Being Fired or Offered Severance While on Long-Term Disability in Ontario

Frustration of the employment contract

An employer may argue that an employment contract has become frustrated where, based on the circumstances and medical evidence at the relevant time, there is no reasonable likelihood of the employee returning to work within a reasonable period. The result is fact-specific.

There is no fixed period of absence that automatically ends an employment relationship through frustration. A prolonged absence may be relevant, but the medical prognosis and the surrounding employment circumstances usually matter more than the calendar alone.

Relevant considerations may include the medical prognosis, the nature of the disability, the nature and duration of the employment relationship, the duties of the position, whether a return is reasonably foreseeable, available accommodation, and the evidence concerning the employee’s capacity at the relevant time. The employer bears the burden of establishing frustration.

Approval for LTD benefits does not automatically establish frustration of the employment relationship. Termination of employment also does not automatically terminate entitlement to LTD benefits — insurance entitlement and employment status remain separate questions.

Even where an employment contract is found to have been frustrated because of illness or injury, Ontario employment standards legislation may still preserve minimum termination pay and, where the statutory requirements are met, severance pay.

Accommodation and human rights

Return-to-work and accommodation questions are separate from the insurer’s decision about LTD benefits. An insurer may take one position about work capacity while the employer has separate obligations under employment and human-rights law. Neither position should automatically be treated as deciding the other.

Disability is a protected ground in employment under the Ontario Human Rights Code. An employee who can perform the essential duties of a position with accommodation is generally entitled to accommodation up to the point of undue hardship. The Code’s undue-hardship considerations are cost, outside sources of funding, and health and safety requirements. The employer or other responding organization bears the burden of establishing undue hardship.

Accommodation is individualized and involves both procedural and substantive obligations. The employee generally needs to communicate the need for accommodation to the best of their ability, provide information reasonably related to functional restrictions or limitations, and participate in the process. The employer generally needs to consider accommodation in good faith, assess the individual circumstances, distinguish essential from non-essential duties, avoid relying on arbitrary absence cut-offs, and consider reasonable accommodation short of undue hardship. A union may also have responsibilities where applicable.

A desire to return to work does not by itself establish that the employee can perform the essential duties, with or without accommodation. The duty to accommodate does not necessarily require eliminating the essential nature of the job, creating unproductive make-work, or keeping a particular position open indefinitely regardless of prognosis and circumstances. There is no fixed absence duration after which accommodation obligations automatically end.

The accommodation analysis may change where reliable medical evidence indicates that the employee cannot perform the essential duties of the position, even with accommodation, and there is no reasonable prospect of return in the foreseeable future. The application of that principle is highly fact-specific.

Group LTD coverage is often tied to active employment or the group policy itself. When employment ends, questions can arise about whether coverage continues, ends, or can be converted or ported.

A claim already approved before termination is a different situation from one still pending. That distinction matters, but the outcome in any file is document-specific and should be reviewed from the actual policy and correspondence — not assumed from a general rule.

A severance package or release may contain language affecting insurance rights or waiving claims. That is a serious point requiring review before signing anything.

Get advice before signing a severance release while an LTD claim is active or being considered. Do not treat the employment settlement and the disability claim as the same process on the same timeline.