Saturday, March 30, 2002

DISABILITY DISMISSALS:A Legal Minefield
Employees on disability leave pose unique operational and legal challenges for employers. The decision to terminate the employment of a worker with a medical condition or alternatively, one who is on sick leave is, as one authorr recently described it "fraught with peril".

Generally speaking in the absence of cause an employer who wishes to dismiss an employee must be prepared to give the employee reasonable notice of his/her termination of employment or payment in lieu thereof. This is to provide the departing employee with the protection of continued remuneration while they seek to replace the job they lost. In structuring a severance package, by law an employer must provide the employee with not only salary but also the continued benefit coverage throughout the notice period.

MEDICAL QUAGMIRES

An employee with medical problems requires special attention in the negotiation of a severance package. In the face of a medical condition it is particularly important to address such issues as the continuation of life, disability and major medical plans. As a general principle if an employer is not able to continue all fringe benefits during the period of reasonable notice the employer may be held accountable. It is therefore critical in these instances to negotiate a severance package acceptable to the employee in exchange for a release that includes any claim for potential disability.

The situation presented by the employee on sick leave is even more difficult for the employer who wishes to consider terminating that individual's employment. Arguably an employee on sick leave may not be able to conduct a meaningful job search and as such employers cannot give effective notice or payment in lieu of notice.

In addition several recent court decisions would indicate that employers need to tread very carefully when considering dismissing employees who are on sick leave.

Despite a 1989 Supreme Court of Canada decision ruling that damages for mental distress and punitive damages were not generally available in wrongful dismissal actions, Ontario courts have shown and increased willingness to order such damages, particularly in cases involving employees on disability leave.

In a recent court case a judge ordered a courier company to pay a former employee $6,000.00 in damages for mental distress in addition to damages for wrongful dismissal. The courier company made the mistake of telling a long term employee over the telephone that her job was no longer available. The employee at the time was on leave for a stress related illness. The judge felt that damages for mental distress were appropriate and necessary to compensate the employee for the intangible injuries such as distress and humiliation caused by the employer's behaviour.

HUMAN RIGHTS ISSUES

Employers must also consider the potential human rights element. Both provincial and federal law prohibits discrimination in employment matters on the basis of certain factors including disability or handicap. These definitions have been interpreted liberally to include alcoholism and substance abuse
The situation can become even more delicate if an employer wishes to dismiss the employee on sick leave for prior performance related problems. In an Ontario Human Rights case an employee who was terminated for absenteeism after she returned from 6 months disability leave for cancer treatment was awarded six months wages. Prior to going on disability leave the employee had a poor attendance record. When she returned from disability leave she was warned that she would be dismissed if her attendance did not improve to a level of the average employee. She was eventually dismissed. The Board of Inquiry found that the employer's motives were tainted and she had been discriminated against on the basis of her disability.

This result could have been avoided had the employer dealt with the performance related problem of absenteeism promptly.

In order to avoid the nightmares of potential litigation and investigation under a Human Rights complaint employers should, if possible, avoid making any decisions regarding the employee on disability leave until they have returned to work and thereafter proceed with caution.

By Melanie Reist
posted @ 10:57 AM EST [link]

LEARNING THE HARD WAY: LESSONS IN BANK ETIQUETTE
Ontario Courts have not been particularly friendly places for banks these days. Two recent cases have penalized banks for failing to give reasonable notice to their customers when demanding repayment of loans.

The relationship between a bank and its customer is governed primarily by the law of contracts which requires banks to give their customers reasonable notice of the demand for repayment.

A previous owner of a local real estate company was able to recover significant damages after his bank cut off his line of credit, resulting in cheques being dishonoured which ultimately lead to a failed agreement to sell his business.

After a reasonably harmonious two year banking relationship a new branch manager arrived. For the first time in or around the end of July 1990 the bank required a $50,000.00 equity injection into the account by August 31, 1990. The owner met with bank representatives to advise of a letter of intention to purchase his business and asked that the further infusion be postponed from August 31 to October 1, the date of closing.

While on vacation in the middle of August, the bank without notice proceeded to dishonour the company's cheques.

The Judge found that the bank had failed to give reasonable notice and as a resulting in the owner being forced to sell his business at a significantly reduced purchase price. The judge ordered the bank to pay damages of $344,000.00.

The Judge took into consideration the businesses past dealings with the bank's overdraft and credit facilities and found that the owner could not have anticipated the sudden termination of his overdraft privileges while on vacation.

Many banks have undergone significant reorganization which has resulted in swift and numerous personnel changes. Banks need to closely monitor how changes in personnel effects business practices and styles. If trouble shooters are brought in to get tough on poor performing accounts, changes in the bank's expectations must be clearly communicated to the customer and sufficient time provided to meet those expectations.

Traditionally the amount of damages a customer could recover for a bank's failure to give reasonable notice was limited to those losses that were reasonably foreseeable at the time the contract was formed (as opposed to when the breach is committed).

This principle was successfully challenged in the court case of Murano v. Bank of Montreal.

Mr. Murano was a successful entrepreneur whose companies owned Bandito Video stores in the Waterloo Region and throughout other cities in Ontario. The Bank, concerned about its security, demanded an immediate repayment of approximately $275,000.00 in demand loans made to two of Mr. Murano's companies. The next day, the Bank installed a receiver at two retail locations in Waterloo Region. At the time that the loan was called, Mr. Murano was in the middle of undertaking a major expansion of his business and had arranged financing with other institutional and individuals investors .

The Bank added insult to injury by telling other lenders that Mr. Murano was dishonest and in desperate financial circumstances.

As a result of the Bank's actions, the other investors lost confidence and cancelled the financing arrangements and in some circumstances demanded repayment of unrelated loans.

The Judge in this case found that all of the losses, including the lost profits from proceeding with the expansion were triggered by the Bank's conduct which had a ripple effect on all of Mr. Murano's businesses.

What makes this case most important to business people is that for the first time damages were assessed, not on the basis of what was foreseeable at the time that the initial banking relationship was established, but rather, what losses were foreseeable at or around the date that the Bank breached its contract.

As a result of this approach, Mr. Murano was not only able to recover losses for the companies that dealt with the Bank, but also business losses suffered by his other companies which were not Bank clients.

These two cases send a message to lending institutions that they must not be too quick to protect their own interests and ignore their contractual obligation to communicate with their customers. Failure to do so may cost more than it used to.

By Melanie Reist
posted @ 10:57 AM EST [link]

Copyright © Charles Morrison & Melanie Reist 2002 All rights reserved.

 

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