Ontario Court Of Appeal: Early Termination Of Employee Benefits Carries Substantial Risk


A recent Ontario Court of Appeal decision confirms that employers may become liable to pay the full value of an employee's short-term and long-term disability benefit entitlements where, following an employee's termination without cause, those benefits are terminated and the employee becomes disabled within the notice period. The Court of Appeal also confirms that, in the appropriate case, an employee can collect both wrongful dismissal damages and disability benefits during an overlapping period.


Luis Olguin had been employed by Canac Kitchens for 24 years when he was terminated, without cause, in July 2003. On the date of his termination Mr. Olguin was 55 years old.

Canac Kitchens provided Mr. Olguin with his statutory entitlements upon termination, as set out by the Ontario Employment Standards Act, 2000 (ESA). These entitlements included eight weeks' pay in lieu of notice of termination, 24 weeks' severance pay, and the continuation of Mr. Olguin's benefits for an eight-week period. As is common practice among many employers, Mr. Olguin's benefits, including his short-term and long-term disability benefits, came to an end at the end of the eight-week statutory notice period.

Within two weeks, Mr. Olguin found another job, although it paid him a lower salary and did not provide him with any short-term or long-term disability insurance coverage.

Approximately 16 months after his termination, Mr. Olguin discovered he had cancer and underwent extensive treatment in the years that followed. During that time, he brought a claim against Canac Kitchens for wrongful dismissal, claiming damages for common law reasonable notice and the value of his lost benefits during the common law notice period.

The decision of the courts

The decision at trial

Mr. Olguin was successful at trial, receiving wrongful dismissal damages over a 22-month common law notice period. In addition, Mr. Olguin received the value of the short-term and long-term disability benefits that he was unable to collect because they had been terminated at the end of the statutory notice period (e.g., before the end of the common law notice period). The trial judge found that had the benefits not been terminated, Mr. Olguin would have been eligible to receive them based upon the medical evidence adduced at trial. Canac Kitchens was thus liable to compensate Mr. Olguin for that loss.

Mr. Olguin had paid a portion of the premiums for disability benefit coverage. As a result, the...

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