Human Rights: Damages: Lost Income: Disability Insurance

Common Law

A brief summary of the apparent present status of the common law is that a plaintiff is allowed to sue for lost income in a wrongful dismissal claim and maintain long term disability benefits without offset where the plaintiff has contributed directly or indirectly to the full cost of the premiums for such insurance. ¹

The origin of the possibility of such double recovery stems from the Supreme Court of Canada decision ² which stated that there was an obligation at common law that an employer must pay common law notice compensation to an employee who suffers from a medical disability, absent frustration.

Application of Double Dipping to Human Rights

This issue may arise in three different situations.

The first is the context in which the employee is disabled in receipt of LTD benefits or about to apply for such, prior to the human rights violation and independently of it.

The second circumstance is where the employer fails to accommodate to allow a return to work resulting in the income loss.

The third context is where the employer’s human rights violation causes the disability, again causing an income loss.

#1 Employee Disabled at the Time of the Violation

Take for example, an employee who was suffering emotionally from a medical disability, could not work and was in receipt of disability benefits or was about to apply for disability benefits when they were terminated for an unrelated issue, such as race. Had the termination not followed – what would have otherwise happened? They would have remained off work and collected disability benefits. Why should their recovery exceed this sum?

In the application of the “but-for” test, the employer may well submit that the sole sum to be paid, but-for the termination, would have been the disability insurance payments, which would appear to be a logical submission. If this argument is accepted, there can be no double recovery.

This very issue was reviewed in a 2008 decision of the B.C. Human Rights Tribunal. ³ The applicant had suffered a medical disability, unrelated to unfair conduct of the employer. She did receive LTD benefits.

The Tribunal concluded that there was no lost income claim as had the employer not acted unfairly, the applicant would have been unable to work and hence there could be no lost income claim. In this case, the medical issue was not caused by the unfair treatment.

This may change should the employee recover from the disability. They may then argue that had the employment not been terminated, they would have been able to return to work. The context would then shift to the second alternative.

That being said, the Tribunal did opine, in obiter, that a different result may have followed, had the employer caused the disability.

No Lost Income Due to EI & LTD

A similar, but not the same, context arose due to adverse treatment of the applicant who suffered from a debilitating liver disease. An order of reinstatement was made even when the applicant was unable to return to active employment. No order was made of lost income as it was determined that there was no income loss due to the applicant’s receipt of employment insurance benefits, presumably of the sickness genre and long term disability insurance payments. ⁴

The decision does not reflect that the submission of double recovery was made before it and hence it would be an exaggeration to suggest that this decision may enable the argument.

No LTD

Equally, the converse argument is that absent short and long term disability covers, the employee’s recovery for relief may be lie solely in the short term solace offered by the Employment Insurance Act for sick benefits. This is in the context of a pre-existing disability as set out in example 1 above.

#2 Employer Fails to Accommodate Return to Work or #3 Violation Causes the Disability

These two situations both raise the issue of a lost income claim. The failure to accommodate case will show a prospective lost income claim due to this failure.

Similarly, the termination which causes the disability resulting in unemployment will allow for the same lost income claim. It in in these contexts that the question will arise as to whether the disability insurance benefits will offset the lost income claim.

This principle was also considered by the B.C. HRT in June of 2009 ⁵  The Tribunal followed the principles of Sylvester and allowed the lost income claim without offset for LTD benefits for the period of 3 years and 10 months. This decision was the subject of an unsuccessful judicial review application and subsequent appeal on issues which were not related to the issues of lost income claim summarized above.

The January 2015 decision in Schulz v Lethbridge of the Alberta Queen’s Bench came to a contrary conclusion. These reasons concluded that reliance upon the issue of the employee’s contribution to the insurance premiums was not the correct test, but rather, the wording of the policy document, absent evidence to show a contrary intent, required the insurance benefits be offset from the claim:

The nature and the purpose of the LTD benefits in this case strongly support a deduction against the Tribunal’s award for lost wages. There is nothing on the record indicating that the parties intended otherwise, nor does a review of possible policy considerations sway the balance. The mere fact that Mr. Schulz contributed to the policy by paying the premiums is insufficient to establish contrary intent. Therefore, the damages for lost wages as awarded by the Tribunal and modified by this Court shall be reduced by the amount Mr. Schulz has received over the relevant time period in LTD benefits.

It is perplexing to understand how the wording of an insurance policy document, clearly a non-negotiable contract of adhesion, could be used to determine the mutual intent of the parties.

This decision has not been followed in any subsequent cases. It has been specifically rejected in 2019 by the Nova Scotia Human Rights Board of Inquiry in Y.Z. v Halifax, referenced below.

This issue was also considered in a 2017 decision of the Nova Scotia Board of Inquiry. ⁶ The Board stated, without reference to the Sylvester/McNamara line of cases that the lost income claim will not be reduced by the LTD sums:

A Complainant being in receipt of long-term disability insurance does not alleviate a responsible party from their obligation to pay damages. Rather, as Cromwell J. commented in IBM Canada Ltd. v. Waterman 2013 SCC 70 (CanLII), [2013] S.C.J. No. 70 (“Waterman”), at para 24, albeit in the context of whether LTD benefits should be deducted from a loss of income award, the responsible party pays the damages they owe. To the extent that triggers a repayment of LTD, that issue is dealt with separately.

The reference to the repayment question came from an argument that there may be a subrogation claim made by the insurer to recover the sums paid, which were now duplicated by the lost income award. To that issue, the Board concluded that there should be no offset, as the policy document contemplated a right of subrogation:

Because section 9(8) of the Plan reduces LTD benefits received by the Complainant by the amount of earnings recovered from the Respondent, I am not prepared to make any deduction of long-term disability benefits from the Complainant’s award of compensation for loss of income.  To do so would work a singular injustice to the Complainant, as the intent of the award of loss of income is to put her in the position that she would have been in “but for” the discrimination. I agree with the concern expressed by Commission counsel.  Should this Board make an adjustment to the amount of loss of income awarded, it would not lead to reimbursement of the Plan by the Respondent.  I have no jurisdiction to make an Order that would be binding on the Plan Administrator or the Trustees.

The complainant in Y.Z. also received LTD benefits. The policy was in evidence. It did contain a subrogation clause. The Board was concerned that a reduction in the lost income claim by the LTD sum received, would not bind the insurer and that, should it proceed with a subrogation claim, it would be doing so from a sum which had already been reduced to account for it, to the employer’s favour. For this reason, the Schulz decision was not followed.

The policy also contained a “Reduction Clause” by which the sums being paid would be reduced by the lost income sum received. It was not clear to the Board that this applies to a human rights damage award and further, that it was the employer’s onus to prove this, which it did not do.

The lost income claim was not then subject to any offset for LTD sums received.

CPP Disability Benefits

Canada Pension Plan Disability Benefits have also been determined not to be an offset from the claim for lost income in human rights. Such was the decision in 2017 by the Alberta Human Rights Tribunal. ⁷

…the CPP has consistently been determined by the Courts to be a non-indemnity plan funded in part by the participants and “so much of the same nature as contracts of insurance” that it should be excluded from consideration when assessing damages.

WSIB

A comparable, but also not identical, issue arose in a case ⁸ in which the applicant had proven that he had been treated adversely due to the failure to accommodate a medical disability.

On the issue of the lost wage claim, the employee asserted that while he had received WSIB benefits, such should not be offset from the lost income claim as they were “locked-in”.

The Tribunal decided, in the application of the “but-for test”, that had the employer provided proper accommodation and allowed the employee to return to work, his worker’s compensation benefit would have ended. Hence the denial of the WSIB offset would have bettered his circumstance and accordingly this sum reduced the lost income claim.

Of more significance is that the Tribunal allowed a lost income claim for the time period of October 2007 to November 2010. The WC benefits, received tax free, were to be deducted, after a gross up to adjust for the tax free status. The Tribunal also allowed for further economic loss for lost pension accruals, and lost sick leave. The complainant requested typical overtime compensation, which was considered and not allowed on the facts.

This decision then allows the subsequent human rights complaint following the successful WC claim and adds to the WC sum awarded, further lost income claims.

 Disability Takes Place After Termination

The plea of “but-for” to deny double recovery, as noted above, may also lead to a stream of disability income which continues for the entirety of the period of the disability as in Prince v Eaton, a common law wrongful dismissal case, as discussed elsewhere.

That is, the but-for analysis would place the applicant in a position of insured employment. They should be restored to that position for which covered insurance would follow. The damage then will be loss of disability benefits for the duration of the period of the medical disability.

Take for example, the decision in the Walsh case. ⁹ It is not apparent from the decision if there was disability insurance coverage in place at the time the medical disability arose.

If not, it was arguable that the employer was responsible for the loss of the disability coverage for the entirety of the period of the medical disability. ¹⁰Where one “but-for” event may be an application for disability benefits, then the claim should follow against the employer for the full extent of such loss.

The common law wrongful dismissal case looks to that which is reasonably foreseeable in the notice period, whereas the tribunal uses the “but-for” analysis to determine the loss. In the case of the claim for disability benefits, the two approaches are in harmony. The applications of the differing logic produce the same result. The difference between the two lies in the eligible time for the claim to arise. The common law will use a notice period. The human rights case does not. The latter will use the time to the date of the hearing and arguably beyond.

As noted, the down side to the employer is that the loss may be identified as a claim for LTD and related benefits such a medical and health insurance covers and pension accruals for the entirety of the disability period, one which is not related to the date of hearing. The employer would be prudent to keep disability covers in place as the termination of disability insurance will shift the liability unto itself. This could be a significant liability. ¹¹

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1. In the Ontario Court of Appeal decision in McNamara v Alexander Centre Industries, at trial and on appeal
2. Sylvester v BC. There is also law allowing short term disability sums to be doubly recovered, as in in Zorn-Smith v Bank of Montreal. There is some debate as to whether Sylvester has been substantively eroded by Ontario Court of Appeal in Egan v Alcatel.  The employer’s application for leave to appeal to the Supreme Court was dismissed. Egan appeared very much to contradict Sylvester. Egan was not argued in Altman v Steve’s Music which applied Sylvester and allowed double recovery. It was also allowed by the Ontario Court of Appeal in Deyonge v Liberty Mutual, which was pre-Egan.
3.  Senyk v. WFG Agency Network (No. 2)
4. This was the decision made in The Yukon Human Rights Board of Adjudication in its December 2008 decision of Hayes v Yukon College (Evans, Tkachuk and Riseborough)
5. Kerr v Boehringer Ingelheim (Parrack)
6. Wakeham v Nova Scotia
7. Horvath v Rocky View
8. Backs v City of Ottawa (Muir), a decision made in February of 2012. 
9. The Alberta Court of Appeal in Walsh v Mobil
10.   in accordance with Prince v Eaton principles as was applied by the late Mr. Justice Echlin in Brito v Canac and confirmed in the Court of Appeal.
11. The issue may not be this simple as most disability insurance requires “active employment” for coverage.