Court rules deceased employee entitled to termination pay

After he died, the employer claimed his contract ended due to his death and did not pay him termination or severance pay.
After he died, the employer claimed his contract ended due to his death and did not pay him termination or severance pay. (Photo: iStock)

Is an employee entitled to severance or termination pay if he/she died while being employed?

This question was examined in a recent case that came out of the Ontario Court of Justice.

The man in question had been an employee of an engineering design firm for 17 years when he fell ill in 2013. He was diagnosed with terminal cancer and began a leave of absence in June, and died in September.

Shortly after he started his leave, his company advised him that there was an asset sale (when a business sells things within the company but not business itself) and that he should apply for long-term disability and critical illness benefits under his employment group insurance plan.

He was also told that his employment would continue until he was well enough to come back, at which point an interview would be arranged with the new employer, though it was unlikely this scenario would happen given the fatal nature of the cancer.

After he died, the employer claimed his contract ended due to his death and did not pay him termination or severance pay.

His estate sued the employer, claiming he was entitled to monetary damages besides termination and severance pay, due to the “bad faith termination.”

The judge didn’t agree that the estate was entitled to such damages but found that he was entitled to severance and termination pay.

The question in this case is whether the employment contract was frustrated or came to an end upon his death?

An employment contract is usually considered frustrated when an event occurred that couldn’t be foreseen, fundamentally changes the contract, and wasn’t the fault of either party, such as in the case of a terminal illness.

The court found that in this case, the contract was frustrated before he died, and though that means he’s not entitled to damages, he is entitled to both termination and severance pay under the employment standards act.

As this case shows, even where an employee has passed on, the employer may still be liable for termination and severance pay.

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