An Ontario judge, who is also the author of a respected employment law text, recently issued a judgment that should cause employers great concern and may lead to major changes in how employers approach terminations, especially termination of long-term employees without cause.

A long-term employee was terminated without cause and was only paid the minimum statutory termination pay, although entitled to “reasonable notice” at common law. During what the court found was the reasonable notice period he became disabled. He was of course unable to access his disability insurance because his employment was terminated and because the policy, as is typical, required him to be “actively at work” to continue coverage.  

It has often been understood that these terms of coverage were part of the bargain with the employee and meant that the employee could not claim for the loss of insurance as part of the damages. However, Justice Echlin dismissed this argument without reference to any competing authorities, saying it was circular logic. He said that the proper principle is to put the employee in the position he would have been in if he would have remained actively employed. He awarded the employee over $200,000 in damages for all of the short-term and long-term disability benefits he would have received if he would have continued to be employed during the notice period.  

This case has been appealed and will be worth watching further because it addresses a fundamental principle of damages that would apply to life insurance coverage and some other benefits and that has not been clearly determined before. If there is any concern that an employee may possibly become disabled after termination during a reasonable notice period, then employers should consider arranging replacement disability coverage for the employee or be prepared to pay very large damage awards.