Wrongful Dismissal Damages Not the Only Risk in Failing to Provide Reasonable Notice of Termination-200K Awarded for Failure to Continue Disability Coverage

Employers often make a calculated gamble when dismissing employees with notice by providing only the employee’s Employment Standards Act (“ESA”) minimum notice, and not reasonable notice under the common law. The gamble can result in significant cost savings if the employee quickly finds alternative work, but it’s not without risk. Brito et al v. Canac Kitchens provides a recent example of an employer who lost the gamble by failing to consider the risk of disability following dismissal.

At the age of 55, Mr. Olguin was dismissed from his employment with Canac Kitchens after 24 years of service. At the time of dismissal, he was given his minimum entitlement under the ESA, including eight (8) weeks of disability coverage. He was not given any common law reasonable notice, or pay in lieu thereof, though his contract of employment entitled him to it.

Two weeks after his dismissal, Mr. Olguin secured alternative employment, albeit at a lower wage. The problem was that Mr. Olguin became disabled during the reasonable notice period when he was working for the new employer and after the eight (8) week period that Canac continued his disability coverage. Unfortunately, he did not have long term disability coverage with his new employer. Mr. Olguin sued Canac for wrongful dismissal and for the lost disability benefits he would have received had he been employed with Canac during the reasonable notice period.

Not surprisingly, Canac did not dispute the allegation of wrongful dismissal. His entitlement to wages during the reasonable notice period of 22 months was less the ESA amount already paid to him by Canac, as well as Mr. Oguin’s earnings in his new employment. The net damages for wrongful dismissal was just over $40,000.00. If the case was only about wrongful dismissal, Canac would have arguably made a wise gamble in paying Mr. Olguin only his ESA entitlement.

Unfortunately for Canac, the Court also found it liable for the income replacement benefits Mr. Olguin would have received had he been employed by Canac during the reasonable notice period. In this respect, Mr. Olguin was entitled to over $200,000.00 in damages for lost disability benefits, which extended to his 65th birthday.

Brito et al v. Canac is a stark example of the risk that employers face in not negotiating a mutually agreeable termination package at the time of dismissal. The risk employers face is not simply that the employee will face a wrongful dismissal suit, but that the employee will become disabled during the notice period that otherwise should have been given. If the employee’s compensation with the dismissing employer entitles him or her to income replacement benefits, that employer faces a significant risk in having to pay those benefits up to the age defined in the benefit policy, which is usually 65.

This can be avoided by providing the employee with reasonable working notice or a suitable monetary package in lieu of reasonable notice, in exchange for a full and final release, including all claims for disability benefits, from the employee. Employers can also minimize their liability through the use of written employment agreements that limit the employer’s obligation to provide disability coverage for only the ESA minimum notice period in the event of a dismissal (see our June 23, 2011 blog). The lawyers at CCP can assist employers in the negotiation of reasonable severance packages, the drafting of enforceable releases and the drafting of employment agreements to limit liability when dismissing employees.

Please Note: This blog has been prepared as an informational service for our clients and other interested parties. It is not intended to constitute legal advice, a complete statement of the law or opinion on any subject. Although we endeavour to ensure the accuracy of the content, no one should act upon the information provided without a thorough examination of the law after the facts of a specific situation are fully considered.


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