Many disability insurers will not continue disability coverage when a person is terminated from active employment, but smart employers will arrange transitional disability benefits during the reasonable notice period. This avoids the risk of the employer becoming responsible for making disability benefit payments until the end of the employee’s disability, regardless of when the employee was terminated. One of Canada’s major banks is poised to learn this lesson the hard way.
Back in 2006, the Ontario Court of Appeal in Egan v. Alcatel Canada Inc. confirmed the responsibility of employers to continue providing employee benefits (including disability benefits) during the reasonable notice period, and now a current case is set to have similar implications. From 1990 to 1995, the employee, a 37-year-old single mother from Toronto, worked at the bank on consecutive, fixed-term contracts as a full-time bank teller, ultimately becoming a permanent employee. She then worked at the bank for a total of 16 years, effectively her entire working life. In 2001, she was promoted to the position of branch manager and remained in that position until her termination in July 2006.
The employee had suffered from diabetes since childhood, but the condition remained stable until 2005. At that time, she began suffering from kidney problems, low-kidney function and other symptoms. She sought medical attention and treatment from her family physician and was referred to specialists for diagnosis, testing and treatment.
The employee made every effort to schedule medical appointments and treatments around her work schedule. When she couldn’t, she made sure her supervisor was informed well in advance of any appointments. She also made a point of providing a doctor’s note where applicable.
In January 2005, she received a written warning from her supervisor about her absenteeism, without the supervisor making any mention of her medical condition, diagnosis or ongoing treatment. She discussed the matter with her supervisor and was told to schedule appointments with specialists or medical treatment around work hours. The employee agreed to make every effort to do so and continued to provide advance warning for any necessary absences.
In late September 2005, she was given a written warning about 11 absences over the previous 12 months, despite the fact that the absences were due to her illness, they had always been supported by doctors’ notes and they had only been taken with advance notice. The warning said that her “absenteeism continues to exceed district standards and is higher relative to that of your co-workers.” The supervisor threatened termination with the expectation her attendance would improve to the bank’s satisfaction.
In March 2006, the employee became severely ill and required treatment and observation regarding her ongoing low-kidney function, which caused severe dehydration, vomiting and other complications. She was approved for short-term disability leave and hospitalized.
In June, her physician recommended she delay her return to work, but she insisted on returning to the workplace as soon as possible for fear of losing her job. On June 30, 2006, a meeting was scheduled by a return-to-work facilitator and a representative of the bank. All parties agreed on a date of July 11, 2006. It was acknowledged that the employee was receiving continuing medical treatment and there was a risk of relapse and potential for further medical absences.
On July 11, 2006 — the employee's first day back at work — she was dismissed without advance warning or notice. Her replacement began work that same day, suggesting the bank was simply awaiting her return from sick leave to dismiss her from employment.
Disability insurance coverage was discontinued upon dismissal
During her employment, the woman had long-term disability insurance coverage available through her employer. But, upon termination, the bank immediately discontinued all benefits and coverage and failed to make any premium payment on her behalf to the disability insurer.
During the reasonable notice period, the employee became totally disabled as a result of acute renal failure and other symptoms of her condition. In December 2007, she started hemodialysis, which she received three times a week for four hours at a time. Ultimately, as a result of her degenerating renal failure, she required a kidney and pancreas transplant, which she received on Sept. 26, 2009.
The employee is now out of the workplace and permanently disabled. She has no reasonable prospect of returning to work now or in the future. The exposure on her former employer, the bank, for the value of the disability benefits is over $1 million.
In light of this story, employers should be aware of the following:
•Continuing all regular benefits, including disability benefits, for employees during the reasonable notice period is an obligation. If the disability carrier will not extend disability coverage beyond the termination date, consider arranging transitional disability insurance with another insurer. Failure to do so may result in the employer being ordered to stand in the shoes of the insurer, should the employee become disabled during the reasonable notice period and remain disabled thereafter.
•Alternatively, employers may wish to consider providing terminated employees with working notice, as opposed to payment in lieu of notice. In that case, there should be no issue of the insurer maintaining the disability coverage.
•In all cases, employers should not assume that a disabled employee who returns from sick leave is able to return to the workplace. It will take days, and often weeks, before a determination can be made about whether the employee is truly no longer disabled for the purposes of performing his job.
Deborah Howden is a lawyer with Shibley Righton LLP in Toronto. She is a labour and employment specialist and can be reached at (416) 214-5279 or firstname.lastname@example.org.