Stay on LTD Leads To Frustration of Employment Contract

Returning to work after an injury can take months, or in some cases, years. Long-term disability (“LTD”) benefits exist to allow employees to take the time needed regain their health and return to work. However, in a recent case before the Ontario Superior Court of Justice, the court was asked whether an employee’s continued receipt of LTD benefits could result in the employment contract becoming frustrated, meaning it has been broken, though at the fault of neither the employee or the employer.

LTD leads to termination

The employee began working for the employer on September 16, 2002. He commenced a leave of absence for a medical condition on September 28, 2012. The employee received short-term disability (“STD”) benefits and eventually LTD benefits through the employer’s insured employment benefit plan. The plan was administered through an insurance company and the employer had no involvement in the decision process or decisions made in regards to benefits. When an employee begins to receive LTD or STD benefits, they are told that a claim has been approved, but they are not given the reason as to why the employee is not able to work.

The employee completed a Return to Work Form on October 20, 2014, in which he stated he was unable to return to work, further stating he did not know when such a date might occur. The form was stamped by the employee’s doctor.

On December 5, 2014, the insurance company informed the employer that the employee was still not able to return to work, and that he was “permanently” totally disabled in relation to his ability to perform his current or any other occupation. In September 2015 the employer made the determination that, based on the insurance company’s letter, the employee was unlikely to return to work within a reasonable time. They informed the employee that he was terminated from employment as a result in frustration of the employment contract as defined in the insurance plan. The employee was told that he would be paid his minimum entitlements under the province’s Employment Standards Act, S.O. 2000.

A claim of wrongful dismissal

The employee responded by filing a wrongful dismissal action, denying his 13 year employment contract was frustrated. The employer sought a summary judgment dismissing the action. The parties agreed on the appropriateness of a summary judgment in resolving the matter.

Both parties agreed that if, at the time of termination, there was no reasonable likelihood of the employee being able to return to work in a reasonable amount of time, that his contract would become frustrated.

The employer’s position was that at the time of termination, neither the employee nor the insurance company provided any information to them regarding a change in the conclusion that the employee was permanently disabled. The employee relied on this as being enough to entitle them to reach the decision that the contract was frustrated.

The plaintiff’s position at the time of the termination was that the employee had not properly considered the possibility of his return to work. He claimed it was not unforeseeable to consider that an employee, injured on the job, and entitled to LTD benefits, could be off work for a lengthy period of time before being able to return. He submitted that it was not known at the time of his termination whether or not he would be able to return to work within a reasonable time-frame.

The court’s analysis

The court first turned to a 2015 Ontario Superior Court of Justice decision where the court outlined how the frustration of an employee’s contract is frustrating, writing:

“Frustration of an employee’s contract is always established with reference to the time of dismissal. In pleading frustration, an employer is entitled to rely on post-termination evidence not in its possession at the time of dismissal so long as it relates to the nature and extent of an employee’s disability at the time of dismissal. The “evidence subsequently disclosed” should shed light on the nature and extent of the employee’s disability at the time of an employee’s dismissal. An employer is not entitled to rely on evidence that relates to the post-termination nature and extent of an employee’s disability if that evidence is not relevant to the dismissal date. To allow an employer to succeed in pleading frustration on the basis of such evidence would be neither fair nor reasonable.”

The court stated its decision must be made on “whether at the time of (the employee’s) termination of employment there was no reasonable likelihood that he would be able to return to work within a reasonable period of time.”  The court observed that since going on LTD, the employee had never taken the position that he was not totally disabled. The court noted that the parties were attempting to frame the issue as who had the obligation to inquire about the likelihood of the employee’s return to work. However the court characterized things differently; looking instead at what a reasonable likelihood of a return to work looks like in consideration of the totality of the available evidence.

The court determined that at the time of the termination, there was enough evidence for the employer to find the employee was totally disabled from performing the duties of any occupation, and that there was no reasonable likelihood that he could return to work. As a result, the court ruled in favour of the employer.

LTD and STD benefits are made available so employees can be provided with an income while recovering from injury. But the process of applying for and receiving benefits can be time-consuming and difficult. The experienced and professional lawyers at Derfel Injury Lawyers provide injured people with the advice they need to get the compensation they deserve, even if an insurance company denies their benefits. We have over ten years of negotiating with and litigating against insurance companies in order to help our clients overcome conflicts with their insurance providers. Please don’t hesitate to contact us online at 416-847-3580 if you need help with your disability claim.