By Howard Levitt & Rob Lilly
Employers have more to fear financially from employees becoming disabled after they are fired from almost anything else
Most insurance companies allow employers to continue long-term disability benefits for the minimum statutory notice period, in most provinces between one and eight weeks. That is because some employment standards legislation, such as Ontario’s, does not permit employers to make any changes to an employee’s pay and benefits over those few weeks. To ensure their employer clients stay onside of the law, insurers are willing to offer LTD coverage for that short, legally required period – but typically no longer. After all, some people who find themselves recently unemployed may look to replace their income through LTD benefits and falsely claim to be injured or otherwise disabled. Insurers want to prevent that risk.
If a terminated employee becomes disabled while LTD benefits are still active, the insurer foots the bill for the benefits. After this short initial statutory period, if the employee becomes disabled during the potentially much longer reasonable notice period of up to more than two years when they are no longer being covered for LTD — the employer is responsible — despite not often being able to purchase LTD insurance for its employees for that period.
Four months after his termination, Pasap suffered a heart attack requiring immediate surgery. The court found that Pasap would have qualified for long-term disability benefits had he been provided with working notice. Since the employer discontinued LTD benefits prematurely, it effectively stood in the shoes of the LTD insurer. Justice McMurtry ordered the casino to pay Pasap over $1 million in LTD benefits. The award represented the equivalent of 26 years of benefits coverage until age 65, when the policy would have expired.
When employers cut off LTD benefits prematurely, they are not afforded the same remedies as insurance companies. When an employee succeeds against an LTD insurer after a denial of benefits, courts normally award pay up to the date of trial and put the employee back on the LTD policy indefinitely until they recover or reach age 65. The insurer can then assess whether the employee continues to be disabled, especially since some employees get better with appropriate treatment and time. If justified, the insurer can stop benefits again, which could be much before the employee turns 65 — saving the insurer significant payouts.
But, working notice is not always a perfect solution. A disgruntled employee may to try to sabotage the employer’s operations or surreptitiously divert corporate opportunities. Working notice may also be bad for morale.
Instead, employers can also limit their liability for LTD benefits by drafting employment agreements that clearly limit their liability on termination to the minimum employment standards and nothing more.
To eliminate the risk entirely, employers should get a release from the terminated employee releasing the employer from all forms of benefits and insurance coverage previously provided to the employee. For the release to be binding in an ordinary without-cause termination, the employer should offer the employee something more than just minimum entitlements — say an extra week’s pay for example. It does not have to be much. Offering a little extra for a release can save an employer a significant sum in potential future LTD payments.
Without taking such steps, employers have more to fear financially from employees becoming disabled after they are fired from almost anything else.