When an employee dies during employment or while on long-term disability leave, many people assume that severance or termination pay is no longer owed. However, the legal reality can be more complex. In some cases, an employee’s estate may still be entitled to compensation, particularly where the employment relationship was effectively terminated before the employee’s death.
If the employee was on long-term disability before their death, different legal considerations may apply. In some cases, severance may still be owed depending on whether the employment relationship had already been effectively terminated. You can learn more about this in our guide on long-term disability and severance in Ontario.
What Happens When an Employee Dies During Employment?
The end of an employment relationship is not always cut and dry. A frustration of contract occurs when the terms of an employment contract can no longer be performed. This can happen when an employee has become permanently disabled or has died.
Section 2(1)4 of Ontario Regulation 288/01, a regulation under the Employment Standards Act, 2000 (ESA), states that termination pay is not required when “an employee whose contract of employment has become impossible to perform or has been frustrated by a fortuitous or unforeseeable event or circumstance.”
As a result, an employer may argue that termination pay is not owed where the employment contract was frustrated because of the employee’s death. However, this does not necessarily end the analysis. The timing of the employee’s disability, termination, and death may affect whether compensation is still owed.
Can an Estate Still Recover Severance or Damages?
In some cases, an employee’s estate may still be able to recover damages connected to the end of the employment relationship. The key issue is often whether the employee’s rights arose before death, or whether the employment contract had already been frustrated.
In Card Estate v. John A. Robertson Mechanical Contractors (1985) Ltd., [1989] O.J. No. 1129, the court awarded damages to the estate of a deceased employee. The employee had taken time away from work for cancer surgery. After returning to work, he was placed on an unpaid leave of absence and removed from the company life insurance policy without his consent or knowledge. The employee later died, and his estate sued for wrongful dismissal and loss of benefits. Although the court denied punitive and mental distress damages, the estate was awarded 12 months’ notice and $50,000 in lost benefits.
Another important example is Wightman Estate v. 2774046 Canada Inc., [2005] B.C.J. No. 2273. In that case, the employee had worked for 28 years and was on disability leave before the company was sold and employees were terminated. He received a severance package that did not include a reasonable notice period and passed away three months later. His estate sued for wrongful dismissal. The court considered whether the employment contract had been frustrated and focused on the employee’s lengthy absence from work rather than treating death as an automatic bar to recovery.
Why Timing Matters
Timing is critical in these cases. If an employee dies suddenly while still actively employed, the employer may argue that the contract ended because of death and that statutory termination pay is not owed. However, if the employee had already been terminated, or if the employment relationship had effectively ended before death, the estate may still have a claim.
Long-term disability can make this analysis more complicated. Where an employee has been away from work for an extended period and there is medical evidence showing that they are unlikely to return, an employer may argue that the contract was frustrated. In some cases, this can affect termination pay, severance pay, and common law notice.
Long-Term Disability, Death, and Severance
Employees on long-term disability should not assume that they have no rights if their employment later ends or if they become seriously ill. In Ontario, long-term disability does not automatically remove an employee’s entitlement to severance or other compensation.
Generally, frustration of contract may arise where there is evidence that the employee will not be able to return to work. In N. v. Costco Wholesale Canada Ltd., 2010 ONSC 2651, the court considered frustration of contract in the context of a lengthy medical leave and emphasized the importance of evidence about the employee’s ability to return to work.
Key Takeaways for Employees and Families
The death of an employee does not always mean that all employment-related claims disappear. In some cases, an estate may still be able to recover compensation, particularly where the employee was terminated before death or where benefits were improperly ended.
These cases are highly fact-specific. The employee’s medical condition, disability leave, length of service, timing of termination, and available medical evidence may all affect the outcome. Families and estates should seek legal advice before assuming that no severance, notice, or damages are available.
Speak to an Employment Lawyer
If you are dealing with the death of an employee, long-term disability, severance, or frustration of contract, it is important to get legal advice. Monkhouse Law Employment Lawyers advise non-unionized employees and their families across Ontario on severance, wrongful dismissal, disability-related employment issues, and estate-related employment claims.
Contact Monkhouse Law today for a free 30-minute phone consultation.