Ontario Court of Appeal Overturns ESA Severance Exclusion for Disabled

By Yosie Saint-Cyr, Editor at HRinfodesk---Canadian Payroll and Employment Law, May 2005

On May 4, 2005, in a precedent-setting decision, the Ontario Court of Appeal overturned a provision in the Employment Standards Act that allows employers to deny severance packages to disabled workers who can no longer continue in their jobs because of an illness or injury that "frustrates" the employment contract.

The Ontario Court of Appeal stated that the provision in the Employment Standards Act (ESA) violates the Canadian Charter of Rights and Freedom, and affects a "crucially important" aspect of the dignity of disabled people by denying them equal treatment and equal compensation in employment.

Case Summary and the Law

The case involved a long-time hospital employee who injured her knee in a waterskiing accident and developed complications, including depression. Despite several attempts to return to work, she was unable to do so, and suffered several relapses. In 1998, she was terminated without severance pay for innocent absenteeism resulting from a disability. The employer relied on the old section 58(5)(c) of the Act to deny her severance pay.

The Ontario Employment Standards Act currently provides two forms of compensation for employees who are terminated: a statutory termination notice period of up to 8 weeks, and a severance payment of up to 26 weeks. Under the Employment Standards Act, any employer with a payroll of at least $2.5 million must give severance pay to a terminated employee with at least five years of service. Prior to amendments to the Employment Standards Act in 2000, section 58(5)(c) stated that an employee was not entitled to severance if he or she were dismissed during a period of absence for illness or disability so severe that the employee could no longer perform his or her contract. Although this section of the Employment Standards Act was revoked in 2000, a similar provision exists in section 9 of Regulation 288/01 dealing with Termination and Severance of Employment. Section 9 states that employees whose contract of employment has become impossible to perform are not entitled to severance when the Human Rights Act does not prohibit severing the employment - that is, when the employee is so disabled that he or she cannot be accommodated without undue hardship.

In this case, the employee’s union sued the employer on her behalf and challenged the validity and discriminatory practice stemming from the application of the ESA provision, alleging that it breached the Charter by discriminating against the employee on the grounds of disability.

At arbitration, the union argued that the nurse should have been paid severance because her employment contract was not "impossible of performance" or frustrated by her disability. It also asserted that, although she had been off work for two and a half years and no firm date had been provided for her return, the hospital should have accommodated her in a manner consistent with the Human Rights Code by offering to maintain her employment until she was capable of returning to work.

The arbitrator that originally heard her case dismissed the union’s arguments, holding that the duty to accommodate did not require the hospital to maintain the nurse's employment indefinitely. It then rejected the union's alternative submission that paragraph 58(5)(c) of the Act violated subsection 15(1) of the Charter, the equality rights provision.

However, on judicial review, the Divisional Court overturned the arbitrator’s decision and concluded that there was a Charter breach. It concluded, after reviewing the history of the severance provision, that it was clear that the purpose of severance - as opposed to termination pay - was to provide an earned benefit to long-serving employees and that it was "properly payable for any non-culpable cessation of employment".

Therefore, the Court concluded that refusing to recognize the past service of employees who have become disabled violates their sense of human dignity and, consequently, is unconstitutional and of no force and effect. The decision of the Divisional Court was only binding with respect to paragraph 58(5)(c). Section 9 of the current Regulations was not deemed automatically unconstitutional (Ontario Nurses' Association v. Mount Sinai Hospital, 2004).

The employer appealed the case to the Ontario Court of Appeal.

Ontario's Attorney General intervened to defend the Act, arguing that the legislation was not discriminatory because severance pay was meant to be 'forward-looking' - a means of compensating workers as they move ahead to find new employment. Employees unable to work because of injury or illness were unlikely candidates for returning to the workforce.

Justice Russell Juriansz, who wrote the decision on behalf of the appellate court, disagreed: "It cannot be said as a matter of logic and common sense that employees whose employment has been frustrated are not likely to work again." The court further stated that the position of the employer and government reflects "a stereotypical presumption about the adaptability, industry and commitment to the workforce of persons with disabilities severe and enduring enough to frustrate their employment. The generalization can only have the effect of perpetuating and even promoting the view that disabled individuals are less worthy of recognition and value as human beings and as members of Canadian society."

Furthermore, the court concluded that employees who cannot be accommodated to the point of undue hardship by their employer because of their disability (temporary or permanent) may still find work elsewhere, or can be retrained and acquire new skills; new devices and techniques can provide new accommodation services. For example, after being dismissed, the employee worked in the medical field for the Victorian Order of Nurses before getting another job as a home-care worker with a company that supplies respiratory patients with oxygen.

Ontario Nurses' Association v. Mount Sinai Hospital (May 4, 2005)

What Does this Mean for Employers?

The case nullifies an employer’s right to rely on a statutory exemption for liability for severance pay to a disabled employee by declaring that an employee’s employment is terminated and frustrated by a long-term illness. Employers are now required to provide the severance set out in the Employment Standards Act to eligible employees terminated because of a severe disability.

The employer may still appeal to the Supreme Court of Canada. The Ontario government has not yet stated if it will make any legislative changes to the ESA regulations.

By Yosie Saint-Cyr, Editor at HRinfodesk

Published on HRinfodesk---Canadian Payroll and Employment Law

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