How a wrongful dismissal can lead to $1.2 million in LTD benefits

'Benefits is something that employers and HR really do need to keep in mind on termination'

How a wrongful dismissal can lead to $1.2 million in LTD benefits

It’s a case that highlights the perils of a badly handled termination, with an employer facing $1.2 million in long-term disability benefits — along with $50,000 in damages for bad faith.

“It's important to keep in mind that this kind of case is exceptional,” says Hannah Goranson, an associate at Lee Workplace Law in Toronto.

“That said, benefits is something that I do think employers and HR really do need to keep in mind on termination. It can sometimes be overlooked when you're dealing with things such as ‘How much severance pay do we need to provide?’”

Five-year facilities manager

Chadwick Pasap started working at the Bear Claw Casino in the 1990s and was employed full time from 2007 to 2012, most recently as a facilities manager where he supervised 15 employees and reported to the general manager, Edward Littlechief.

Pasap was on a disability leave because of a back injury between March 2011 and February 2012, receiving disability benefits from the Workers’ Compensation Board. He then returned to work full time.

But his performance declined, according to the employer, and on Aug. 17, 2012, they had a meeting to discuss issues around punctuality and absences.

What happened next is in dispute: Littlechief said he told Pasap about his concerns, Pasap acknowledged them and resigned his employment; however, Pasap said Littlechief told him he could resign “or we let you go.” Pasap did not return to work at the casino.

However, in December 2012, he suffered a catastrophic medical event —diagnosed as congestive heart failure — was in the hospital for 25 days and was disabled until January 2013.

To qualify for long-term disability (LTD) benefits, Pasap had to be “totally disabled” for 120 days or more — the waiting period – with a deadline of April 13, 2013. But the employer said that his disability ended sooner.

The judge determined Pasap had been wrongfully dismissed and was entitled to a notice period of seven months, from August 2012 to April 2013. As part of this, he was entitled to long-term disability benefits.

While Pasap did odd jobs over the next couple of years, he was restricted by his medical condition, according to the judge, and was totally disabled until April 12, 2015 because he was not capable of performing “the substantial duties of his… own occupation.”

After April 2015, the court decided that Pasap was prevented from any gainful occupation for which he was reasonably qualified, because of his disability.

In the end, the court found that the employer acted in bad faith and engaged in reprehensible behaviour with his termination, and Pasap was awarded $25,000 in moral damages and $25,000 in punitive damages.

In addition, he was granted $1.2 million in wrongful dismissal damages in lieu of his lost disability benefits, until age 65.

‘Unusual’ case

The case is exceptional in having an employee suffer such a big medical event during his reasonable notice period that renders him permanently disabled from working, says Goranson.

“I've certainly never encountered anything quite like it.”

Instead, an employee may have a notice period of two to three months which of course is less than the 120-day waiting period, she says.

A traditional situation involves a continuation of benefits for a smaller period that might not be the entirety of the notice period, says Michael Hernandez, a lawyer at Bow River Law in Calgary.

“And you're not usually faced with such an extreme example, which is essentially the same result as an employer trying to terminate an employee for just cause but having insufficient cause. So we're left with complete exposure for the entirety of the notice period.”

Too often, employers assume that severance costs are limited by a termination clause and then spend thousands of dollars in litigation, only to find out they’re wrong, says another employment lawyer.

Insurer versus employer

It’s an unusual case given the nature of the dispute, says Hernandez.

“A typical dispute over disability payments or entitlement to disability is going to be between the employee and the insurer. So in a situation like that… it's uncommon for a court to actually award a lump sum until the age of 65. What will typically happen… is a reinstatement to the plan, if the court were to find that the employee was cut off prematurely or unnecessarily.”

Here, the insurer is not party to the litigation because it was the employer’s breach, he says.

“There’s no way to involve the insurer and order performance of the insurer. So the only result or ability for the court is to award that big lump sum.”

If the casino had extended coverage and Pasap had the medical event, the dispute would have been with the insurer who is accepting the premiums, says Hernandez.

“Any kind of dispute on coverage comes between the employee and the insurance company, and it’s out of the employer’s hands.”

If the employer had told the employee he was being terminated and he’d be given eight months’ severance, including benefit continuation, “it then would boil down to an issue between him and the insurance company as to whether he met that threshold for disability,” says Goranson.

“Here, because he wasn't enrolled in the program at that point in time, we're dealing with damages instead of… just the benefit being provided by the insurer.”

In some jurisdictions, benefit continuation during the statutory notice period can be treated in the same way as during any extended common law notice period, according to another lawyer.

Double recovery

It’s also notable that the court awarded double recovery for the gap between the 120 days and the end of the notice period. Since Pasap was on a cost-sharing plan, he was awarded wrongful dismissal damages and disability payments for those three days.

“That becomes a pretty interesting determination because, first and foremost, this isn’t a very common thing here in Alberta,” says Hernandez. “You can obviously imagine what would happen if that medical event would have maybe happened four months earlier.”

There can be instances where long-term disability payments are deducted from a damages award for reasonable notice, or where you have double recovery if the employee is entitled to both their severance and long-term disability over the same period of time, says Goranson.

“What the court will look at, typically, is ‘OK, what does the employment agreement say? What does the disability plan say? What were the intentions of the parties?’ So, there's a bit of mixed case [law] on the topic.”

But in Ontario, if the employee is paying for the benefit in some way, such as cost-sharing, they will be entitled to both their LTD benefits and severance entitlements because they paid into the program, she says.

“On the flip side... [if plan was paid for] solely by the employer, and the employee doesn't contribute in any way… you might see it more frequently that the employee’s severance entitlements will be reduced… because the benefit is being provided solely as a result of the employer having provided it.”

Extending benefits

In Ontario, during the statutory termination period, employee benefits should be continued according to the employment standards. So if the employee is entitled to three weeks, benefits should be continued for those three weeks, says Goranson.

“Moving beyond that, whether the employer has to continue benefit coverage into the greater reasonable notice period can depend on a number of factors, including what the terms of the contract say, as well as… complicating factors about what the benefit provider will actually allow. So… it's certainly something that employers need to be keeping in mind.”

If an employer is starting from scratch, there’s the potential to limit the coverage for disability upon termination, says Hernandez.

“You can do that by crafting a very well-worded termination clause that essentially removes an employee’s common law rights up termination… [but] there’s risk associated with that because the language has to be incredibly clear.”

If you’re not starting from scratch, it’s best to consult with a lawyer to ensure the coverage is extended through a reasonable period, he says, “to avoid a dispute like this.”

Termination meeting

What may have been overlooked in this case is the huge damages that were awarded, says Goranson.

“We often see cases where, in the heat of a moment, an employee might barge out of a meeting room and the employer will try and treat that as their resignation. But, oftentimes, you do need more than that; you need clear evidence that the employee intended to resign. And even if it's done in the heat of the moment, sometimes you need to give them a little bit of a cooling-off period before confirming that intention.”

A British Columbia sawmill’s closure agreement that allowed employees to seek permission to leave for new employment before the mill closed didn’t mean that those employees didn’t quit their jobs, an arbitrator ruled in 2021.

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