We often get calls from disabled employees, typically on LTD, who have been terminated about two years after starting a medical leave. It often means their health benefits, including prescription drugs, have been discontinued. They want to know if this is legal. This blog discusses this particular situation.

Why this Situation Arises

Typically, LTD policies require the insurer to pay benefits for two years after an employee becomes disabled as long as the employee is unable to perform the job they were doing when they became disabled.

After the two-year mark, the evidence must show that the employee is unable to perform any job for which they are reasonably suited in order to continue receiving long-term disability benefits. At this point, if the employee satisfies the LTD carrier that they can meet this stricter definition of total disability, then employers will sometimes take the position that the employment contract has been legally frustrated.

When is An Employment Contract Frustrated

An employment contract is frustrated when a contractual obligation has become incapable of being performed. Frustration can arise when, due to a long-term illness or disability, it becomes clear that an employee is no longer able to work. However, it is difficult to pinpoint this point in time and it does not necessarily mean simply waiting two years.

If an employer can prove the contract has been legally frustrated then it is not required to pay any termination pay to the employee under common law.

How much money are you owed if your contract has been frustrated?

If the frustration is caused by disability, however the employer is still required to pay the termination and severance pay that is required to be paid under the Ontario Employment Standards Act. These entitlements are usually far less than the termination pay an employer is liable to pay under common law.

What evidence is needed to prove an employment contract has been frustrated?

To prove a contract has been frustrated, it is not enough for an employer to simply show that the employee has not been able to work for over two years. Rather, the employer must present medical evidence which shows that it is unlikely an employee will be able to work in the reasonably foreseeable future.

In Naccarato v Costco, the employer, Costco, alleged Mr. Naccarato’s employment contract had been frustrated because he had been off work ill for five years and his doctor had indicated that his return to work could not be predicted.

The burden of proof is on the employer to prove frustration of contract. The court found that Costco had not provided sufficient evidence to show there was no reasonable likelihood Mr. Naccarato would not be able to return to work in the reasonably foreseeable future. The court agreed that the doctor’s comments did not provide a prediction for a return to work, but the evidence also showed that Mr. Naccarato was still receiving medication and weekly treatment, and was in the process of seeking further psychiatric treatment.

In these circumstances, Costco should have followed up with the doctor to further probe into the likelihood of Mr. Naccarato’s return to work.

Mr. Naccarato was awarded ten months’ pay in lieu of notice. Had the court agreed with Costco that the employment contract was frustrated, he would have only been entitled to less than six months’ pay under the Employment Standards Act.

If your employment is terminated while you are disabled, you should speak to an employment lawyer to find out how  much termination pay you are entitled to receive. You can reach us at [email protected] or 647-204-8107.