Workplace disability poses many practical and legal challenges
for employers. Employers must balance their own business interests
with an employee's right to be accommodated and treated fairly
and with respect. For many employers, there is a great deal of
uncertainty surrounding their right to terminate an employee on
disability leave and the legal consequences that follow. Adding to
the complexity of these issues are the 2014 British Columbia
decision Morris v. ACL Services Ltd and the
2015 Ontario decision Ciszkowski v. Canac Kitchens. The
B.C. and Ontario courts in these cases took two different
approaches on whether disability benefits can be deducted from
severance pay when an employer terminates an employee who is
already receiving disability benefits.
The Supreme Court of Canada considered this issue in 1997 in Sylvester v. British Columbia. In
that decision, the Court established that the deductibility of
disability benefits from a damages award depends on the employment
contract and whether the parties intended that the employee would
receive both disability benefits and damages in lieu of adequate
notice of termination.
In Sylvester, the Court ultimately concluded that it
was incompatible under the employment contract for the dismissed
employee to receive both amounts. The Court noted the
employee's contractual right to damages in lieu of reasonable
notice presumes he would have worked during the notice period,
while his entitlement to disability benefits only arose because he
was unable to work. Therefore, this suggested the parties did not
intend for the employee to receive both damages and disability
The Court's approach in Sylvester recognizes the
public policy of preventing "double recovery" where an
employee would be compensated beyond his or her actual loss if
disability benefits were not deducted from an award of damages. In
principle, the policy of preventing double recovery is clear and
concise. However, recent court decisions have shown that it may be
difficult in practice to determine whether double recovery is
The British Columbia Approach
In Morris v. ACL Services Ltd., the Court found the
payment of premiums by an employee is a relevant factor but not
determinative of the parties' intentions under the employment
contract. Here, the employee's participation in the third-party
insurance plan was mandatory, and coverage under the plan was
dependent on active employment. Moreover, the reason the employee
himself paid the premiums was to ensure that any payments made
under the plan were not taxable. Since the disability benefits were
ultimately intended to serve as income replacement for regular
wages, the Court found this would be a case of double recovery if
disability benefits were not deducted from the damages award.
The Ontario Approach
In Ciszkowski v. Canac Kitchens, the
employer sought to deduct disability benefits from an
employee's claim for wrongful dismissal damages. In that case,
the employee and employer had contributed equally to the
third-party insurance coverage that resulted in the long-term
disability benefits being paid. The employer sought a deduction of
50% of the disability benefits received by the employee.
The Court found in favour of the employee and held that double
recovery was not engaged in cases where benefit premiums were paid
equally by the parties. Relying on previous Ontario decisions, the
Court found it was reasonable to infer that the parties would agree
an employee should retain disability benefits in addition to
wrongful dismissal damages where the employee has effectively paid
for the benefits in question. The Court distinguished this case
from Sylvester where the disability benefits were provided
directly by the employer, as opposed to a third-party insurer.
The contrasting approach by our courts to the same legal issue
shows that the law in this area is continuing to evolve. As new
cases emerge, the application of the double recovery principle will
be narrowed and better defined. Ultimately, the deductibility of
disability benefits turns on the intentions of the parties.
Therefore, employers may want to incorporate specific terms in
their employment agreements to clarify their obligations if they
decide to terminate an employee on disability leave. Our lawyers
can assist you in reviewing and updating your employment
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Unfortunately, reasonable accommodation for employees in the workplace continues to be the source of significant litigation and even today we continue to see outrageous examples of employers behaving badly.
We are now beginning to see reported cases involving charges and subsequent fines laid against employers for failing to provide information, instruction and supervision to protect a worker from workplace violence.
On October 13, 2016, the Supreme Court of Canada denied leave to appeal an Ontario Court of Appeal decision which ordered an employer to pay a former employee 37 months of salary and benefits following termination.
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