November 29, 2005

Until recently it has been standard practice in Ontario for employers not to pay Severance Pay when a disabled employee was terminated because his or her disability made it impossible to do the job. In a decision dated May 4, 2005 the Ontario Court of Appeal concluded that employers are now required to pay Severance Pay to employees whose employment has been frustrated due to illness or injury.

The Employment Standards Act (the ESA ) requires certain employers to pay Severance Pay when terminating employees and certain conditions are met. The ESA does however, provided certain exemptions from this requirement. Among those exemptions is section 58 (5)(c) which states that Severance Pay is not required when the employment is frustrated as a result of an “illness or injury suffered by the employee”. Previously, when an employee was absent from work, accommodation was not possible, and there was no reasonable chance of a return to work in the foreseeable future, an employer was permitted to sever the employment without paying Severance Pay.

In the decision of Re Mount Sinai Hospital and Ontario Nurses’ Association , the Ontario Court of Appeal struck down this exemption and held that the refusal to provide Severance Pay as a result of illness or injury is a violation of the Canadian Charter of Rights and Freedoms . In essence, the Court determined that severance pay is an earned right, intended to compensate employees for past service to the employer. Any failure to provide this payment to persons with long-term severe disabilities is discriminatory and a violation of the equality rights guaranteed under section 15 of the Charter . The section of the ESA that permits this exemption is therefore of no force and effect.

As a result of this decision the ESA has effectively been changed to remove the exemption from the requirement to pay Severance Pay to disabled employees. Employers must now ensure that such payments are made where applicable. Any failure to do so may be a violation of an employee’s Charter rights and the ESA .

It should be noted however, that this decision applies only to Severance Pay under the ESA. It does not extend to provide disabled employees with an entitlement to Termination Pay in lieu of notice. Employers continue to be exempt from paying Termination Pay to disabled employees under the ESA.