Disability Benefits and Dismissal Following a Genuine Restructuring

A genuine business reason for eliminating a position does not necessarily answer a human rights complaint concerning the termination of disability benefits.

In O’Grady v. Bell Canada, 2026 FCA 162, decided September 29, 2026, the unanimous Federal Court of Appeal distinguished the legitimate elimination of an employee’s position from the premature termination of her disability benefits and rehabilitation arrangements.

The decision complements Sharma v. Best Buy Canada (No. 2), 2026 BCHRT 173, discussed in Corporate Restructuring and Human Rights Liability.

Sharma concerned the consideration of alternative employment for a disabled employee whose position had been eliminated. O’Grady addresses the distinct issue of ending disability protections before the employee had completed the medically contemplated transition back to work.

The Facts

Kathleen O’Grady ceased working in June 2006 because of a mental health disability. She received disability benefits and participated in rehabilitation and return-to-work planning arranged through Bell.

In August 2008, Bell eliminated her managerial position as part of a restructuring affecting approximately 2,500 employees. The Tribunal accepted that her disability was not the reason for eliminating the position.

Meanwhile, medical evidence supported a progressive return to work. Bell’s disability management process contemplated a supported return rather than an immediate resumption of full-time duties.

Before that process began, Bell required O’Grady to attend a meeting on April 20, 2009. She believed the meeting would address her return-to-work arrangements. Instead, Bell terminated her employment and immediately discontinued disability coverage. It provided salary continuance until October 27, 2009.

O’Grady experienced a relapse following the meeting and alleged that she remained totally disabled. When she asked whether further medical documentation could be submitted to maintain disability coverage, Bell advised that her eligibility had ended with her employment.

The Tribunal’s Narrow Approach

The Tribunal approached the complaint principally by asking whether Bell selected O’Grady for termination because of her disability.

Having accepted that the restructuring was genuine and did not target her because of disability, it found no prima facie discrimination. The Federal Court upheld that conclusion.

The Court of Appeal held that this approach failed to address a central aspect of the complaint.

O’Grady challenged more than the reason for eliminating her position. She also challenged Bell’s decision to end disability protections while she remained disabled and still required a supported return to work.

The legitimate restructuring explanation did not resolve that separate issue.

Anticipated Recovery Is Not Actual Recovery

The distinction between being medically capable of attempting a graduated return and having recovered sufficiently to resume ordinary employment was central to the Court’s reasoning.

Bell treated O’Grady as though she had already recovered and left the disability regime. As the Court stated at paragraph 69:

Essentially, Bell collapsed the distinction between anticipated recovery and actual recovery.

She still required several weeks of progressive return before she could resume full-time work. Bell instead ended both her participation in rehabilitation and her disability-related benefits.

At paragraph 77, the Court concluded that the loss of ongoing disability coverage following her relapse was not offset by a few months of salary continuance.

Applying the ordinary consequences of termination to her in these circumstances established prima facie adverse-impact discrimination.

Business Justification and Accommodation

The Court distinguished the initial discrimination analysis from the employer’s justification defence.

Whether Bell had legitimate reasons for restructuring, whether postponing termination would have caused undue hardship, and whether accommodation was ultimately possible were matters for the justification stage.

They did not dispose of the threshold question of whether disability was a factor in the adverse treatment.

An employer may therefore have a legitimate reason for eliminating a position while still being required to justify its treatment of the disabled employee who occupied it.

The Relationship With Sharma

The related decision in Sharma illustrates another way in which a genuine restructuring may leave human rights obligations unresolved.

Best Buy eliminated Sharma’s position during an accommodation process involving his physical disability. The Tribunal examined whether reasonable alternatives, including a lower-level position, should have been considered before ending his employment.

As discussed in Corporate Restructuring and Human Rights Liability, the disappearance of his existing position did not itself establish that his employment had to end.

The focus in O’Grady was different. The Court accepted the non-discriminatory elimination of her position. Its concern was that Bell ended disability coverage and rehabilitation arrangements before the supported return to work had occurred.

The decisions consequently address complementary questions:

• Sharma: Could the employee reasonably remain employed in another available role?
• O’Grady: Did the employer prematurely end disability-related protections by treating the employee as recovered before she was?

The procedural outcomes also differ. Sharma resulted in a finding of discrimination and an award of remedies. In O’Grady, the Court established prima facie discrimination but left Bell’s justification defence and any remedies for the Tribunal.

The existing discussion of Sharma notes Best Buy’s publicly announced reconsideration application.

The Limits of O’Grady

The decision does not establish that every dismissal during disability leave is discriminatory.

Paragraph 64 expressly recognizes that termination during disability, without more, does not establish prima facie discrimination.

The additional circumstances in O’Grady were critical: continuing disability, an accepted need for a graduated return, and the termination of disability benefits and rehabilitation arrangements before that return occurred.

Nor did the Court finally determine Bell’s liability or award damages.

It substituted a finding of prima facie discrimination and returned the complaint to a differently constituted Tribunal to determine whether Bell could establish its bona fide occupational requirement defence and accommodation to undue hardship.

If that defence fails, the Tribunal must determine the appropriate remedies.

The Court observed that the defence appeared difficult on these facts, but left the necessary findings to the Tribunal.

Disability Benefits and Employment Law Damages

Paragraphs 65–66 also address the relationship between employment law and human rights protection.

The Court recognized that ending disability coverage may expose an employer to employment-law damages for lost benefits. That potential remedy does not foreclose a separate finding of discrimination under human rights legislation.

The same conduct may therefore engage both contractual and human rights protection. The decision does not determine O’Grady’s ultimate recovery.

A Prolonged Process

O’Grady filed her human rights complaint in October 2010. By the time of the appeal, the matter had passed repeatedly through the Commission, Tribunal and courts.

That history influenced the remedy.

Rather than require another determination of prima facie discrimination, the Court decided that issue itself. Only Bell’s defence and any resulting remedies remain for the Tribunal.

Practical Significance

O’Grady requires separate consideration of the decision to eliminate a position and the consequences imposed on its disabled occupant.

A genuine redundancy does not, by itself, justify prematurely ending disability protections. Employers must assess the employee’s actual medical and rehabilitation status rather than equate a proposed graduated return with completed recovery.

Read alongside Sharma, the decision demonstrates why a restructuring analysis must extend beyond whether the employee’s former position legitimately disappeared. Depending on the circumstances, the employer must also address reasonable employment alternatives, continuing disability protections and accommodation to the point of undue hardship.