Saskatchewan Court of Appeal Upholds $1.2 Million Award for Loss of Disability Benefits

Earlier this month, the Saskatchewan Court of Appeal decided the case of Saskatchewan Indian Gaming Authority Inc. v. Pasap, where the plaintiff was awarded over $1.25 million in a wrongful dismissal action. The Court mostly upheld the award, aside from correcting an arithmetical issue that, in the scheme of the claim, works out to be basically a rounding error.

This eye-popping award is an example of the risks associated with termination of disability benefits. Which is complicated, because most disability policies don't allow continuation after dismissal.

And while it's fairly normal for the 'usual suspects' to write about this type of case - like Barry Fisher, Cassels, or...well, me - this is a big enough outcome to garner attention from mainstream media outlets like CBC.

Background

Mr. Pasap worked as Facilities Manager of Bear Claw Casino, where he had worked continuously for almost 5 years, until his employment came to an end under contentious circumstances in 2012.

The employer, SIGA, took the position that Mr. Pasap had resigned, and was unsuccessful in doing so. The trial judge concluded that Mr. Pasap had been dismissed, and was entitled to reasonable notice in the amount of eight months - roughly $50,000 worth of salary and benefits.

However, four months after the dismissal, Mr. Pasap suffered a catastrophic medical event. The trial judge concluded that he was totally disabled, and would most likely continue to be totally disabled for the rest of his working life, awarding the value of benefits, on a discounted basis, until his 65th birthday (in 2039), for a total of over $1.2M.

(Note: It's handled a little differently in this case because of the tax treatments specific to Mr. Pasap and SIGA, but in a typical case, we'd probably be talking about a tax 'gross-up', which would substantially add to an employer's liabilities.)

The Appeal

SIGA's appeal raised a number of grounds, including interpretation of the disability policy: Basically, arguing that the trial judge erred in finding that Mr. Pasap was totally disabled within the meaning of the policy. A dissenting judge accepted that argument, but the majority rejected it.

There's some interesting discussion about the standard of review on the interpretation of the policy, but this is ultimately a factual issue: There's no real controversy about the basic legal logic that, if Mr. Pasap would have qualified for disability benefits (but for his dismissal and the termination of his benefits), his employer is on the hook for those benefits.

Implications

The important takeaway for employers is this: When you dismiss an employee without notice and terminate their disability (and other benefit) coverage, until and unless you get the employee to sign a full and final release, you are effectively self-insuring that employee against disability and other benefit claims that may arise.

It's not the first time this has happened. Back in 2011, in Brito v. Canac Kitchens, one of Justice Echlin's last reported decisions (maybe his very last?), the employee developed laryngeal cancer during his reasonable notice period, and the employer was ordered to pay a ~$200k award in relation to his lost disability coverage.

Anecdotally, I've also heard reliably about at least one Alberta case where a similar event occurred, and the employer ended up suing its lawyers for failing to warn of this risk. I can say, for my part, that for the years that I was in private practice, I advised many employers of the risks of this type of event, and many employees that signing a full and final release meant giving up this type of contingent claim.

It was often a risk that parties were willing to take, though employers did tend to chafe at the idea of "self-insuring" their dismissed employees. The problem is this: There aren't a lot of options to insure this type of risk, and not a lot of information about those options.

But the magnitude of this award, in an otherwise run-of-the-mill scenario, should get the attention of employers. This wasn't an executive, or a person with an LTIP that gave him an equity stake in the business. Typically, when we're talking about 7 digits in a wrongful dismissal file, we're talking about stock options. Those are rare, and you know they're there when you're dismissing the person. This was a front-line manager making a 5-digit salary for a 5-year period, and a sudden and completely unpredictable medical event changed the scale of the claim by orders of magnitude.

The employer was initially quibbling over something like $50k in wrongful dismissal entitlements, and ended up having to pay a million and a quarter. For many small and midsize businesses, that kind of risk is existential. It's a rare event, but if it happens in your case, it's going to be catastrophic.

What Can You Do About It?

This is the hard part. There are organizations that sometimes offer transitional disability coverage for this type of scenario. But not many. I don't know much about those options, and when I was in private practice, that was a source of frustration for me, that there's so little information about those options and who offers them that it was difficult for me to advise my clients - on both sides of the fence - how to best protect their interests.

Employers are looking for ways to address risks associated with the termination of benefits. Getting a full and final release is great, but that's not going to be for every case. (If you want to take a 'just cause' position, for example, you aren't going to want to pay for that release. If the employee is taking an unreasonable posture, you may not be able to settle.) Looking into options to unilaterally purchase coverage for that risk may be appropriate. In some cases, working notice can be a way of minimizing these risks.

In the meantime, some employees are concerned about the potential magnitude of rights they could be signing away in a release: Wait, if I get hit by a truck the day when I'm on my way to the lawyer's office to sign the release, my employer is on the hook for my disability benefits; but if I get hit by a truck the  day after I sign it, I get nothing?

In practice, most wrongful dismissal settlements treat this issue as a risk, and not a particularly great one. Employers won't put a lot more money on the table just because they're worried about this scenario, and employees won't generally put too much emphasis on this kind of "what if" in negotiations. But with more awareness of the magnitude of the risk they're distributing, I wonder if there will be more appetite to involve third party insurers for this risk, and ultimately build the cost of that insurance into the settlement.

*****

The author is an in-house lawyer in Alberta. Views are the author's alone. This article does not contain legal advice, but general legal information. If you have a legal issue, consult a lawyer.