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Posted on October 24th 2006 in Employment Law

A Warning for Employers

A Warning for Employers

In the winter issue of Legal Issues we provided you information about dismissing an employee who is on sick leave. But what happens when an employee becomes ill or disabled shortly after being terminated? This issue was addressed by the Ontario Court of Appeal earlier this year in the case of Alcatel v. Egan.

The Facts
After 20 years and at the urging of two former colleagues, Egan left a secure job with Bell to take a director-level and senior management position at Alcatel. Less than 21 months later Egan was terminated by Alcatel as part of a mass termination. At that time she was paid 12 weeks salary in accordance with the Employment Standards Act and was advised that her benefits, including short and long term disability, would be cancelled.
A week after the 12 weeks ended, Egan became disabled as the result of a major depressive disorder. She was unable to work for a year.

The Lawsuit
Egan sued Alcatel for damages for wrongful dismissal as well as for lost disability insurance entitlements. The trial judge concluded that Egan was entitled to a nine month notice period. The judge went on to find that if Egan had received the proper notice she would have still been covered by the disability policy when her depression began and would, therefore, have qualified for benefits.

Despite finding that Egan’s benefits had been terminated too soon, the trial judge refused to award Egan disability benefits on the ground that she was fully compensated by the nine months salary awarded. Egan appealed.

The Appeal
The Court of Appeal agreed with the trial judge that Egan was not entitled to both disability benefits and her salary since that would amount to double recovery. However, the appellate court diverged from the trial judge on the issue of which set of damages Egan was entitled to receive. Although the Court of Appeal awarded Egan her salary for the three months prior to the onset of her disability, it believed that Egan was not entitled to the remaining six months of salary. Instead she was entitled to disability benefits during the full period of her disability.
Since Alcatel had cancelled Egan’s benefits policy, it was responsible for paying both the salary and the disability benefits that she was entitled to.

The Lesson
Employers must exercise caution when discontinuing disability coverage during a terminated employee’s reasonable notice period. Before terminating an employee it is wise to seek legal advice. Howard Steinberg and Craig Colraine practice employment law and would be pleased to advise you.

The Notice Period
The other interesting issue that this case raises is the length of the notice period Egan was entitled to. Although she had worked for Alcatel for less than two years, the trial judge concluded that she was entitled to nine months salary in lieu of notice. One of the key factors that led to this lengthy notice period was the role that Egan’s two former colleagues played in encouraging her to move to Alcatel as well as an $8,000 bonus that the two had shared when Egan agreed to move.

The trial judge also took into account Egan’s secure future had she stayed with Bell, that she had not sought to leave Bell, and that the parties anticipated a lengthy term of employment at Alcatel. Despite finding that nine months was at the high end of the range, the Court of Appeal did not find that the trial judge had made an error in his decision.