Are Employers able to Deduct STD and LTD Benefits from Employee Common Law Notice Entitlements?

In a recent Ontario Superior Court decision, the court once again had to grapple with the question of whether an employer is entitled to deduct STD and LTD benefits from wrongful dismissal notice award damages.  In considering this issue, the courts typically examine the intention of the parties, the terms of the employment contract, and the terms of the insurance benefit provider’s coverage.

In Diamantopoulous v. KPMG LLP (“KPMG”), 2014 ONSC 1038, the court confirmed that these contextual factors should be considered in assessing whether STD and LTD benefits should be deducted from wrongful dismissal damages, and specifically relied on the leading Supreme Court of Canada decision, Sylvester v. British Columbia, [1997] S.C.J. No. 58 to support these principles.

In the specific facts of KPMG, the plaintiff commenced a sick leave for depression and anxiety following a disciplinary meeting regarding her conduct and attitude towards a senior partner of the firm.  When her application for LTD benefits was denied on two occasions, the employer contacted her to arrange for her return to work.  After several unsuccessful attempts to arrange a meeting to discuss her return to work, the plaintiff advised her employer that she was diagnosed with breast cancer and was undergoing treatment.   Shortly thereafter, the plaintiff’s employment was terminated by KPMG on a without cause basis.

Following her termination, the plaintiff’s lawyer requested KPMG to suspend the termination pending a decision regarding the plaintiff’s application for LTD benefits in light of her new medical condition (breast cancer).  The company agreed, and her severance package was modified to continue her salary and benefits until the end of the qualifying period to allow her to make an LTD claim due to her breast cancer treatment.  As a result of receiving medical documentation from her medical practitioner, additional STD benefits based on the breast cancer diagnosis and treatment were paid to the plaintiff retroactively to June 1, 2000.  Additionally, the plaintiff’s claim for LTD benefits was subsequently approved on September 28, 2000 and continued until March 18, 2002 due to the breast cancer treatment she was undergoing.

The plaintiff continued to pursue her claim for LTD benefits from the insurer for the period from March 17, 2000 to September 27, 2000, during which time she was in receipt of receiving full salary or STD benefits from KPMG.  Her claim and all appeals for this time period were unsuccessful.

One of the central issues before the Court was whether the STD and LTD benefits the plaintiff received should be deducted from her wrongful dismissal damages.   Relying on the principles set forth in Sylvester, the court considered the following factors when it found that the STD benefits must be deducted from the notice award:

  • The benefits were provided as a salary continuance, and the benefits policy materials described STD benefits as “salary continuance”.
  • The plaintiff had not contributed directly to the cost of the benefits; and
  • The costs of the benefits were absorbed by KPMG as a form of self-insurance.

With respect to the issue of whether LTD benefits can be deducted from the notice award, the court came to an opposite conclusion for the following reasons:

  • LTD payments were in the nature of “disability benefits”, not salary or income replacement;
  • The LTD payments were more in the form of private insurance payments;
  • The plaintiff regularly made financial contributions towards cost of the premiums of the LTD plan; and
  • The payments were made by the insurance provider directly to the plaintiff.

Based on the foregoing factors, the court found that it was the intention of the parties to treat the LTD payments as disability benefits, not salary or income replacement.  Therefore, these payments could not be deducted from the notice award she was otherwise entitled to. 

This decision serves as a useful reminder to employers that courts will take a contextual approach to determine what the intention of the parties are, and assess the language of employment agreement, and insurance policies to determine whether STD or LTD benefits should be deducted from a notice award. 

If your organization is faced with an issue of this nature, the lawyers at CCP can assist in navigating your organization through this complex area of the law.

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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