Terminating An Employee on Long-term Disability? Be very careful

The $ 64 000 Question

Can an employer terminate an employee who is on long-term disability?

In some cases, the answer is yes but if an employer improperly terminates a disabled employee then the legal exposure can be HUGE. There is no arbitrary time when it is acceptable for an employer to terminate a disabled employee. It depends on the facts of the case.

Most long-term disability policies have a narrow definition for “totally disabled’ for the first two years. After that period, the policy has a broader definition of totally disabled.

It is therefore not surprising that employment lawyers get a call two years after an employee has become disabled.

The employer wants to terminate the employment relationship because it believes there is no reasonably prospect the person will ever return to work. In legal terms, the employer claims the employment contract has been “frustrated”.

Why Do We Get the Question?

The reason we get the call is because the employer wants to stop paying premiums for employee benefits like extended health benefits. If the employer pays all of the premium costs for this benefit and the employee has family coverage then the premiums can be several hundred dollars a month.

A CASE STUDY: Costco

Costco terminated a Mr. Naccarato’s employment. He had been off work for five years and he was in receipt of LTD benefits at the time of his
termination. Costco argued that Mr. Naccarato’s employment contract had been frustrated.

The issue the court had to decide was whether it was unlikely that Mr. Naccarato would be able to return to work in the reasonably foreseeable future. If so, the employment contract was frustrated and it would automatically come to an end. And Costco would not be required to provide
the employee with any notice of termination at common law.

What was the outcome?

The trial judge ruled in the employee’s favour because Costco had not provided the court sufficient medical evidence. In particular, Costco did not prove it was unlikely that Mr. Naccarato would be unable to work in the reasonably foreseeable future. In this regard, the evidence was that the employee was being treated by his doctor and a new psychiatrist was being sought.

The Cost of a Wrong Answer

The court found that Mr. Naccarato’s employment contract had NOT been frustrated. Instead, the court found that Costco should have provided him with with 10 months compensation in lieu of reasonable notice, and ordered Costco to pay the him $12 500 in legal costs.

Don’t assume an employment contract is frustrated just because an employee has been disabled for more than two years.

If your organization is thinking about terminating a disabled employee and you want to discuss the case with a lawyer with experience in this area, please contact us at [email protected] or 1-888-640-1728.