Legal News

Employer Liable for Disability Benefits for Wrongfully Dismissed Employee

In denying an application for leave to appeal, the Supreme Court of Canada recently affirmed that an employer who dismisses an employee without cause or adequate notice may be liable for disability benefits.

Mary Egan was terminated without cause after 21 months of employment with Alcatel Canada Inc. The company continued her disability coverage during the notice period to which she was entitled under employment standards legislation. After the statutory notice period expired, Ms. Egan suffered a depressive episode which left her disabled. The disability insurer rejected her application for disability benefits because she was no longer covered by the Alcatel disability plan. She sued Alcatel for damages for wrongful dismissal and the lost disability benefits.

The Ontario Court of Appeal found that the statutory notice period provided by Alcatel was insufficient in common law and awarded Ms. Egan eight months’ notice. Because Ms. Egan’s disability occurred within the eight month notice period, the Court found that Alcatel was liable for the loss of disability benefits. In effect, the Court required Alcatel to step into the shoes of the insurer indefinitely for any disability that developed during the eight month notice period. In denying the application for leave to appeal, the Supreme Court of Canada endorsed that view.

The Egan decision reinforces the importance for employers of obtaining a full release from liability for claims, including claims for lost disability benefits, as part of the severance process. If an employer can not obtain a release and is concerned that the employee may develop a disability during the common law notice period, it should consider providing temporary disability coverage so that it does not become liable for the disability claim.

Egan v. Alcatel Canada Inc. (2006), 47 C.C.E.L. (3d) 87 (Ont. C.A.), leave to appeal to S.C.C. refused [2006] S.C.C.A. No. 82.

Link to Ontario Court of Appeal decision: