Beware of Damages for Loss of LTD Benefit Coverage

October 7, 2011 | M. Christine O’Donohue

A recent Ontario Superior Court decision, Brito v. Canac Kitchens, highlights the significant risk faced by an employer when a former employee becomes disabled during the notice period, but after long-term disability (“LTD”) benefits have been discontinued. 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 awarded Mr. Brito 22 months notice of termination. Since he had become 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 and was therefore responsible for compensating Mr. Brito for his lost LTD benefit.

As a result, Justice Echlin ultimately 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 punitive damages.

Employers should be mindful that since most group LTD policies will not permit an employer to continue coverage for active employees beyond the end of the statutory notice period, there is exposure to significant damages in the event a departing employee becomes disabled during what is later determined to be the proper notice period.

Employers ought to consider using employment contracts to limit the duration of entitlement to LTD benefits during the statutory notice period on termination or, alternatively, to purchase private LTD insurance for an employee for the duration of the notice period.

Case Citation: Brito v. Canac Kitchens, 2011 ONSC 1011 (CanLII).

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