Disability: Insurance Benefits and Frustration of the Employment Contract

Dragone v. Riva Plumbing Ltd. – Ontario Superior Court of Justice – September 26, 2007

Employers must continue to provide an employee on disability with insurance benefits unless the employee has clearly and unequivocally resigned from their employment, the employee’s employment contract has been frustrated, or the employer provided the employee with reasonable notice that the insurance benefits would not be continued.

The Ontario Superior Court of Justice’s decision in Dragone v. Riva Plumbing Ltd. [2007] O.J. No. 3710 (“Dragone”) on September 26, 2007 indicates that an employer must continue to provide an employee who is on long term disability with insurance benefits unless it can be demonstrated that the employee has resigned, the employee’s employment contract has become frustrated, or the employer has provided notice of the change to the benefits.

In Dragone, the employee was diagnosed with metastasized breast cancer and informed her employer that she would be going on long term disability. This letter did not directly state whether the employee was resigning, but the employer believed that the employee’s cancer was terminal and she would be leaving her employment permanently. Conversation with fellow co-workers, an e-mail from the employee’s sister and the acceptance of a retirement party reinforced this belief.

One month after the employee stopped working, the employee sent a letter to her employer to confirm that the employer would still pay for the health and dental portion of her group insurance during her disability. The employer informed the employee that this would not occur. In response to this, the employee filed an application seeking a Court order requiring the employer to continue to pay for these benefits during the employee’s disability.

In rendering a decision, the Trial Judge considered three scenarios which could permit the employer to stop paying the employee’s benefits: if the employee had resigned; if the employee’s employment contract had become frustrated; or, if the employee had been given reasonable notice of a change to her benefits, thereby entitling the employer to discontinue the payments. Finding that none of these three possibilities existed given the facts of this case, the Trial Judge decided that the employer had to continue to pay the employee’s benefits.

Firstly, the employee had not permanently resigned from her employment. Although the employee had accepted the retirement party and there was communication indicating that the employee would be leaving her employment permanently, these acts all occurred while the employee was under emotional trauma in relation to her diagnosis. The Trial Judge stated that “case law establishes that words or acts of resignation said under emotional trauma, for example words said in anger or desperation, can be recanted when emotions have settled, unless the employer has acted to its detriment. In my view, that is what occurred in this case.” The employee recanted such impressions of permanent leave by writing the letter which stated otherwise one month after she went on disability.

Secondly, the Trial Judge decided that the employee’s employment contract had not been frustrated due to her illness. The Trial Judge came to this conclusion by stating, “At the present time, it cannot now be said that the contract of employment has been frustrated. Although there has been 14 months of absence from work, there is no evidence that [the employee’s] protracted absence is harmful to the [employer] and the presence of long-term disability insurance suggests, at least, that a much longer period than 14 months was anticipated before it could be said that frustration had occurred, and it is arguable that given the long-term disability arrangements, frustration may never occur.”

Thirdly, the employer had not given the employee notice of a change to the insurance benefits. Instead, the Trial Judge found that the employer “has never actually given notice that it is changing [the employee’s]…benefits. Rather, its position has been that she resigned or her contract of employment was frustrated, and therefore, she is no longer entitled to any benefits of employment… Employers may change terms of employment with reasonable notice, but that has not yet occurred in the case at bar.”

The decision in Dragone demonstrates that an employer must continue to provide an employee with insurance benefits while that employee is on long term disability. However, such a requirement can be removed if an employee clearly and unequivocally resigns from their employment, the employee’s employment contract becomes frustrated, or the employer provides the employee with notice of the change in benefits. Without one of these three acts occurring, an employer must continue to pay for the employee’s benefits while on long term disability.

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