There is a misconception that individuals in Ontario simply cannot be let go from their job when they are on a long-term disability leave/benefits.
Rather, for one, generally, employers in Ontario can terminate any employee without cause for most business reasons, at any time, including when they are on long term disability.
Second, employers can terminate any employee for cause, at any time, including when they are on long term disability.
Lastly, employers can sometimes argue that an employment relationship is terminated without liability because of “frustration of contract” when an employee is on long term disability leave.
The only thing an employer cannot do is terminate an employee because, in whole or in part, of the employee’s disability. The Ontario Human Rights Code provides that every person has a right to equal treatment with respect to employment without discrimination of disability. This means that employers cannot dismiss employees for reasons at all related to a disability, disability leave or receipt of disability benefits.
Long-Term Disability Terminations Without Cause
No rule says that an employee cannot be terminated without cause while on disability leave or in receipt of long-term disability benefits.
This is a sensical rule if you examine it critically. For instance, if a company closes down a location, the company can terminate every employee at that location without cause even if one of the affected employees is on long term disability. There is no just rationale as to why an employer should have to employ someone in these circumstances just because they are on leave.
Likewise, an employer may decide to restructure its workforce, including by terminating an individual currently on disability leave, and that is perfectly lawful. The law should not dictate businesses’ personnel decisions; that should be up to the employers themselves, and so it is.
Keep in mind, when an employee is terminated without cause they should be provided reasonable notice or pay in lieu or some other amount according to their written employment contract (otherwise it is a wrongful dismissal).
Long-Term Disability Terminations For Cause
Just like how an employer can terminate an employee on disability benefits without cause, an employer can terminate disabled workers for cause.
Suppose an employer uncovers a disabled employee stole money before they went on leave. The law allows the employer to fire them later, without notice or severance, even if the employee is on disability. There is no limitation period or special shield from for-cause terminations for workers on disability leave. They are held to the same standards as every other worker in the province.
Long-Term Disability and Frustration of Contract
When someone on leave for disability has no reasonable likelihood to be able to return to work within a reasonable period, their employment contract may become “frustrated”.
The doctrine of frustration applies when someone’s disability makes the performance of their employment contract impossible and therefore the obligations of both parties are therefore discharged without penalty. The employee need not complete his duties and the employer need not employ the employee anymore.
Employers do not need to provide reasonable notice or common law severance to an employee in a frustration of contract situation. However, generally, employers still must provide minimum statutory notice and minimum statutory severance pay (where applicable) to an employee in a frustration of contract situation.
Why would employers ever terminate without cause instead of declaring frustration of contract if they can save all that money on severance? Because frustration of contract only occurs in rare cases where there is, essentially, a permanent disability with no hope for a return to work. If there is any reasonable chance of returning to work, then a termination without cause is the right avenue to end an employment relationship of a disabled worker, not frustration of contract.
What Happens to LTD Benefits if Someone is Terminated?
LTD benefits are distributed by an insurer, not the employer, pursuant to a contract with the insurer, not the employer. Therefore, terminating an employee on long term disability who is already receiving disability benefits will not affect their right to their disability benefits. To be clear: An employee who is dismissed from work while on disability leave and already receiving disability benefits can still receive benefits without any interpretation or prejudice to their future benefits.
Disabled employees who are terminated before they receive their approval for long term disability benefits should speak to an employment lawyer. The timing of the termination and the benefits application and the specific LTD policy will dictate what happens next.
Caution: Discriminatory Termination and Long-Term Disability
Even though, as I have described above, employers can generally fire employees on long term disability as they please for business or contract reasons, employers must be aware that there are serious ramifications for firing employees for disability reasons.
Full stop. Employers cannot dismiss an employee because they are disabled, on disability leave or in receipt of disability benefits. Even if the employee’s disability or leave was just 0.000001% of the reason for her dismissal, it is against the law. Even if there are legitimate business or contract reasons for a termination, a finding of discrimination may be made if the fact that the person was on leave was simply taken into account in any way. To be clear, if the employee’s disability or receipt of LTD benefits factored ever so slightly into the employer’s decision to terminate her, it is a breach of her human rights, and the employee would be entitled to damages and even the extraordinary remedy of reinstatement.
The law is very strict against discrimination and job loss. Even in cases where there is little to no evidence the employer made their decision to terminate because of the employee’s disability, the fact the decision to terminate was made close to the timing of the disability leave is enough to succeed on a human rights claim.
Thus, all employers should be careful terminating an employee who is on disability leave. While there may be legitimate business or contract reasons for the decision to terminate, the employer will have the onus employer to prove that discrimination was not a factor if a lawsuit is commenced.
Beware: The fact that the disabled person’s position had to be filled during their absence is not a valid reason to terminate an employee on disability leave. An employer is expected to fill the position temporarily. As part of Ontario’s legal regime against employment discrimination, employers must “accommodate” disabled workers, and such accommodation includes holding an employee’s job while they are on disability leave. Rarely can employers rely on an “undue hardship” defence in these circumstances.
Still, the Supreme Court of Canada has confirmed that an employer is not required to keep a position available forever: McGill University Health Centre (Montreal General Hospital) v. Syndicat des employés de l’Hôpital général de Montréal, 2007 SCC 4 (CanLII),  1 SCR 161.
As discussed above, at a certain point, the employment contract may be frustrated because the employee has not been able to return and is not likely to be able to return to employment. In McGill, the Court found that it was not discriminatory for the employer to terminate the employee’s employment after three years.
Jeff is an employment lawyer in Toronto. Jeff is a frequent lecturer on employment law and is the author of an employment law textbook and various trade journal articles.