17 April 2018

Long Term Disability Insurance: Common Employer Misconceptions

Strigberger Brown Armstrong LLP


On January 8, 2018, Strigberger Brown Armstrong was born out of a unified vision for the future, a vision led by a female majority partnership and one that did not follow ancient rules of hierarchy and long expired tradition. At SBA, we decided that it was time for something new.
Employers often provide their employees with access to long-term disability benefits through a group benefit plan. These benefits are usually provided and administered by a third party insurer.
Canada Insurance
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Employers often provide their employees with access to long-term disability benefits through a group benefit plan. These benefits are usually provided and administered by a third party insurer. The insurer's role is to manage the disability claim and adjust the file according to the available medical evidence. The employer's role is to hold the employee's position and accommodate a return to work as necessary. Ideally, the management of an injured employees return to work should be a collaborative process between employer, long-term disability insurer, and employee. Unfortunately, once an employee is injured and in receipt of disability benefits, misconceptions regarding the parties' respective roles can expose them to increased risk and liability.

Misconception #1: The employer is no longer involved in the disability process

An insurer's acceptance of a long-term disability claim does not end the employer-employee relationship. The employer has an ongoing obligation to accommodate the employee's disability. This may be as simple as keeping their position available while benefits are being paid.  It can also require the employer to significantly modify the workspace or duties of the employee to assist in a return to work. The employee has a reciprocal obligation to fully participate in any accommodation process. Failure to participate may give grounds for the employer to terminate their employment due to frustration. It may also give grounds for the insurer to discontinue benefits. To determine whether a claim of frustration is appropriate, employers should to obtain updates on their employee's functional abilities at regular, but not excessive, intervals. 

Misconception #2: If the employee receives disability benefits for 2 years, their employment can be terminated

Ontario's Human Rights Code, prevents employers from terminating employees on the basis of disability. The exception is when an employer can prove that they have accommodated to the point of "undue hardship" and the contract of employment has been "frustrated" by the employee's disability. Frustration is a legal doctrine that refers to an intervening event that prevents the further performance of a contract. Depending on the wording of the contract of employment, this doctrine may relieve parties from any further obligation to each other, with the exception of statutory minimum entitlements to notice, severance, or pay in lieu of notice under the Employment Standards Act.

Most frustration claims arise at the two year mark. This is in part due to the change of disability tests contained in many long-term disability policies. Usually, after two years, the policy's disability definition changes to the "any occupation" definition. This is a stringent test requiring the employee to unable to engage in any occupation they are reasonably suited for by age, experience, and training. Employers may believe that if an employee meets this test of being able to unable to perform any job, their contract is frustrated.

However, the courts have found that the two year mark is not definitive in satisfying the employer's burden. Frustration of contract is a fact driven analysis that will take into account the nature of the worker's position, disabilities, and the employer's meaningful steps to accommodate. Where an employer has taken a "hands off" approach due to misconception #1, their claim for frustration may not succeed.

Misconception #3: If the employee no longer meets the policy definition of disability, they must return to work

An employer is required to accommodate its employee even where the insurer has discontinued benefits. A long-term disability insurer's decision to terminate benefits is not determinative of the employee's ability to engage in his occupation. Potential accommodation may entail allowing the employee to remain off work without pay. It may also require the employer to accept a gradual return to work, starting with part time hours. However, an insurer's denial of benefits may be a good time for an employer to seriously consider instituting a formal return to work program with relevant checkpoints and milestones. If an employee is unable, or unwilling, to participate in this program, the employer may have a better case for frustration.

Avoiding Exposure Through Collaboration

When dealing with an injured employee, benefit entitlement, accommodation, and potential termination of employment are areas of significant risk and exposure for both the employer and the long-term disability insurer. The overlap of contractual, statutory and common law obligations between the three parties make the management of long-term disability claims particularly complex. If an employer fails to take positive steps to accommodate an employee or terminates their employment prematurely, the insurer may face an individual with no incentive to return to the work force. This may result in a protracted disability claim.  Similarly, an employer who prematurely terminates an employee exposes themselves to wrongful dismissal and human rights claims.

Properly evaluating the employer's obligations in the context of a long-term disability claim is a necessary step in avoiding these risks.

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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