Employer paid $200k to sick employee after termination

As previously discussed in the articles on our site, employers have significant obligations to their employees and can be held liable if they do not respect them. However, a review of ongoing cases before the courts demonstrates that employers don’t seem to get it.

I’ve written about the importance of a written employment contract. Written contracts provide everyone with clarity, and everyone knows their respective obligations. The parties, rather than the courts, get to decide how the employment relationship starts, operates and ends. Yet, surprisingly, employers neglect this very important aspect of their business.

Notice Periods

I’ve written about this before, but as a refresher, when an employer terminates an employee without cause, the employer must give the employee reasonable notice of such termination. Unless a written contract stipulates that the notice period is limited to the notice periods outlined in the Employment Standards Code, the common law notice period applies.

Judges decide common law. Every judicial decision is based on principles established in previous similar decisions. This collection of decisions establishes factors such as age, education, and responsibility within the organization that affect the employer’s notice.

Example

If a person is young, well educated, and has limited seniority, then employers have a lesser obligation because that person is presumably employable. Conversely, if an employee is old, not well educated, and worked for 30 years, then finding new comparable employment might be difficult. So, following this reasoning (which courts do), employees will need more time to find employment.

While each case is different, an employer bound by common law principles will be on the hook for two to four weeks’ notice for every year of service (under exceptional circumstances, longer periods may apply). An employee with ten years of service should receive anywhere from 20 to 40 weeks notice. If an employer wants that employee to leave before the notice period ends, the employer must pay wages instead of notice.

Employers might not like it, but that’s how it works. So, as my troop sergeant used to tell me, “get over it”.

Benefits

If employers offer benefits, they must continue offering those benefits to employees while working out their notice period. An employer cannot change employee working conditions, wages or benefits without incurring liability.

If an employer pays an employee wages in lieu of notice, the employer must also provide benefit coverage to the employee for the notice period. So, in addition to paying out wages, an employer must also continue to pay for the terminated employee’s benefits for the full period (yes, even though the employee has already left).

Case

In Brito v Canac Kitchens, Canac Kitchens terminated Mr. Brito as a result of restructuring. They provided him with a severance package based on the statutory minimum, which under Ontario law was 31.79 weeks (which is significantly more generous than the eight weeks imposed by Manitoba law). He was 63 and had worked for the company for 24 years. The parties had not signed an employment agreement.

In his decision, Justice Echlin quickly dealt with the insufficient notice period and awarded Mr. Brito, 22 months of notice, which amounted to approx. $53,000 in further wages in lieu of notice.

Unfortunately for both parties, Mr Brito became sick with cancer during the court’s new notice period. Canac did not continue Mr. Brito’s benefits. While Mr Brito had found work with a competitor, his new employer did not provide benefits.

Justice Echlin found that Canac was liable. Had Canac provided him with proper notice (22 months), Mr. Brito would have been working when he was diagnosed and would have received long-term disability. Because the insurance had lapsed, Canac was responsible for paying those benefits, which amounted to approximately $200,000.00.

Conclusion

Most small businesses and many medium-sized businesses could not afford this level of compensation. Add Canac’s legal fees to the mix (Canac also appealed and lost), and the total cost to Canac probably amounts to over $350,000.00.

The owners and managers at Canac could have saved themselves significant aggravation and costs by simply understanding their obligation to Mr. Brito. Unless a written contract stipulates otherwise, an employer must provide reasonable notice. In this case, the judge imposed 22 months. Canac could have easily consulted with a lawyer or HR specialist to determine a reasonable period.

Rather, they simply stuck to the minimum imposed by statute. In my view, this demonstrates a complete failure on the company’s behalf. Perhaps the company felt litigation would minimize its costs. Mr. Brito was only one case. I understand from reading the case that others had also initiated lawsuits.

Regardless, in the end, employee termination costs are not optional. An employer will either pay for litigation or proper notice. One way or another, when restructuring, a company must consider the impact of these costs.

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Disclaimer – Legalese

This article is presented for informational purposes only. The content does not constitute legal advice or solicitation and does not create a solicitor-client relationship (this means that I am not your lawyer until we both agree that I am). If you are seeking advice on specific matters, please contact Philippe Richer at 204.925.1900. We cannot consider any unsolicited information sent to the author as solicitor-client privileged (this means confidential).

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