Ever since the Ontario Superior Court’s decision Brito v. Canac Kitchens was handed down earlier this year, it has generated much comment by employment lawyers because of the fact that a former employer was held liable for loss of disability insurance benefits 16 months after termination (and while that former employee was working for a new employer).
The facts of this case are as follows. Mr. Brito was a 55 year old employee who was terminated without cause by Canac after 24 years of service. Mr. Brito was given statutory pay in lieu of notice, which under the Ontario Employment Standards Act was 8 weeks plus nearly 24 weeks pay in lieu of notice (i.e. approximately 8 months in total); Canac also continued Mr. Brito’s benefits for a period of 8 weeks.
Two weeks after his termination, Mr. Brito started another job, although the salary and benefits were not as good as what he had earned with Canac. Of note was the fact that his new employer did not provide disability insurance, nor did Mr. Brito purchase such insurance himself. Mr. Brito worked for his new employer for 16 months until he was permanently disabled from working due to cancer.
The court held that the reasonable notice period for Mr. Brito was 22 months, and ordered Canac to pay Mr. Brito the difference between (a) what Mr. Brito had already been paid by Canac and earned with his new employer, and (b) the wages Mr. Brito would have earned with Canac for the 22 month period. Also, the court determined that had Canac provided Mr. Brito with 22 months notice of termination, Mr. Brito would have continued on his benefits for that period and thus been eligible to apply for disability benefits after he became disabled 16 months later. Consequently, the court ordered Canac to reimburse Mr. Brito for the disability benefits he would have received for
- the 6 month period between the date he became disabled and the end of the 22 month notice period, and
- an additional 8 years until Mr. Brito’s expected retirement at age 65.
The total damages for the loss of disability benefits alone was well over $200,000.
This case poses a practical problem for employers: while it may be relatively simple to identify whether an employee to be terminated has any actual or potential disabilities at the time of termination, it is much more difficult to predict whether or not they may become disabled in the future, and if they do, whether it is likely that the employee will secure new disability insurance. In this case, the only way that Canac could have avoided this liability would have been to have continued Mr. Brito’s employment (and disability insurance) during the reasonable notice period, irrespective of any consideration that Mr. Brito may get another job sooner (as he did). In hindsight, providing 22 months working notice of termination may now seem reasonable, however it is likely that at the time, Canac did not consider a future, uncertain disability when formulating Mr. Brito’s severance package.
This case reminds us that if an employer chooses to terminate long service employees, liability for lost benefits can extend throughout the reasonable notice period, irrespective of whether the employee was re-employed quickly. Employment contracts which limit the wages and benefits that the employer will pay on termination is one way to mitigate this risk. Alternatively, if there is no employment contract in place, negotiating a mutually agreed to severance package with the employee at the time of his or her termination, (in exchange for a full release of future claims) would protect an employer from the future liability described in this case.