Receiving Disability Benefits? is your Job at Risk?

A senior management employee suffers from severe depression and has to take time off work. She applies for long-term disability (“LTD”) benefits under her employer’s group insurance policy. She receives LTD benefits. After two years, her employer gets tired of waiting for her to come back to work, and fires her.

Another scenario: the same employee applies for LTD but the insurer refuses to pay. The employer takes the position that she is not disabled, and insists that she report to work in 30 days.

I see these scenarios in my practice all the time. They raise a number of questions about the interface between disability and employment law. Subject to the specific terms and provisions set out in the insurance policy, employment contract and/or collective agreement, the answers to these questions are determined by a number of guiding principles, summarized below.

If you are disabled or ill and unable to work, can your employer terminate you after a certain period of time?

Human rights legislation dictates that employees cannot be terminated or treated differently due to a disability without the employer first taking steps to accommodate that disability, accommodation will often include giving the employee a period of sick leave so as to give them time to recover.

Keeping the employment relationship alive during this period has implications for both the employee and employer. So long as you remain an employee, you are also entitled to many of the benefits that flow from that employment. For most individuals on disability, this means that they will continue to be covered by the employer’s benefits package – medical, dental, pension etc. It also means that if they contemplate a return to work in the future, their job should be waiting for them. From the employer’s perspective, this can be costly, with respect to maintaining benefits, keeping (for all practical purposes) an absent employee “on the books”, and putting a replacement employee in an uncertain position. Is the employer required to preserve the employment relationship indefinitely?

Like any other contract, an employment contract can come to an end if it is “frustrated.” In the disability context, frustration of contract will be established where it is beyond dispute that the employee will be unable to return to his or her job in the foreseeable future. This is a difficult test to meet and will depend on several factors, such as:

The medical evidence, such as the nature of the disability, how long it has lasted and the degree of incapacity it creates. Has the disability been ongoing for many years with no signs of abatement? Are treatments or surgeries anticipated in the future that may make it possible for the employee to return to work? Every situation is different, but the caselaw has held that even disability periods of 3 years may not be sufficient to establish frustration of contract without some evidence that the employee will not be able to return to work in the foreseeable future.

The nature of the employment – does the person occupy a unique or key position in the employer’s business, or, is s/he one of many in the same category? In the latter scenario, it is much easier to keep the employment relationship preserved than in the former, where a permanent replacement is usually necessary.

The length of the employment relationship – courts are less likely to find that the contract has been frustrated by an employee’s disability where the parties have had a longstanding relationship of many years.

Subject to frustration of contract, however, an employee cannot be fired for being unable to work due to disability or illness.

If you have been away from work due to a disability or illness, regular communication with your employer is ideal. You should consider keeping your employer apprised of your condition on a regular basis. It is your physician and other health care professionals who will be able to shed light on when you can be expected to improve and when, if at all, you can anticipate being able to return to your job. Keep in mind that you do have a right to privacy, and as such your employer does not have a right to know the details of your illness. Rather, the employer is entitled to know your prognosis, when you can be expected to return to work, and any accommodations that may be needed when you do so.

I have applied for LTD but the insurance company has denied the claim. Can my employer force me to return to work, and fire me if I do not return?

The short answer to this question is no.

If the insurance company has denied your LTD application, you have appeal rights. In other words, you can dispute their denial and submit more medical information to the insurance company, such as a detailed report from your doctor indicating why you cannot work. If the matter does not resolve, you may also choose to consult with a lawyer and ultimately start a court action for payment of these benefits. If you are denied LTD, then the insurance company has usually advised your employer about that decision. If you decide to challenge the insurance company’s decision, then let your employer know right away that you intend to appeal.

Keep in mind that the decision to deny or terminate your LTD claim is usually an administrative decision by an employee of the insurance company, rather than a medical one, although some insurance companies do have a roster of medical professionals and will from time to time ask them to provide a paper review of a disability claim file. The fact that you have been denied LTD benefits does not mean that you are not disabled and able to work. An adjuster or insurance claims representative reviews your medical information, and then determines if you meet the criteria for disability that is set out in your insurance policy. The criteria varies from policy to policy, but generally for the first two years of disability your illness must prevent you from performing the tasks of your regular employment, and after two years you must be unable to perform any occupation for which you can or may become reasonably trained or qualified. In a best case scenario, whether you satisfy the criteria should be determined by a careful consideration of the medical information provided by your doctor as well as an analysis of the tasks of your employment. Sometimes this requires the assistance of an occupational therapist or other rehabilitation specialist. If your job is cognitively or intellectually demanding, a psycho-vocational counselor may also be of assistance, particularly if you suffer from a disability that impacts on your ability to concentrate, analyze, retain information and communicate with colleagues and clients. If your doctor or other health care provider maintains that you are unable to perform these tasks because of your illness or disability, then that means you are unable to return to work, irrespective of the insurance company’s decision. If the information provided by your doctor is insufficient for your employer and you are terminated, your option is to seek a legal opinion concerning your rights.

If you find yourself in the situation where your LTD claim is undecided and your employer wants you to come back to work, you should ask your physician to confirm to your employer that you are disabled (although your doctor need not provide details about the illness itself), your prognosis, the extent of any limitations or restrictions that your disability has imposed and if you are taking any medications that may jeopardize your ability to return to work (without divulging the names of such medications). Having the insurance company supporting your disability is not always the key to avoid a termination, rather, you should ensure that the employer has sufficient medical information about your health.

I am receiving LTD payments. Will the LTD payments cease if my employment is terminated?

Generally, if you became disabled during the time that your employment was intact, you remain entitled to apply for and receive LTD payments for any disability arising during that time and continuing after your termination.

A recent decision called Egan v. Alcatel states that if a person is fired for cause, then the employer must keep the benefits coverage alive during the notice period. In that case, the employer stopped paying the premiums for Ms. Egan’s benefits coverage on the date that she was fired. She then became disabled during the notice period. She successfully sued her employer for payment of the insurance benefits that would have been payable by the disability insurer (and to which she could no longer access due to non-payment of premiums) had the premiums continued during the notice period.

I am ill and don’t know where to start in order to get the LTD process moving. Does my employer have any obligations?

The Egan case also points to another principle underlying disability law in the employment context. Employers have a duty to act in their employees’ best interests. To this end, if the employee becomes ill and is unable to perform her job, the employer must inform the employee if group disability benefits are available, provide her with a copy of a policy or policy booklet, and assist her in applying for those benefits. Employers who make administrative errors or otherwise prejudice the disabled employee’s right to receive LTD benefits, may ultimately be responsible to pay those benefits directly to the employee.

What are my legal rights if I am fired while disabled?

Typically, if you are fired without cause, you are entitled to reasonable notice. If you are not bound by a collective agreement, then you may pursue a lawsuit for “wrongful dismissal”, if you are successful, a court will award you the salary equivalent of your notice period. The law prohibits “double recovery.” If you are awarded damages for wrongful dismissal, any LTD payments that you receive for the same period of time are deducted from those damages – in other words, keeping in mind that damages for wrongful dismissal are akin to salary, you cannot receive both LTD and damages for wrongful dismissal during the time period that represents your notice period.

The purpose of providing an employee with notice is to allow them time to find another job. In the situation of a person who is ill, they are unable to look for work. In principle, then, the notice period commences only after the disability period ends. According to this principle, there is an argument to be made that you can receive wrongful dismissal damages for a period of time that commences after your disability period is expected to end. A projected date for cessation of disability is often difficult to establish, however. How this principle will play out in the employment context is yet to be seen.