Can LTD benefits frustrate an employment contract?

By Devan Marr
|employmentlawtoday.com|Last Updated: 08/02/2018
A RONA store in Ottawa. Chris Wattie/REUTERS

The recent Ontario Superior Court of Justice decision of Roskaft v. RONA Inc. sheds some light on when an employer can successfully claim frustration of contract when an employee is in receipt of long-term disability benefits.

The facts of this case were fairly straight forward. The employee began working for RONA in 2002 in a clerical role. In 2012, he started a leave of absence due to a medical condition. The employee had access to short term and long-term disability benefits (LTD) provided by Sun Life. Sun Life approved the employee's claim for LTD benefits. RONA had no involvement with the employee's LTD claim. In December 2014, Sun Life allegedly advised RONA that the employee was “permanently” disabled from his own occupation and any occupation. In September 2015, three years after the onset of his disability, RONA terminated the employee’s employment due to frustration of contract. RONA relied on Sun Life’s December 2014 letter and the fact the employee continued to receive LTD benefits. He was paid his statutory minimum entitlements under the Ontario Employment Standards Act, 2000. The employee commenced an action for wrongful dismissal. He alleged that RONA failed to obtain information from him which would have indicated his condition was improving at the time of dismissal.

On a summary judgment motion, Justice Pollak found that the contract of employment between RONA and its employee of 13 years was frustrated by the employee’s three-year absence.

Interestingly, Justice Pollak concluded that the December 2014 letter from Sun life, on its own, was insufficient to conclude that the employee was “permanently” disabled. Notably, there was apparently no reference to “permanent” disability in the correspondence. However, due to the following points, she found that it was reasonable to conclude that there was “no reasonable likelihood” that the employee would return to work within a reasonable period of time:     

  1. Sun Life’s determination that the employee was sufficiently disabled to receive long-term disability benefits
  2. The employee's post termination representations to Sun Life that his medical condition had not improved
  3. The employee’s continued receipt of LTD benefits.

While employers are usually unable to rely on post-termination medical documentation to support their claim for frustration, Justice Pollack allowed the representations to Sun Life in as evidence. It is likely this post-termination evidence that carried the day for the employer. Justice Pollack specifically indicated it directly contradicted the employee's assertion that he would have provided further evidence had RONA asked and have been able to return to work in a reasonable period of time.

It is apparent that Justice Pollack was unwilling to let the employee have his cake and eat it too. On the one hand, the employee was reporting to Sun Life that his condition remained stable and unchanged. On the other hand, he alleged that had RONA asked for additional medical information, he would have advised that he was improving. Both were unlikely to be accurate.

It is unfortunate that Justice Pollack sidestepped the issue of which party had the obligation it is to submit or request medical information. Notably, the employee dropped his claim under the Human Rights Code, and so Justice Pollack did not have to address the issue of accommodation by RONA. While there is case law that suggests an employer may suffer repercussions if they request information too frequently, many employment lawyers will vehemently argue that simply relying on the conclusion of the LTD insurer is insufficient to justify a claim of frustration without more. This decision would suggest that that a determination by the LTD carrier of ongoing disability, coupled with the continued receipt of LTD benefits may be a sufficient basis for employers to allege frustration of contract.

The employee's receipt of long-term disability benefits for three years suggests his disability was severe enough that he was unable to engage in any employment for which he was reasonably suited. Those in the long-term disability industry recognize that this is a stringent test to meet and would be compelling evidence for employers to consider a frustration argument. However, as best practices, employers should request additional information from time to time from their employee and seek legal advice prior to making a final determination. While RONA was ultimately successful, their decision to dismiss the employee resulted in costly litigation.

For more information see:

  • Roskaft v. RONA Inc., 2018 CarswellOnt 10638 (Ont. S.C.J.).

Devan Marr is a lawyer with Strigberger Brown Armstrong LLP in Toronto, focusing on wrongful dismissal, employment contracts, insurance claims, and general insurance liability. He can be reached at (416) 679-2781 ext. 203 or dmarr@sbalawyers.ca.

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