War in the Trenches: Interface Issues between LTD and Employment Law

It is a sad reality that the vast majority of clients who come to you for assistance in pursuing a claim for long-term disability benefits will also, at some point, also need your assistance regarding employment-related problems. The fact is that in Ontario most LTD coverage is provided as part of a group benefits plan. It stands to reason that where an employee becomes disabled and unable to work for an extended period of time, the employer will, at some point, attempt to sever the employment relationship.It is a sad reality that the vast majority of clients who come to you for assistance in pursuing a claim for long-term disability benefits will also, at some point, also need your assistance regarding employment-related problems. The fact is that in Ontario most LTD coverage is provided as part of a group benefits plan. It stands to reason that where an employee becomes disabled and unable to work for an extended period of time, the employer will, at some point, attempt to sever the employment relationship.

Anytime the employment of a person who is on long term disability (LTD) is terminated, the problem of employee rights versus long term disability rights arises. How do these rights interact with one another? How is severance to be treated when the former employee is in receipt of long term disability benefits? What about collateral benefits – such as WSIB and CPP – are they deductible from long term disability benefits? What if the CPP benefits are attributable to a dependant – are those treated the same way as the CPP benefits received by the disabled individual, or are they treated differently? And what does the issue of frustration have to do with all of this, and how does it influence the deduction of benefits from LTD? Those topics and more, including the employer’s duty to accommodate and what challenges relating to employer co-operation will be considered in this paper.

Workplace Safety and Insurance Benefits (WSIB)

As a general rule, a person elects to receive either WSIB benefits or long term disability benefits, but cannot opt to receive both. Where LTD benefits have been elected but the person has already received some WSIB benefits, the person is obligated to repay the WSIB benefits, or vice versa. Even where entitlement to LTD benefits has survived the election for WSIB payments, the WSIB quantum would likely wipe out any obligation of the LTD insurer to pay.

An important case that deals with the interaction between WSIB money and LTD payments is Abdulrahim v. Manufacturers Life Insurance Company [1], where the plaintiff had sustained serious injuries while at work, and opted to receive WSIB benefits in regard thereto. However, the plaintiff also simultaneously applied for LTD benefits through his group policy. ManuLife asserted that it was entitled to a set-off for any WSIB monies paid, which prompted the plaintiffs solicitors to advise all of the parties that they had decided to “de-elect” WSIB benefits, and had chosen instead to proceed with a tort action against the manufacturer of the machinery that had caused the injury. WSIB demanded full repayment by certified cheque, and discontinued payments in the interim. ManuLife strenuously objected to the plaintiffs decision and contended that the policy obligated Abdulrahim to apply for benefits to which he was entitled, including WSIB, and that his decision to de-elect was improper. ManuLife, relying on its policy, attempted to deduct the money that would have been paid by WSIB, had Abdulrahim actually applied for and received such benefits.

The central issue to be decided was the proper interpretation of the phrase “receives, or is entitled to receive”, as used in the policy. Justice Himel applied the principles of interpretation relating to insurance contracts as set out by Mr. Justice Sopinka in Brissette v. Westbury Life Insurance Company. [2] These principles include the idea that ambiguities should be construed against the insurer. After a lengthy analysis he concluded that the contract was not clear and should be interpreted in favour of the insured. He found that since the plaintiff elected to proceed in tort, the WSIB benefit was not available to him.

Counsel should be mindful, however, that this decision was based on the wording of the particular policy before the Court. Counsel should carefully compare and consider the wording in your own client’s policy before embarking upon the high-risk strategy employed in Abdulrahim.

Canada Pension Plan Income Disability Payments (CPP)

Where a person receives Canada Pension Plan Disability benefits (CPP), then, pursuant to the wording found in every policy, the LTD carrier gets a credit for the CPP payments. The manner of the deduction is generally dealt with under either the “offset” or the “coordination of benefits” section contained in all group LTD policies. The offset can arise in one of two ways: either a direct deduction of benefit, as specifically listed in the policy; or, through an all source maximum clause that dictates that the policy benefit, when added to the income from all other sources, cannot exceed a certain percentage of pre-disability earning.

When undertaking the deduction of CPP benefits from LTD benefits, the question will undoubtedly arise as to whether it is the gross amount of the CPP or the amount net of taxes that is to be deducted. The answer is not the same in all cases, as it depends strictly upon the wording used in the relevant insurance policy. If the policy itself is silent on this issue, then it would be wise to assert that it is the net amount that is deductible (as this position is the most beneficial to your client). An interesting debate is whether “net payable” should be calculated by deducting legal fees paid to counsel to secure CPP benefits. My understanding is that some Counsel have had success in claiming that only the net, after legal fees, CPP amount is subject to deduction.

A second issue that frequently comes up when considering CPP deductions from LTD benefits, is how to treat CPP payments for dependant children. Specifically, where there is a CPP child benefit being received, is such benefit properly deducted from the LTD benefits being received by the party upon whom the dependant depends?

That issue was addressed by the Ontario courts in Ruffolo v. SunLife Assurance Co. of Canada [3]. In that case, the two separate plaintiffs were each the beneficiary of their respective group insurance policy. Each plaintiff became disabled and was entitled to LTD benefits. The insurer in each case offset the plaintiffs’ CPP benefits and those CPP benefits received by each of the plaintiffs’ dependent children, from each of the respective plaintiffs LTD benefits. The plaintiffs each commenced a claim against the insurer, alleging that the insurer was wrong to have offset their childrens’ CPP benefits from each respective plaintiffs LTD benefits. The actions were dismissed by the court, which concluded that the clear language of the policies authorized the offset of the disabled contributors’ children’s benefits, and that such practice was not “unreasonable, unconscionable, unexpected, illegal, or contrary to public policy” [4]. It must be noted that the language of the policies in this case did not specifically address children’s CPP benefits, but rather provided for an offset of “disability benefits paid ….[by] the Canada Pension Plan” [5], without specifying who need be the recipient of such benefit.

Despite the fact that the Courts of Appeal of other Canadian jurisdictions (Alberta [6], Saskatchewan [7]) have decided that CPP disability benefits payable to children and dependants are not deductible from LTD benefits, Ruffolo went against the stream in concluding that CPP benefits received by dependants can, in fact, be offset from the LTD policy of the person upon whom they depend. Although this decision does not ultimately seem “fair”, since the CPP disability payment is, after all, paid for the purpose of providing some benefit to the child of the disabled individual, and so should arguably not be deducted from a parent’s LTD policy payment, and although it seems to run counter to common sense, it is currently the leading decision on this topic, as no other Ontario decision has overruled the Ruffolo decision.

Severance Payments

In discerning whether severance payments will be deductible from LTD benefits, the wording of the policy will be paramount. Generally speaking, most LTD contracts stipulate that they are entitled to deduct money paid by the employer to the employee by way of severance. Employers, on the other hand, have tried to claim a set off for LTD payments when paying out severance packages. It is very common for employers to terminate workers that have been off for an extended period of time, with or without a severance. Plaintiffs’ lawyers running LTD actions will almost certainly be asked to provide advice on the interaction between LTD payments and severance packages.

Employers have been trying to deduct LTD payments from severance packages for a considerable period of time. The Supreme Court of Canada seemed to support their position in Sylvester v. British Columbia [8], when the employer was allowed to take credit for disability payments and deduct those payments from damages for wrongful dismissal. Justice Major found that since the disability policy was entirely funded by the employer, there was no expectation that the employee could receive both benefits. There has been significant criticism of Sylvester, as many feel that the Courts were making it all too easy for employers to terminate ill employees at reduced cost. The potential harm caused by Sylvester was greatly limited by the Ontario Court of Appeal in Sills v. Children’s Aid Society of Belleville [9], where Simmons, J.A., relying on an earlier decision of the Supreme Court [10] concluded,

Absent an express provision precluding double recovery, in my view, the principles in Cunningham assist in determining whether an intention that there would be double recovery in the event of a wrongful dismissal can be inferred. I consider it reasonable to assume that an employee would not willingly negotiate and pay for a benefit that would allow her employer to avoid responsibility for a wrongful act. I consider it reasonable to infer that parties would agree that an employee would retain disability benefits in addition to damages for wrongful dismissal where the employee has effectively paid for the benefits in question. [11]

These principles have been followed repeatedly in Ontario. See for example the decision of Dowling v. TNT Logistics North America. [12] In that case, Dowling had commenced employment on February 1, 1993, and received both short-term and long-term disability coverage through a plan provided by his employer, TNT. Dowling had contributed a portion of his salary to both the STD and LTD. In December of 2001, at 62 years of age, Dowling went on medical leave and received STD benefits until May 2002, following which, in June 2002, he began receiving LTD benefits. In May of 2002 TNT terminated Dowling’s employment, without reasonable notice or payment in lieu of, and Dowling commenced a claim seeking damages for wrongful dismissal. The issue then arose as to whether TNT was entitled to deduct, from the damages it was ordered to pay Dowling for his wrongful dismissal, the amounts that Dowling had received during the notice period pursuant to the LTD plan. TNT of course argued that any money that had been paid to Dowling under the LTD provisions should be deducted from any damage award because the plan specifically denied Dowling the right to any kind of double-recovery, while Dowling argued that, since TNT was not actually a party to the Plan, and also because Dowling had contributed premiums to the plan, there should be no such deduction.

Speigel, J. considered both Sylvester and Sills before concluding that there should be no deduction in the damages for wrongful dismissal because of money paid to Dowling under the plan for LTD or STD benefits:

12   In our case, TNT did not solely pay the premiums for the LTD provisions of the Plan. Indeed, I am not sure that TNT paid anything for them. I do know that Dowling paid premiums for them.
13   There is nothing in the employment contract that would indicate that Dowling cannot receive both employment benefits and LTD benefits. Further, the provisions in the Plan are contractual provisions with the insurer, not with TNT. They are the usual provisions that state that an employee on LTD has his or her benefits reduced if the employee is earning money elsewhere. I do not interpret these provisions to apply to an employee receiving damages for wrongful dismissal; an insurer under an LTD policy would be hard-pressed to deduct these damages. [13]

Thus, it appears that, where the recipient of the benefit has actually paid premiums for the LTD policy, and where there is nothing in the policy that indicates that an employee cannot receive both employment benefits and LTD benefits, so the employee will be entitled to receive both. Moreover, it is clear from Dowling that, where a policy reduces LTD benefits by monies “earned” elsewhere, damages received for wrongful dismissal will not be considered such monies “earned”, and therefore will not be deducted from any LTD benefits received.

The matter was considered, post-Dowling, in Piresferreira v. Ayotte [14], where the employee, an account manager with the defendant employer, had shoved an employee during a heated argument. Immediately thereafter the employee received minor disciplinary action and was put on a performance improvement plan, shortly following which the employee went on sick leave. The employee eventually went on long term disability and was in receipt of two thirds of her basic salary, less any CPP disability benefits to which she was entitled. Under the terms of the benefit plan in question, the benefits payable were to be reduced by “earnings or payments from any employer [and] earnings recovered through a legally enforceable cause of action against some other person or corporation in accordance with the provisions in the Group Benefits Policy relating to third party liability”. Needless to say, the employment of the plaintiff was terminated while she was on leave, and she subsequently commenced a claim for wrongful dismissal, which action was allowed.

The employer requested though that the LTD benefits paid to the plaintiff be deducted from any damages she was awarded for wrongful dismissal. The court concluded, however, that the plaintiff had indirectly contributed to the cost of her LTD benefits, since her compensation package consisted of not only her salary and any bonuses she was to receive, but also of her benefits package (over which she had limited control through a “flex” system which allowed her benefit elections). The court noted that the LTD benefits were not paid by the employer, but from a third party insurer (ManuLife) and that the plaintiff had indirectly contributed to the plan because she had been advised at the time of hiring that her benefits package would “form part of the compensation package she would be receiving”. Thus, the plaintiff was, “entitled to both forms of compensation that she contracted to receive under employment agreement … her salary and long term disability benefits”. It should also be noted that in this case the court found the employer to have been the actual cause of the employee’s disability (insofar as their treatment of her essentially amounted to infliction of emotional distress, which made it impossible for the employee to cope with any employment situation with any employer), and the court stated in obiter that, in consideration of the employer’s “very poor treatment” of the employee, “there is no reason why it should have the damage award it is obliged to pay … reduced because she had the misfortune of becoming disabled as a result of its treatment of her. Such an outcome rewards if not encourages the harsh treatment of employees at the time of dismissal” [15].

Deduction of severance payment will hence turn on the language of the policy – does it include deduction for monies “earned”, or is there an “all source limitation” clause, which deducts from any benefits received the amount of any “income” (ie: monies received in any capacity whatsoever)? In the context of deductibility of severance from LTD benefits, as with the above discussed cases, the parties will obviously have expressly considered the possibility of double recovery, and dealt with it accordingly in the language of the policy. The issue then becomes whether the given policy allows offset, which leads us back to the above statement – that such determination will turn on the language used in the particular policy.

While Dowling represents a high-water mark for Plaintiffs rights, Counsel should again be mindful of the fact that LTD policies are not standard and results may be different if different wording were inserted into the collateral deduction sections of the policy. In fact, in my experience, new policies now routinely specially note that money for severance or pay for wrongful dismissal damages are deductible from LTD benefits. While Dowling may assist the plaintiff in arguing that the LTD carrier should not benefit from the wrongful action of the employer, there is considerable risk associated with advancing this argument. A better course of action may be to proceed with any action against the employer ONLY after the LTD litigation is concluded.


Essentially, frustration can be said to occur when, “a situation has arisen for which the parties made no provision in the contract and the performance of the contract becomes ‘a thing radically different from that which was undertaken by the contract” [16]. In employment law, a contract of employment can be frustrated due to non-culpable absenteeism. Specially, if an employee is disabled from working and there is no reasonable prospect of that employee returning to work, then the contract is frustrated.

There was a time in Ontario when employers would use the doctrine of frustration against employees who had been off work for several months (or years), due to non-culpable absenteeism (ie: illness or injury). The norm was for employers to simply dismiss the employee. In such cases, the employer was not seen to owe the employee anything – no severance, no termination pay, no nothing – because the contract of employment had been “frustrated” by the employee’s extended absence from work. In fact the Employment Standard Act specially allowed for termination without payment of severance or termination pay in cases of frustration.

This practice changed, however as a result of the Ontario Court of Appeal decision of O.N.A. v. Mount Sinai Hospital [17], which held that, notwithstanding the exemptions provided by Ontario’s Employment Standards Act, 2000 [18], an employer must pay severance to an employee, even if the contract has been frustrated. This is because severance and termination pay are compensation for services rendered, and it would be a violation to terminate employment without making such payment. The Court found that it was a fundamental violation of the Ontario Human Rights Code to treat disabled employees differently from able-bodied employees who were terminated. This decision was so ground breaking that the legislation (the Employment Standards Act) was later amended to comply with the case, such that, where an employee is unable to work due to illness or disability and the employer seeks to terminate that employee’s employment, there are now notice requirements under the Act that require the employer to pay to the employee certain minimum amounts before doing so. Basically, an employer if obligated to pay termination pay and – in the case of longer service employers working for larger employers – severance pay.

As a result of this decision, many employers simply stopped terminating employees. What starting happening, instead, was that after a certain period of time – usually 24, 30 or 36 months – employers stopped paying for group benefits. Group benefits are a significant cost for most employers. Disabled employees tend to be the biggest users of group benefits, with respect to drug costs, therapy cost, and other claims against the system. Many employers saw the group benefit cost rising by 20 to 30% per year. As a result, many employers implemented policy changes that stipulated that after a certain fixed amount of time, employees were deemed to be absent from work and no longer entitled to access benefits at the employer’s expense. Employees either had to pay for the premium for benefits themselves, or they were simply disentitled from receiving benefits. Obviously, the loss of access to group benefits is a major hardship for many disabled employees. It is likely that most counsel will encounter the scenario in the course of representing disabled clients seeking access to long-term disability benefits.

It is not surprising that this practice was challenged in the courts. The leading case, which also the Ontario Nurses Association was Ontario Court of Appeal decision of O.N.A. v. Oriffia Soldiers Memorial Hospital [19]. In that case, which involved a union, the collective agreement contained provisions regarding seniority, service accrual and employers’ contribution to benefit plans, where “service accrual” was a means of calculating certain forms of compensation, such as vacation pay. Employees who were on unpaid leave past a certain point in time lost both seniority and service accrual, in addition to which the employer ceased making contributions to their benefit plans after the injured/ill employee had been absent from work for thirty days or more. This led the union to commence a claim alleging discrimination against employees who were on leave of absence due to disability. At arbitration it was concluded that only the seniority provision contravened the Human Rights Code [20], and the divisional court subsequently held on appeal that none of the provisions contravened the Code.

The union appealed to the Court of Appeal, contending that nurses on unpaid leave of absence were treated differently from other employees on active service, despite the fact that all were employees. Therefore, where the reason for the absence was a handicap (as defined in the Code), that group of employees was being discriminated against on grounds prohibited by the Code. The employers, on the other hand, argued that the rights under the Code which entitled a party to equal treatment in respect of employment excluded the provision of pay, benefits and other similar advantages, when the employee is not performing any work.

Rosenberg, J.A. noted that:

16   In large part, this case is about determining the appropriate group for comparison. The ONA argues that but for their handicap these employees would be on active service and therefore the appropriate comparator group is the group of employees in the bargaining unit as a whole. The employers argue that wages, benefits, and accumulation of service credits and seniority do not flow simply from the employer/employee relationship, but from the provision of work. Therefore, the appropriate comparator group is all other employees not providing work, not the bargaining unit as a whole, which includes employees providing work. [21]

Rosenberg concluded that it was not discriminatory to distinguish between those employees who are working and those are not, but that it would be discriminatory of the employer to provide different compensation to different groups of employees providing services (if such distinction were based on a ground prohibited under the Code):

In the case presently before the court, the purpose of the employer contributions to benefit plans is to provide an additional form of compensation in exchange for work. Having chosen to provide this form of compensation, the employer could not discriminate on a prohibited basis. However, the employer could distinguish based on the reason for providing the compensation: work. On its face, discrimination would exist if the employer provided different levels of compensation for work because of handicap. Likewise, it would constitute discrimination if the employer provided different levels of compensation for not working because of handicap. But, in this context it makes no sense to compare working employees with those not working. As Sopinka J. said, comparing the benefits allocated to employees pursuant to different purposes is not helpful in determining discrimination.
32  I also do not find it helpful to attempt to isolate different elements of the compensation package such as employer contributions to premiums, vacation pay, and wages and ascribe different purposes to each so as to create a discrimination argument. They are all part of the compensation package negotiated by the parties in exchange for work by the employees. When the employee is not working, different considerations and different forms of payment may apply. For instance, employees may receive workers’ compensation or long-term disability payments.
33  In essence, the appellant’s argument is that the income replacement plans should include payment of these premiums. This is a matter to be determined in the collective bargaining process. It would only be covered by the Human Rights Code if the income replacement plan itself discriminated on a prohibited basis (as in Brooks and Gibbs). That is not the case here. Leaving aside the difference between employees on workers’ compensation and those on long-term disability, which is not properly before this court, the benefits provided to handicap employees not providing work are more generous than to other employees not providing work. Therefore, there is no discrimination on a prohibited basis within the meaning of s. 5(1) of the Code. Accordingly, it is unnecessary to consider whether the employers could rely upon the justification in s. 17 of the Code. [22]

A similar conclusion was reached regarding service accrual, where it was found that it was not a violation of the Code to cease accruing service to those employees on disability, since all employees on disability were being treated equally in this respect [23].

As to the seniority issue, the Court of Appeal restored the judgment of the Board of Arbitration and found that the practice of disallowing those employees on disability leave to accrue seniority in their absence was a direct violation of the Code.

This decision is significant because it clarifies that, where a unionized employee is off of work for a long period of time due to disability or illness, it is not discriminatory for an employer to simply terminate the benefits of that employee since, where the employee is not providing services, s/he is not entitled to compensation (which includes benefit coverage).

Generally speaking, when considering whether a contract of employment has been frustrated, the courts are guided by the seminal decision Marshall v. Harland and Wolff Ltd. [24], which provided the following criteria to be considered when making such an assessment:

(a) The terms of the contract, including the provisions as to sickness pay The whole basis of weekly employment may be destroyed more quickly than that of monthly employment and that in turn more quickly than annual employment. When the contract provides for sick pay, it is plain that the contract cannot be frustrated so long as the employee returns to work, or appears likely to return to work, within the period during which such sick pay is payable. But the converse is not necessarily true, for the right to sick pay may expire before the incapacity has gone on, or appears likely to go on, for so long as to make a return to work impossible or radically different from the obligations undertaken under the contract of employment.
(b) How long the employment was likely to last in the absence of sickness The relationship is less likely to survive if the employment was inherently temporary in its nature or for the duration of a particular job than if it was expected to be long term or even life long.
(c) The nature of the employment Where the employee is one of many in the same category, the relationship is more likely to survive the period of incapacity than if he occupies a key post which must be filled and filled on a permanent basis if his absence is prolonged.
(d) The nature of the illness or in jury and how long it has already continued and the prospects of recovery The greater the degree of incapacity and the longer the period over which it has persisted and is likely to persist, the more likely it is that the relationship has been destroyed.
(e) The period of past employment A relationship which is of long standing is not so easily destroyed as one which has but a short history. This is good sense and, we think, no less good law, even if it involves some implied and scarcely detectable change in the contract of employment year by year as the duration of the relationship lengthens. The legal basis is that over a long period of service the parties must be assumed to have contemplated a longer period or periods of sickness than over a shorter period. [25]

Marshall involved a shipyard worker who had been absent from work for a year and a half, due to illness, before he was dismissed. He had not received any wages during his absence (in accordance with his contract), and it was not the policy of the employer to terminate employment upon grounds of sickness. However, there was no medical evidence regarding the duration of Marshall’s incapacity and Marshall himself thought he would eventually recover, with treatment, and be able to return to work. When the employer decided to shut down the shipyard, they gave Marshall four weeks notice of dismissal, and Marshall then applied for a redundancy payment. It was determined that he had not been dismissed by reason of redundancy, but rather because his contract of employment had been frustrated.

Marshall was successful on his appeal, where it was held that: whether or not the employment relationship had been frustrated depended upon whether Marshall’s incapacity was such that further performance of his work would be either impossible or radically different from what it had been; and that, since it was possible that he could recover and return to work, resuming all of his former job responsibilities, so it could be said that the contract was not “frustrated”. Further, the court concluded that the real reason for the termination had been redundancy, since the shipyard where Marshall had worked was being shut down.

Marshall, and the criteria cited therein, continued to be cited by courts across this country today, in Ontario most recently in the case Altman v. Steve’s Music Store Inc. [26] Altman involved a 58 year old plaintiff who had worked as a store manager for the defendant store for more than 30 years. She was diagnosed with late stage lung cancer in 2007, for which she underwent surgery in early 2008, and worked reduced hours after her subsequent treatment. She was then notified by letter received via a bailiff that she had been remiss in her employment duties, and was warned to fulfil her obligations or face termination. She returned to work as a result of this letter, but subsequently began a three month medical leave, after which she wrote her employer a letter indicating when she would be able to return to work. The employer responded with another letter from a bailiff, this time indicating that her employment had, in fact, been terminated.

Altman brought an action for wrongful dismissal seeking payment in lieu of notice, and the action was allowed. In so deciding, the court rejected the employer’s contention that the employment contract had been frustrated due to the illness and, after considering the Marshall criteria, noted that only Altman’s incapacity before the dismissal should be examined. In other words, no regard should be had to evidence respecting her health and ability to work post-termination. Since the employer had failed to ascertain at the time of firing Altman that her illness was of such nature that she was unable to perform the duties of her employment indefinitely (based on evidence given by Altman’s doctor, who testified that she was, in fact, able to work), and also because the employer had never expressed dissatisfaction with the quality of Altman’s work, and Altman herself had indicated in her letter her intention to return to work, the defence of frustration of contract failed.

Thus, in Ontario at least, the case law appears to indicate that it will be difficult for an employer to successfully mount a frustration of contract argument (see: Antonacci v. Great Atlantic & Pacific Co. of Canada Ltd. [27], which noted that modern courts, when considering frustration in the context of employment, have not treated illness as a frustrating event, but rather have considered the length of the illness in relation to both the terms and duration of the employment contract; Thomson v. Bob Meyers Chevrolet Geo Oldsmobile Ltd. [28], where contract not frustrated, despite lack of evidence of chances of recovery, since there was no evidence to substantiate the illness amounted to a permanent disability; and Naccarato v. Costco Wholesale Canada Ltd. [29], where wrongful dismissal action allowed and defence of frustration of contract rejected because, although the duration of the illness had been significant, the medical evidence did not bear out a finding that there was no reasonable likelihood of the employee returning to work in the reasonably foreseeable future. Moreover, the employer could have followed up with the doctor and elected not to, in addition to which there was no evidence that the employer had suffered any hardship or disruption to its business because of the employee’s status of being off of work on LTD).

Employers must now understand that the law of the day demands that they not simply terminate whomever they please, whenever they please, based solely on an individual’s non-culpable absenteeism. If an employer does persist in behaving in this manner, then any subsequent action on the behalf of the ill/injured employee to recover wrongful dismissal damages would almost certainly be successful in the absence of conducting a proper due diligence investigation prior to termination supporting the conclusion that there is no reasonable likelihood of the employee returning to work.

Furthermore, in cases where an employee would clearly not be able to return to work, given the changes to the Employment Standards Act, it is likely that in the future it is employees rather than in all years which will attempt to trigger the doctrine of frustration given that this will likely result in money being payable to the employee for both termination pay and severance pay pursuant to the The Employment Standard Act.

Determining whether entitlement to LTD benefits survives termination

The question may also arise, when an employee is terminated, as to when any benefits to which the employee was entitled while employed, should be terminated. For example, if someone is employed by a company for twenty years and is then let go, without cause, does that mean that their benefits disappear on the same day as their employment is terminated? Not necessarily, as it turns out.

The Court of Appeal of Ontario recently considered this very issue, in Brito v. Canac Kitchens [30]. In Brito, the employee had worked for the employer as a cabinet maker for twenty four years when he found his employment terminated, without cause, at the age of 55. He was paid the minimum statutory requirement for pay in lieu of notice and severance, plus associated benefits (STD and LTD) for a period of eight weeks. Within about two weeks Brito was able to find other work, however it was at a significantly lower paying rate than what he had earned with Canac Kitchens, and no disability benefits were provided by the new employer. Sixteen months or so after having left Canac, Brito was diagnosed cancer of the larynx, and subsequently underwent surgery and post-surgical treatment. Brito then successfully sued Canac Kitchens for damages for wrongful dismissal and associated benefits, including the STD and LTD to which he would have been entitled but for the wrongful termination of his employment. At trial he as awarded 22 months of damages for lost employment income, STD benefits for 17 weeks and LTD benefits thereafter to the age of 65. Ancillary damages were also awarded, due to the “wrongful conduct” of Canac in respect of Brito’s termination and the ensuing litigation.

On appeal by Canac to the Court of Appeal, the issue was whether Brito had properly been awarded the LTD benefits. E.A. Cronk, J.A., refused the appeal and upheld the decision of the lower court, for the following reasons:

10   The first criterion for total disability under the Plan required that the respondent be unable to perform the essential duties of his own occupation during the “Qualifying Period” and the two years immediately thereafter. In the respondent’s case, after the exhaustion of his STD benefits, this period ran from March 4, 2005 to March 4, 2007.
11   As applicable to the respondent, the second criterion for total disability under the Plan required that the respondent be unable to perform the essential duties of any occupation for which he was or might reasonably become qualified – by training, education or experience – after March 4, 2007.
12   There was evidence before the trial judge which, if accepted, supported the conclusion that the respondent was totally disabled within the meaning of the Plan from and after March 4, 2005 to the date of trial and was likely to remain so to age 65. This included evidence:
(1) of the respondent himself that, following the removal of his tracheostomy tube in June 2005, he continued to be short of breath, his breathing never returned to normal, his strength was reduced, he tired easily, and he could not return to work due to: (a) exposure to work environment dust; (b) continued shortness of breath; (c) intermittent loss of his voice; and (d) continuing strength reduction;
(2) of the respondent’s treating radiation oncologist, Dr. Bernard Cummings, that after 2005, the respondent developed a chronic condition of abnormal tissue growth on his voice box that impaired his breathing. This required three further surgeries to the date of trial (November 2008, May 2009 and October 2009) to remove the inflammatory tissue, with the expectation of similar surgeries in the future. Further abnormal tissue below the respondent’s vocal cord was detected in February 2010;
(3) of Dr. Cummings, that following the respondent’s cancer surgery: (a) his voice box never returned completely to normal; (b) he never recovered to his pre-illness state of health; (c) he complained persistently of hoarseness, of variable quality or strength of voice and dryness in his throat; (d) he was required to avoid work in dusty and noisy environments where he would be required to communicate; (e) he had episodes of coughing tissue or discoloured secretions from his throat; and (f) he would not recover to the point where he could work in a dusty or noisy environment;
(4) of the respondent’s treating surgical oncologist, Dr. Patrick Gullane, that although the respondent’s initial therapy cured his cancer, the respondent was left with some deficits, including edema or swelling in his voice box and damage to his cartilage. Further, Dr. Gullane opined that he “would never recommend that [the respondent] work in a dusty or noisy industrial environment”; and
(5) of a vocational evaluation specialist, David Antflick, who offered his opinion that, given his limited education, training and experience and his inability to work in noisy, dusty industrial environments, the respondent, although qualified for such jobs as packaging, was not capable of any work after November 2004.
13   The appellant called no medical or other expert evidence to counter this evidence electing, instead, to confine its defence to cross-examination of the respondent and his witnesses.
14   In these circumstances, in my view, there was a firm evidentiary foundation for the trial judge’s conclusion that the respondent met his burden to establish his total disability within the meaning of the Plan. This conclusion indicates that the trial judge accepted, as he was entitled to do, the evidence led by the respondent, in part described above, regarding his total disability.

Clearly then, where an employee’s employment is terminated, it would be well advised for the employer to continue any STD and LTD benefits to which that employee was terminated, for a longer versus a shorter period of time. Given that the court in Brito concluded that the employer had taken away the employee’s benefits at their own peril, it can only be considered wise for an employer to proceed cautiously, and err on the side of continuing any benefits for too long, as opposed to too short, a period of time. In any case it is now obvious that an employer who terminates someone’s employment without continuing to provide access to long-term disability benefits, does so at its own peril.

Employers will often indicate in termination letters of the group benefits will continue for some period of time save and except for access to short-term and long-term disability benefits. In situations where the employee has not signed a full and final release, the Brito decision stands for the proposition that the immediate termination of access to disability benefits is a high risk proposition for the employer.

Duty to accommodate

Going hand in hand with the doctrine of frustration is the question of the duty to accommodate. In other words, to what extent is an employer obligated to accommodate an ill or injured employee? First and foremost, it must be recognized that, absent a collective agreement or a contract specifically addressing the issue, an employer has no duty to accommodate a disabled employee at common law. However, there are relevant employment and human law statutes that do impose such a duty upon employers. In particular where an employee becomes injured as the result of an injury at the workplace, there will be an obligation to both accommodate and potentially to even re-employ the injured employee, in certain circumstances (see workplace safety and insurance legislation for more detailed discussion).

According to the Regulation Termination and Severance of Employment [31], enacted under the Employment Standards Act, 2000 [32], “an employee whose employment is terminated after refusing an offer of reasonable alternative employment with the employer” is not entitled to notice of termination or to termination pay [33]. Both the Ontario Human Rights Code and the Federal Human Rights Code further dictate that an employer is obligated to accommodate the disabilities of an employee “to the point of undue hardship”.

Thus, the extent of an employee’s limitations due to their disability or illness, and how such limitations impact the workplace duties and expectations of that employee, are of significant importance to a claim by the employee for long term disability benefits. If an employee is not permanently disabled or debilitated, it would likely be in his or her best interests to at least attempt to return to work, in compliance with any accommodated duties the employer might offer. By doing so, the employee can establish whether the employer was even willing to provide any sort of realistic accommodation at all, or if instead the employer contends that there is simply no suitable alternative work available for the employee. In that case, any claim by the employee that s/he is totally and completely disabled from their employment is certainly bolstered by the employer’s seeming agreement, evidenced by their failure to provide any alternative.

The leading recent decision regarding the duty to accommodate is, of course, Keays v. Honda Canada Inc. [34] in which the Supreme Court of Canada concluded that, “…[i]ndividualized accommodation is at the heart of the duty to accommodate and is instrumental in creating a discrimination free workplace” [35]. The Supreme Court’s decision in this case also clearly indicated that, where an employee is disabled, that employee does owe the employer some sort of information regarding whatever illness or injury is keeping them from working, in order for the employer, pursuant to its duty to make accommodation available, to provide suitable alternative employment. If the employer is not provided such information, then it would not know how to reasonably accommodate the injured/ill employee. However, this does not mean that the employer is allowed to be overly intrusive into the employee’s life and personal health records. Basically, the employer and injured/ill employee must strive to find a satisfactory compromise such that an employment contract is not being breached by either party, and both parties are satisfying their respective obligations regarding duties of disclosure and duty to accommodate.

Specifically considering the question of entitlement to long-term disability benefits, it is my view that an employee should make all reasonable efforts to engage in a dialogue with the employer seeking the opportunity to attempt modified and accommodated work. It is clearly in the best interest of the employee to find a job which will pay him or her a reasonable wage. However, there is nothing that will bolster a claim for long-term disability benefits more than a bona fide attempt to return to work which results in failure.

Employer co-operation

Finally, with respect to the question of employer cooperation, plaintiffs should not be surprised that most employers are reluctant to cooperate with litigants attempting to collect long-term disability benefits from insurance companies. In the first place, the employer and long-term disability company likely have a long-standing relationship.

More importantly, premiums paid by the employer are directly impacted by the number of active claimants and the money being paid out to those claimants. There are significant financial costs associated with having an employee collect disability benefits for years or even decades. However, notwithstanding these concerns, in our experience many employers are in fact supportive of their employees. Plaintiffs that are able to bring employers with them to trial to give evidence about positive work habits, long work history’s, positive relations with coworkers, and legitimate bona fide attempts to return to work or perhaps the best evidence supporting a claim for long-term disability benefits.

A recent development that has arisen in some cases is the requirement being raised by at least one insurance company that the employer consent to any settlement regarding long-term disability claims. We have encountered one case where the employer specifically declined to contribute any money towards a severance package and, in fact, required that the employee in question resign from her job in order to finalize a settlement with her long-term disability company. It is our view that placing a plaintiff in such a position is clearly inappropriate and tying employment relationships and long-term disability claim settlements together may constitute bad faith conduct warranting punitive and aggravated damages. Counsel should attempt to protect our clients, where possible, from such inappropriate behaviour.


Obviously the area of long term disability benefits and their interaction with employee rights is an ever-evolving area of the law that will no doubt continue to develop and change in the coming months and years.

While some issues, such as the deductibility of WSIB benefits and CPP benefits from LTD benefits, appear to be settled, others, like the doctrine frustration and the duty to accommodate, seem to be more fluid and open to interpretation.

Although claimants are clearly disadvantaged by the fact that the policies to which they are subject are written and interpreted by the insurance companies, which results in an obvious power imbalance, there is an arsenal of weapons available to an innovative advocate seeking to advance the rights of claimants who have wrongly been denied benefits. In addition, recent case law indicates that the courts are becoming more inclined to recognize this long-standing imbalance of power and to act in such a manner as may be detrimental to the insurer, and favourable to the client. Hopefully this trend continues, and fewer claimants are denied their right to LTD benefits in the future.

Given the obvious relationship between long-term disability claims and employment law, a lawyer seeking to properly represent plaintiffs would do well to be aware of, and fully consider, the many interesting and complex issues that many plaintiffs will face on a regular basis as they attempt to deal with the challenges caused by both employers and long-term disability companies.


[1] (2003), 65 OR (3d) 543 (SCJ).

[2] [1992] 3 SCR 87 at 92-93.

[3] (2007), 56 CCLI (4th) 116 (SCJ), affirmed at 2009 ONCA 274.

[4] At para 7.

[5] At para 62.

[6] Hennig v. Clarice Life Insurance Co. 2003 ABCA 70.

[7] Dubasoff v. Mutual Life Assurance Co. of Canada (1995), 28 CCLI (2d) 141 (CA).

[8] [1997] 2 SCR 315.

[9] (2001), 53 OR (3d) 577 (CA).

[10] Cunningham v. Wheeler, [1994] 1 SCR 359.

[11] At para. 45.

[12] (2005), 139 ACWS (3d) 489 (SCJ).

[13] At paras 12-13.

[14] (2008), 72 CCEL (3d) 23 (OSCJ), appeal allowed on other grounds at (2010), 82 CCEL (3d) 14 (CA).

[15] At para 251.

[16] Naylor Group Inc. v. Ellis-Don Construction Ltd., [2001] 2 SCR 943.

[17] [2005] OJ No. 1739 (CA).

[18] SO 2000, c 41.

[19] (1999), 42 O.R. (3d) 692.

[20] R.S.O. 1990, c. H.19.

[21] At para 16.

[22] At paras 31-33.

[23] At paras 59-60.

[24] [1972] 1 WLR 899.

[25] Ibid.

[26] 2011 ONSC 1480.

[27] (1998), 35 CCEL (2d) 1 (Ont Ct (GD)).

[28] (2001), 110 ACWS (3d) 1051 (OSCJ).

[29] 2010 ONSC 2651.

[30] 2O12 ONCA 61

[31] O. Reg. 288/01, as amended.

[32] Supra, note 16.

[33] Supra, note 29, at 2(1)5.

[34] 2008 SCC 39.

[35] At para 96.