Northern Exposure

Staggering cost of ‘no cause’ finding: Employer pays employee LTD benefits to age 65

By Katherine Pollock

The Ontario Superior Court decision in Fernandes v. Peel Educational, 2014 ONSC 6506, reminds employers in Canada of how badly matters can go awry when a decision on the merits of a cause case is taken out of the hands of the parties and left in the hands of a third party judge.

In this case, the employer believed it had just cause when it terminated an employee. The employee subsequently became totally disabled but had no long-term disability coverage since his employee benefits had been terminated. The employer was ordered to pay LTD benefits until the employee reached age 65. This case reminds employers in Canada to be completely sure about just cause allegations and to think about continuing LTD coverage during the notice period, whether statutory or common law.

Facts

RF was a teacher at the Mississauga Private School (MPS). He was terminated for cause on April 17, 2009. He had 10 years of seniority, earned $70,000 per year, and was 56 years old. The main issue for the trial judge, who heard this case over 10 days of trial, was whether RF had committed academic fraud in respect of his students’ marks.

The judge determined that RF had lied to his employer during an investigation, lied to the court about how he had marked his students, and admitted that he had falsified marks on student records. Somewhat surprisingly, the judge found that this conduct did not justify immediate termination.

Using the contextual analysis required in any dishonesty related cause case, the trial judge found that RF was a well-respected teacher for most of his 10-year career. The judge wrote: “Although the defendants referred to this as ‘academic fraud,’ that is a very dramatic way of describing a few students who were marked on presentations that they had not yet given. That presentation was only one part of one course and the presentation made up only one part of the overall mark.” Immediate termination was not the appropriate sanction for RF’s misconduct as his punishment outweighed the seriousness of the infraction.

Result

The judge determined that the reasonable notice period was 12 months. The issue of damages was complicated by the fact that RF had become totally disabled at the date his employment was terminated. The employer had stopped RF’s LTD coverage as of the termination date. The medical evidence was clear that RF would never work again and no contrary evidence was led by MPS.

The court held that RF was totally disabled under the terms of the LTD policy and, but for the actions of MPS, would have been eligible to claim benefits from the insurer. MPS was found liable for the value of the disability benefits that would have been payable to RF to age 65 (that is, for a nine-year period given RF’s age at the time of his dismissal and the onset of his disability).

The result of this case seems quite extraordinary as the employer did not have cause for termination even though the employee lied to his employer and to the court and admitted to falsifying documents.

It serves as a useful reminder to employers in Canada, however, that when terminating an employee, whether with or without cause, consideration must be given to extending disability coverage for the statutory notice period (mandated by statute) and the common law notice period (mandated by the case law that finds employers liable if an employee becomes totally disabled during the notice period and has no access to coverage). To proceed otherwise is to risk a very big damages award.