The Supreme Court of British Columbia recently affirmed the principle that disability benefits received by a dismissed employee during the notice period can be deducted from any payment in lieu of notice owing to the employee.
The employee was terminated after being on an unpaid leave of absence due to medical issues for 13 months. At the time of his termination, the employer paid the employee the minimum statutory notice entitlement. The employee subsequently brought an action seeking further compensation representing his common law notice entitlement.
At trial, the employer relied on the Supreme Court of Canada’s 1997 decision in Sylvester v. British Columbia, arguing that if the Court concluded that the employee was entitled to any additional payment in lieu of notice, it was entitled to deduct all disability benefit payments the employee had received during the notice period.
The Court agreed with the employer, affirming the Sylvester principle that disability benefits are deductible from a wrongful dismissal award when the terms of the disability plan in issue demonstrate that (1) the benefit payments were intended to be a substitute for the employee’s regular salary, and (2) simultaneous payment of both wages and disability benefits was inconsistent with the employment contract. Here, the Court found that the disability benefits were clearly intended to be “a substitute or income replacement” for the employee’s regular wages as the LTD plan confirmed that the benefits were tied to his salary, the benefits were reduced by other income, and coverage was dependent on active employment.
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