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Long-term disability leave—how long is long enough?

By Yosie Saint-Cyr, LL.B., Managing Editor at HRinfodesk.com---Canadian Payroll and Employment Law News, July 2008

Human rights legislation across Canada ensures that employees cannot be terminated or treated differently due to a disability (physical or mental, actual or perceived) without the employer first taking steps to accommodate that disability to the point of undue hardship, unless the nature and extent of the physical disability or mental disability reasonably precludes performance of a particular employment or activity. In addition, this duty to accommodate generally covers personal illness not related to the job. This protection ensures that an employer cannot terminate an employee simply because the employee is ill.

Accommodation will often include among other things, giving the employee a leave of absence to allow them time to recover. If an employee becomes ill and is unable to perform his or her job, the employer must inform the employee if group disability benefits are available to him or her, provide a copy of a policy or information booklet, and assist the person in applying for those benefits.

Our latest HRinfodesk poll wanted to find out How long must an employee be on long-term disability before you try to fill that position? Out of 391 respondents, the majority of respondents (51.92%/203) indicated that they waited between 12 to 24 months to fill the disabled employee's position, while the second greatest number of respondents, 17.39%/68 waited from zero to three months before they tried to fill the disabled employee's position. One extreme to another! However, we can easily assume that since they selected 12 to 24 months, the majority of respondents have long-term disability (LTD) insurance plans and policies, or are very aware of the standard period of time for long term disability leave applied by most employers.

Generally, if the employee becomes disabled during the period of employment he or she remains entitled to apply for and receive LTD payments for any disability arising during that time and continuing after termination. The language of the LTD policy will decide the outcome. Short- and long-term disability plans are generally structured to cover the employee's “own occupation” for two years, plus the waiting period, and any occupation thereafter. This structure reflects the fact that disability from one's own occupation for a period of two years or so is not uncommon, whereas longer disabilities generally preclude any meaningful return to work. Once an employee has been off work for more than two years, plus the waiting period (often covered by short-term disability, sick pay or EI sickness benefits) and is being paid disability benefits due to being disabled from performing any occupation, medical evidence generally indicates the employee will never return to any employment, much less the original employment.

Below is a breakdown of the results of the poll on the topic of how long employers wait to fill the position of employees who are on long-term disability leave. We are also providing an overview of the topic and the legal implication of terminating an employee on long-term disability leave.

How long is long enough

Often, human resources professionals, employers and those who manage personnel ask themselves: after how many months or years of sick leave do I have the right to terminate an employee? How long can I reasonably be expected to hold an employee's job, and even maintain benefits, while the employee is unable to work?

According to Rachel Ravary, from the Labour & Employment Group at McCarthy Tétrault LLP, it is not uncommon for employers to apply a standard period of time—12, 24 or even 36 months—after which employment will be terminated if the employee is still not able to return to work. In unionized workplaces, this rule may be expressly written into a collective agreement and applied systematically as soon as the magic number is reached. In other cases, it may be set out in an employee policy or handbook.

However, as stated by several courts and human rights commissions and tribunals, the time period set out in policy or collective agreements does not by itself determine how long an employee must be accommodated on long-term disability. Each situation must still be evaluated on a case-by-case basis. The overriding message from the courts is a warning to employers who seek to terminate an employee on extended sick leave. The duty to accommodate is always present and may require a longer period or additional measures in light of an employee's specific circumstances.

Hence, with respect to the leave of absence, there is no fixed rule as to how long a disabled employee may be absent before the duty to accommodate has been met. Human rights commissions and tribunals indicate that this depends on the ability of the employee to perform the essential duties of the job, considering the unique circumstances of every absence and the nature of the employee's condition. The inability of an employee to perform the essential duties of a job should not be determined without actually testing the ability of that person. It is not enough for the employer to assume that the person cannot perform an essential requirement; rather, there must be an objective determination of that fact. The most appropriate accommodation is the one that meets individual needs, best promotes the employee's integration into a full participation in the workplace and ensures dignity and confidentiality.

Factors that must be considered in determining the ability of the employee to perform the essential duties of the job are:

  • Predictability of absences both in regard to when it will end and if it may recur;
     
  • The frequency of the absence; the employee's prognosis and length of absences (it is more likely that the duty to accommodate will continue with a better prognosis, regardless of the length of absence); and
     
  • The nature of the business and/or the operational needs.

When you accommodate a disabled person, have the employee's doctor provide you with a prognosis of impairment, so that you know:

  • If and how long your employee will need to be on a leave of absence from work;
     
  • How long his or her impairment is for (permanent or temporary);
     
  • What can be done in the workplace to accommodate the employee's impairment and allow the employee to continue to work; and
     
  • How long you can accommodate the impairment.

The Supreme Court of Canada states in relation to the duty to accommodate that the employer has a legal obligation to show that it has considered all viable forms of accommodation. If an employer has rejected all of these forms, they must be able to show why each rejection was reasonable.

Limits and termination of the employment contract due to a disability

There are some limits to the employer's obligation to accommodate. For example, the employer is not required to create a new position to satisfy the needs of the employee. Nor is an employer required to maintain a position indefinitely for an employee who cannot attend work due to a disability.

Employers are permitted to terminate an employee's employment where the contract of employment has become impossible to perform or has been frustrated by a fortuitous or unforeseeable event or circumstance.

Frustration of the employment contract

Where an employee is absent from work because he or she is suffering from an illness or disability, the employer does not have just cause to summarily terminate the employment relationship simply by reason of the employee's absence. The absence from work due to illness or disability does not breach the contract. However, the employment contract may become "frustrated" and the parties' respective obligations under the contract may be discharged. In cases where an employee suffers an obvious permanent illness or disability, and the condition prevents the employee from carrying out his or her job requirements, frustration of the employment contract is clear.

Whether or not the incapacity of an employee due to illness will result in the frustration of a contract of employment will depend, in each case, on the relationship of the term of the incapacity or absence from work to the duration of the contract itself.

Several court decisions have set out the following guidelines and five factors to be used in determining whether an employment relationship has been frustrated:

  • The terms of the contract, including the provisions as to sickness pay – The whole basis of weekly employment may be destroyed more quickly than that of monthly employment, and that in turn more quickly than annual employment. When the contract provides for sick pay, it is plain that the contract cannot be frustrated so long as the employee returns to work, or appears likely to return to work, within the period during which such sick pay is payable. But the converse is not necessarily true, for the right to sick pay may expire before the incapacity has gone on, or appears likely to go on, for so long as to make a return to work impossible or radically different from the obligations undertaken under the contract of employment.
     
  • How long the employment was likely to last in the absence of sickness – The relationship is less likely to survive if the employment was inherently temporary in its nature or for the duration of a particular job, than if it was expected to be long term or even permanent.
     
  • The nature of the employment – Where the employee is one of many in the same category, the relationship is more likely to survive the period of incapacity than if she or he occupies a key post which must be filled and filled on a permanent basis if her or his absence is prolonged.
     
  • The nature of the illness or injury and how long it has already continued and the prospects of recovery – The greater the degree of incapacity and the longer the period over which it has persisted and is likely to persist, the more likely it is that the relationship has been destroyed.
     
  • The period of past employment – A relationship which is of long standing is not so easily destroyed as one which has but a short history. This is good sense and, we think, no less good law, even if it involves some implied and scarcely detectable change in the contract of employment year by year as the duration of the relationship lengthens. The legal basis is that over a long period of service the parties must be assumed to have contemplated a longer period or periods of sickness than over a shorter period.

These factors are interrelated and cumulative, but are not necessarily exhaustive of those which have to be taken into account.

Any other factors which bear on this issue must also be considered. A significant issue in all cases is the employee's medical state. As a result, an employer must get a medical opinion as to whether the employee is expected to be permanently disabled from working.

If the employee's illness or disability does not frustrate the employment contract, then in the absence of other factors an employer will not have cause to dismiss the employee. If the employment is terminated, the notice period will run from the date the disabled or ill employee's employment was terminated.

If, in these circumstances, an employment contract has not been frustrated, then the dismissal of an employee who is ill or disabled for any reason not amounting to just cause will give rise to damages. An employee who is wrongfully dismissed while absent from work due to an illness is entitled to damages for the salary the employee would have earned had she or he been working during the notice period, just as an employee who is wrongfully dismissed while working enjoys such an entitlement. The fact that the employee could not have worked during the notice period is irrelevant to the assessment of damages.

Termination and LTD plans

An employee who has been wrongfully dismissed at a time when he or she is unable to work and is receiving disability benefits is entitled to damages. Disability benefits that are from a plan paid for solely by the employer may be deducted from the award of damages. Employers who make administrative errors or prejudice the disabled employee's right to LTD benefits may be responsible to pay those benefits directly to the employee.

However, be aware that in Antonacci v. Great Atlantic and Pacific Co. of Canada, the decision suggests that if an employer has a long-term disability plan, it can never argue that employment has been frustrated since a long-term disability is contemplated. However, long-term disability benefits continue to age 65 under disability insurance policies in most cases, regardless of termination of employment. The employee is, therefore, not prejudiced by the termination. Consequently, if medical evidence determines that a return to work will never occur, the employer may be successful in asserting that the contract of employment has been frustrated.

In all cases, prior to dismissing a disabled employee, the employer should check the various disability plans to ensure that the employee will continue to enjoy the benefit of such plans even after they are dismissed.

In addition, there have been a number of court challenges, and increasing attention paid, to the issues of employee termination while on LTD. In March 2006, the Ontario Court of Appeal ruled that a terminated employee retains the right to disability benefits beyond the statutory notice period to the end of the common law notice period. The recent decision in Egan v. Alcatel states that if a person is fired for cause, then the employer must keep the benefits coverage alive during the notice period. In that case, the employer stopped paying the premiums for Ms. Egan's benefits coverage on the date that she was fired. She then became disabled during the notice period. She successfully sued the employer for payment of the insurance benefits that would have been payable by the disability insurer (and which she could no longer access due to non-payment of premiums) had the premiums continued during the notice period.

The disabled employee, however, who never receives any notice of termination from his or her employer, will receive nothing more than his or her long-term disability benefits until the plan terminates, or the date of recovery from the illness or disability. There is, therefore, an incentive for employers to avoid giving notice of termination to employees in such circumstances.

An employer who is considering terminating an employee who is disabled should consider the following:

  • Is the employee motivated at all by the existence of the disability?
     
  • Is there truly cause for dismissal? If not, assess the reasonable notice period which must be given to the employee in the circumstances.
     
  • Is the employment contract frustrated? If so, obtain an up-to-date medical opinion that the disability is permanent rather than temporary.

If the decision is made to terminate the employee and there is no cause for dismissal then the employer should:

  • Consider the appropriate length of notice to be provided to the employee giving consideration to their length of service, position, age, level within the company and responsibility.
     
  • Review any insurance benefits available to the employee.
     
  • Consider the prospect of a possible human rights complaint and whether the duty to accommodate has been explored.

If you choose to terminate an employee on disability leave, we strongly urge you to seek appropriate legal advice before proceeding with such an action.

What can employers take from these principles?

Long-term disability files should be closely monitored throughout, and all accommodation measures should be well-documented. Also, before making the final decision to terminate an employee on sick leave, make sure that you have an up-to-date evaluation of the employee's medical status and that you have made a last attempt to see whether additional accommodation measures could reasonably be extended.

A reminder, employers who make administrative errors or prejudice the disabled employee's right to LTD benefits may be responsible to pay those benefits directly to the employee.

Human rights legislation is forcing employers to be more diligent with their accommodation of disabled employees and reinforces the need for benefit plan sponsors to review their policies and clearly document their accommodation approach to avoid any legal liability. As with premium payment and accommodation issues, there is no single approach to issues of member/benefit termination. Clear and concise communication outlining the policies and their conditions is paramount.



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