INDUCEMENT AND DISABILITY BENEFITS

The case of Mary Egan against her former employer, Alcatel Canada Inc., touched on two (2) important issues, namely (i) inducement, and (ii) the interrelationship between entitlement to damages for wrongful dismissal and disability benefits.

Ms. Egan worked with Bell Canada for 20 years before joining Alcatel in October 2000. Ms. Egan was terminated in July 2002 less than 21 months after joining Alcatel in a senior managerial position. The first issue addressed by the Court was whether Ms. Egan had been induced/enticed to join Alcatel and if so, the effect such enticement would have on the notice period.

The Court found that Ms. Egan had in fact been enticed and included that as a factor in concluding that a nine (9) month notice period was appropriate. The Ontario Court of Appeal upheld the Trial Court’s decision that there had been an enticement (over and above the normal representations during the interview process) and that such inducements were a factor, among many, used to determine appropriate notice. The Court of Appeal also cited with approval a Supreme Court of Canada’s decision which stated in part, that “the significance of the inducement will vary with the circumstances of the particular case and its effect, if any, on the notice period is best left to the discretion of the Judge”. In this case, the Court of Appeal did not believe it appropriate to alter the trial Judge’s determination that appropriate notice was nine (9) months.

However, there was an added twist to Ms. Egan’s case. By October 2002 (approximately three months after termination), Ms. Egan became disabled and remained so until October 2003. While employed, Ms. Egan was entitled to short-term and long-term disability benefits. The policy of insurance between Alcatel and the disability insurer permitted Alcatel to determine when benefits cease. Alcatel chose to continue disability benefit coverage after eight (8) weeks, commensurate with the notice period under the Employment Standards Act. By the time Ms. Egan was disabled, short-term disability and long-term disability coverage had been cancelled by Alcatel. The issue addressed by the Court was whether Ms. Egan was entitled to the monies worth of disability benefits from Alcatel, and if so, how this would impact on the award of nine (9) months notice. The trial Judge ruled that had Alcatel provided Ms. Egan with reasonable notice, she would have qualified for disability benefits which should have continued to October 2003. However, the trial Judge held that the award of nine (9) months “would leave Ms. Egan “whole”.

Ms. Egan appealed the decision stating that she should be entitled to reasonable notice in addition to the monetary loss of disability benefits.

The Ontario Court of Appeal held that Ms. Egan was not entitled to both disability benefits and notice. However, the Court stated that Ms. Egan was entitled to be made whole, meaning she should be compensated for the full duration of her disability (and not limited to the nine (9) month notice period) and that she should be paid on a non-taxable basis, given that disability payments were non-taxable. It should be noted that there are other Court of Appeal decisions which state that an employee is entitled to receive both disability benefits and notice. This case was out of the norm given that the payment of notice and disability benefits came from the same party (Alcatel) whereas payments usually come from two payors, (i) the disability insurer; and (ii) the employer. This fact likely had an impact on the decision not to award both payments.

The interrelationship between notice and disability claims is a complicated issue and should be addressed by counsel. An employee faced with similar circumstances or any other legal issue is well advised to seek legal advice.