been provided, the employer may be liable.  In the context of a severance package, termination of LTD benefits at the expiry of the statutory notice period is not uncommon.  This case will force employers to review that practice.  Going forward employers would be well advised to:

• Contact your insurer when terminating an employee.  Determine if your contract allows for disability coverage beyond the statutory minimum notice period if an employee is no longer” actively at work.”  Some Insurers may extend coverage at an additional risk cost.  Continue other health related benefits including life insurance for the entire notice period.
• Get a Release!!! Be prepared to pay more to have the employee sign a full and final release.
• Speak to your benefits consultant to ensure you understand your options.