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Recent Ruling Confirms Severance Pay Entitlement for Disabled Employees

DATE

May 20, 2005

EXPERTISE

Employment and Labour

In March 2004 we told you about a decision of the Ontario Divisional Court in Ontario Nurses' Association v. Mount Sinai Hospital.[1] On May 4, 2005 the Court of Appeal unanimously affirmed the Ontario Nurses' Association's position that employers may not avoid statutory severance pay in circumstances where the employee becomes unable to attend work due to disability, more commonly known as an event of "frustration" of contract.

In the Mount Sinai case, an employee was declared totally disabled and was therefore receiving long-term disability benefits. The Hospital terminated her employment. Relying on subsection 58(5)(c) of the former Employment Standards Act[2] (ESA), the Hospital refused to pay the employee severance pay upon termination on the grounds that the employment contract had become impossible to perform or "frustrated" as a result of her disability. Finding that this provision deprived the employee of a benefit of employment as a result of a severe disability, the Divisional Court held that subsection 58(5)(c) of the former ESA violated the equality guarantees in subsection 15(1) of the Canadian Charter of Rights and Freedoms and was therefore unconstitutional. A provision similar to subsection 58(5)(c) appears in section 9 of Ontario Regulation 288/01 under the current legislation, the Employment Standards Act, 2000 (ESA 2000).[3]

The Court of Appeal agreed and upheld the decision of the Divisional Court.[4] The Court concluded that the exclusion of employees with long-term disabilities from severance pay under subsection 58(5)(c) of the former ESA constitutes discriminatory treatment under subsection 15(1) of the Charter. In making its decision, the Court reviewed the purpose of severance pay under the ESA, holding that even if the dominant purpose of severance pay was compensation for capital losses, the fact that the exclusion is inconsistent with other purposes of severance pay (i.e., that it is an earned benefit recognizing an employee's past contribution) would have been sufficient to ground a section 15 breach. Ultimately, the Court of Appeal held that subsection 58(5)(c) of the former ESA was unconstitutional because it denied disabled employees an employment benefit to which they would have been entitled but for their disability.

As we indicated in our March 2004 newsletter, it is very likely that the Court's decision will also apply to the comparable provision under the ESA 2000. While this decision should not preclude the termination of an employee for innocent absenteeism, it does prohibit the employer from refusing to pay statutory severance pay and therefore adds a significant cost consideration to otherwise routine employment terminations.

The purpose of this document is to provide information as to developments in the law. It does not contain a full analysis of the law nor does it constitute an opinion of Ogilvy Renault or any member of the Firm on the points of law discussed.

[1]. [2005] O.J. No. 1739 (Ont. C.A.)

[2]. R.S.O. 1990, c. E.14

[3]. S.O. 2000, c. 41

[4]. [2004] O.J. No. 162 (Ont. Gen. Div.)

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