Key Disability Benefits Decision Upheld by the Court of Appeal

Loretta Bouwmeester, Calgary

The Ontario Court of Appeal has unanimously upheld the Ontario Superior Court decision of Justice Echlin in Brito v. Canac Kitchens. In doing so, the Court of Appeal has confirmed that an employer has significant risk when a former employee becomes disabled during the notice period, but after long-term disability (“LTD”) benefits have been discontinued.  As background, Mr. Brito was 55 years old with 24 years of service. Canac Kitchens (“Canac”) paid him statutory minimum amounts on termination and maintained his LTD benefits for the 8-week notice period required under the Employment Standards Act, 2000.  While Mr. Brito successfully secured alternate employment shortly after his termination, his new position did not include benefits or LTD coverage.

Unfortunately, Mr. Brito was diagnosed with cancer 16 months after the termination of his employment and he became totally disabled. Justice Echlin of the Superior Court determined that the reasonable notice period was 22 months. Since Mr. Brito became disabled during the reasonable notice period, compensation for lost LTD benefits was a central issue in the case.  Justice Echlin held that Mr. Brito was entitled to be placed in the same position he would have been had the employer offered him 22 months of working notice. His Honour noted that the employer elected to only pay the minimum statutory amount and gambled that the employee would secure alternate employment and remain healthy. The employer lost this “gamble” when the employee became disabled 16 months after termination.  It therefore was responsible for compensating Mr. Brito for his lost LTD benefit and became the “virtual” insurer.

Justice Echlin awarded the employee the following:

• $94,666 being the equivalent to 16 months' salary to the date of his disability (minus the statutory payments made by Canac and what he had earned from his new job);
• $9,078 for damages resulting from the loss of his short-term disability benefits;
• $146,723 for damages resulting from the loss of LTD benefits from the date of total disability to trial;
• $47,941 representing the present value of the remainder of the employee’s LTD benefit entitlement to his 65th birthday; and
• $15,000 for “ancillary” damages (which were really punitive damages aimed at punishing the company).

The Court of Appeal upheld Justice Echlin’s decision, with the exception of the $15,000 award for punitive damages.  The trial judge’s reasons indicate that this award was based on what he characterized as “cavalier, harsh, malicious, reckless, outrageous and high-handed” conduct by the employer in its treatment of Mr. Brito on termination and during the litigation.  However, the Court of Appeal found because Mr. Brito did not claim punitive damages in his statement of claim or otherwise request them, including at trial, Justice Echlin had no authority to award them.  If punitive damages had been claimed, the Court of Appeal would likely have upheld Justice Echlin’s award.  As such, punitive damages remain a risk for employers in cases where a loss of benefits is claimed.   

In addition to the amount and nature of damages, an issue on Appeal was whether or not Mr. Brito had sufficiently proven that he was totally disabled for the purposes of the LTD plan language.  The Court of Appeal found that he did so and as such had no duty to mitigate his damages by participating in LTD plan related job re-training or seeking new employment.

Given this decision, employers are exposed to significant liability if a departing employee who had LTD coverage during the period of employment becomes disabled before the end of the reasonable notice period and he or she has not executed a Release.  In Ontario LTD coverage is legislatively extended though to the end of the statutory notice period.  This is not the case in other jurisdictions in Canada.  LTD providers typically will not extend benefits past a period of active employment, unless legislatively required to do so.

Employers are encouraged to consider using employment contracts to limit the duration of entitlement to LTD benefits to conform with their plan specifications or, alternatively, to purchase private LTD insurance for an employee for the duration of the notice period.  However, it should be noted that purchasing LTD coverage for this limited period can be significantly more expensive than the cost of an employer’s existing Group LTD plan.  Case Citation: Brito v. Canac Kitchens, 2012 ONCA 61 (CanLII)

M. Christine O’Donohue prepared initial October 11, 2011 communique

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