Tuesday, April 05, 2011

Ontario Employment Law: Long-Term Disability Coverage During the Period of Reasonable Notice

In Brito et al v. Canac Kitchens, decided on February 18, 2011, Mr. Justice Randall Echlin of the Ontario Superior Court addressed the consequences of an employer's failure to provide adequate benefit coverages and reasonable pay in lieu of notice to its terminated employees.

In Brito, the defendant employer, Canac Kitchens (a division of Kohler Kitchens), had decided to restructure. It provide its employees who were terminated with only the bare statutory minimums in severance and benefit coverages.

Several employees commenced civil actions for damages for wrongful dismissal. One of the Plaintiffs, Mr. Olguin, was a a 22-year employee. While he was able to secure replacement employment within a month of his dismissal, it was at a substantially lesser rate of pay. Worse yet, fourteen months into his new job, he underwent surgery for laryngeal cancer, requiring him to take a disability leave. Canac Kitchens had not provided Mr. Olguin with long term disability coverage as part of his severance package. His new employer did not offer comparable coverage.

And so, Mr. Olguin was essentially left without any medical coverages or benefits during the applicable notice period.

Justice Echlin summarized the general applicable law, as follows:
. . . It may now be fairly and generally asserted that today, in the absence of voluntary resignation, or serious misconduct on the part of the employee, Canadian employers must dismiss their employees with proper notice or pay in lieu thereof. If the latter, they must "make the employee whole" for the common law period of reasonable notice.
In awarding Mr. Olguin's compensation for loss of disability insurance coverages for the entirety of the notice period, Justice Echlin rejected the employer's bald assertion that Mr. Olguin had failed to mitigate his potential damages by purchasing a replacement disability policy:

[12] How should the law deal with the events of the period of November 6, 2004 [the disability date] to May 15, 2005 [the end of the 22 month noticeperiod]? If it is to place Mr. Luis Romero Olguin into the position he would have been in had Canac provided him with working notice, he would have received his regular cash employment compensation, plus all benefit coverages for the entirety of his 22 month notice period at law.

[13] Canac consciously chose not to make alternative arrangements to provide its loyal, long-service employee with replacement disability coverage. Rather, it chose to go the “bare minimum” route. It provided only the statutory minimums in pay and benefits and then gambled that he would get another job and stay well. When it lost that gamble, it chose to litigate this matter for over five years. When confronted with its potential significant exposure, it raised the argument that Mr. Luis Romero Olguin failed to mitigate his potential damages by purchasing a replacement disability policy.

[14] I reject that argument. The onus is upon Canac to establish the Plaintiff’s failure to mitigate. Canac has failed to do so in this instance. Insufficient evidence was led to show that comparable coverage would have been available and would have provided Mr. Luis Romero Olguin with comparable coverage. While Mr. McKechnie conceded that in this setting, the law transforms the employee into a “notional employee”, he argued that Mr. Luis Romero Olguin failed to satisfy the “actively at work” requirement contained in the policy wording. I reject this argument and find it to be circular logic to argue that, if the Plaintiff was to be deemed a “notional employee”, then how can it be asserted that he was “not actively at work”?

Mr. Olguin was awarded 22 months pay in lieu of notice along with over $200,000.00 in further damages, representing the value of the lost long-term disability benefits to his age of retirement.

The Court further admonished the employer with a punitive damages award for its "cavalier" attitude upon termination:

[18] Having regard for Canac’s cavalier, harsh, malicious, reckless, outrageous and high-handed treatment of Mr. Luis Romero Olguin, I award a further $15,000.00 in damages relating to its “hardball approach”.

[19] Pursuant to the Supreme Court of Canada’s decision in Honda Canada Inc. v. Keays 2008 SCC 39 (CanLII), [2008] 2 S.C.R. 362, I might have considered awarding “moral damages”. However, as indicated in Natalie C. MacDonald, Extraordinary Damages In Canadian Employment Law, Toronto: Carswell, 2010 at pp. 33-168 and 812-815, the relatively new common law head of damages, in this post-Wallace world, requires considerable specificity in pleading and further evidence which was not presented at this trial.

In so doing, this ruling indeed did "make the Plaintiff whole."

For a less favourable assessment of this ruling, see Howard Levitt's Canada.com commentary: Be generous during life crises — the courts will: Employer to pay $1M for doing 'bare minimum'

If you have been wrongfully dismissed, contact a lawyer who can advise as to your rights and entitlements both at common law and under the Ontario Employment Standards Act.

- Robert Tanha and Garry J. Wise, Toronto

Update - April 9, 2011

Also see a more generous analysis of the ruling by Sun Media op-ed writer Alan Shanoff: Playing hardball with a fired employee an expensive error

Visit our Toronto Law Firm website: www.wiselaw.net

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