Company terminated my position during LTD as part of downsizing

So… my company has been downsizing for a while now and finally they have decided to terminate my position.

I’ve been on LTD for a long time. The package they offered me is very very generous. It is two or three times more than the one they offered to other employees at work. I was surprised because their frugal policies are legendary. My guess they just want to part with me without a trouble because somebody on disability can cause one. I think I am going to sign it as it is more than I wished for.

My question is: Do I need a legal advice in this matter? Or is it OK to just sign it?

Any advice is appreciated.

I am inclined to suggest that the cost for a lawyer to go over it would be so cheap (few hundred bucks) it may be worth it, just for peace of mind. In fact, a lawyer should always be hired for any severance package whether there is a disability or not involved. You can bet your company had a lawyer write the deal up, and you can bet they have stuff in there that would favour them. My biggest concern would just be making sure that your LTD insurance is truly 100% seperate and non-dependent on your work. You should also check to make sure that the severance package you get won’t affect your LTD payments. Will the LTD company deduct them from your payments???

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The document seems very clever. It is said that after signing it I won’t be able to complain or sue the company or any of its affiliates. Can my insurance be their affiliate?

I heard from other employees who went to see a lawyer that our company’s documents are impeccable. They have great lawyers.

It doesn’t affect my LTD case and it is not deducted from my payments. They confirmed.

Well, I’m a roll the dice kind of guy and if it were me, and everything you said was true, then I would sign it. If you have colleagues who say they had theirs checked out by a lawyer and it is the same boilerplate document you got then there’s not much risk. Biggest risk is the severance being deducted. What I will say is that your situation is not very common. It is very rare that someon who is on LTD gets severance AND gets to keep it all. When you think about it, it makes sense - why would you get to keep the severance? Some employers actually will try and deduct your LTD payments from severance and the courts have upheld this in some cases. So if what you say is true, you may be incredibly lucky. Being laid off could be the best thing to happen to you. Here is an excerpt from a page which discusses it:

Severance Payments

In discerning whether severance payments will be deductible from LTD benefits, the wording of the policy will be paramount. Generally speaking, most LTD contracts stipulate that they are entitled to deduct money paid by the employer to the employee by way of severance. Employers, on the other hand, have tried to claim a set off for LTD payments when paying out severance packages. It is very common for employers to terminate workers that have been off for an extended period of time, with or without a severance. Plaintiffs’ lawyers running LTD actions will almost certainly be asked to provide advice on the interaction between LTD payments and severance packages.

Employers have been trying to deduct LTD payments from severance packages for a considerable period of time. The Supreme Court of Canada seemed to support their position in Sylvester v. British Columbia 8, when the employer was allowed to take credit for disability payments and deduct those payments from damages for wrongful dismissal. Justice Major found that since the disability policy was entirely funded by the employer, there was no expectation that the employee could receive both benefits. [continues on page]

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Thank you for all that information. Appreciate it.

Decided to read my LTD policy again. It says:“excluding severance payments and vacation pay”. Now I am thinking that I received a termination pay as well. It is not a severance I guess. So it means that they may deduct it from my LTD payments.

Now I am reading the information from Financial Consumer Agency of Canada

If you get your severance pay as a lump sum, your employer will deduct the income tax.
The amount of tax your employer deducts depends on the province or territory you live in and the total amount of severance pay.

So they are going to deduct around 30% income tax. Oh, great. Will I have anything left at all at the moment? Of course, I will get my taxes back next year.

Something even more interesting from the Canada Revenue Agency

When you pay an employee an amount in lieu of termination notice under the terms of an employment contract or federal, provincial or territorial employment labour standards, the amount is considered employment income, whether or not it is paid on termination of the employment.

Deduct Canada Pension Plan (CPP) contributions, employment insurance (EI) premiums, and income tax.

If the insurance doesn’t take it then the government will :laughing: It is getting better and better …

I guess I need to talk to a lawyer … :roll_eyes:

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I think severance and termination pay are the same thing? But if your policy says that you get to keep any severance pay then have your employer redo the letter to specifically offer you severance pay so there is no doubt.

I don’t think legally it is possible to mix severance and termination pay. As I mentioned above there are different deductions on them by the government.

And by law the company has to pay termination pay if they didn’t give you a notice as it is in my case.

## Written notice of termination and termination pay

Under the ESA:

  • an employer can terminate the employment of an employee who has been employed continuously for three months or more if the employer has given the employee proper written notice of termination and the notice period has expired;
  • an employer can terminate the employment of an employee without written notice or with less notice than is required if the employer pays termination pay to the employee.

Well there are three different payments that they offered me. I guess for legal and auditing purposes they have to be indicated separately on the documents.

I would at least ask the question, it’s something my employer has done for employees in the past.

Thank you for the advice. I’ll ask the HR when I talk to them next time.

(iv) Employment termination income
As mentioned above, it is important to look at the direct offset or all source limitation
provision under an insurance benefit provider’s policy to understand which sources of income
replacement received by the employee will be offset against LTD benefits. Whether termination
pay, severance pay, or amounts in lieu of notice paid by the employer will be deducted from
LTD benefits depends on the wording in the policy.
The case law has signaled that absent specific wording in the policy language, statutory
severance payments and statutory termination payments will not be deducted from disability
benefits as they are treated as compensation for past service. In other words, it is argued that both
statutory severance pay and statutory termination pay are not synonymous to salary continuation.
The Court of Appeal has considered this issue in a number of cases and has consistently
rejected the argument that statutory severance pay should be deductible from LTD benefits.
In Sills v. Children’s Aid Society of Belleville [2001] O.J. No. 1577 (C.A.), the plaintiff was
given 14.5 months working notice of termination due to an organizational restructuring. She was
promised an additional 3.4 months of statutory severance pay on termination for a total of 17.9
months. Within two months of receiving notice, she suffered a disabling depression and as a
result was unable to work during the balance of the working notice period. The employer did not
pay her any salary from when she stopped working, but she did receive STD payments from the
employer’s group insurance provider equivalent to 66 percent of her salary. She applied for LTD,
but her claim was not processed immediately. At trial, she was awarded 16 months in wrongful
dismissal damages and statutory severance pay of 3.4 months, totalling 19.4 months.
In dismissing the employer’s appeal and upholding the trial decision, the Court of Appeal
disagreed that Sylvester8
stands for the proposition that “an employer is relieved of its obligation
to pay damages for wrongful dismissal by virtue of the existence of a disability plan”

Thank you for the information.

My policy says:

The amount of Disability Benefit payable is the Benefit Amount shown in the Benefit Schedule, less any amount the Employee receives from the following sources:

v) earnings or payments from any employer, excluding severance payments and vacation pay

Nothing about termination pay. I assume it is included in “payments from employer” part and will be deducted from LTD payments.

Neverhteless I may need to consult a lawyer.

I found a post from 2019 where David said: “I always recommend caution when trying to “structure” any type of settlement or payment with view to avoiding taxes or LTD offsets”.

Did you confirm this with your LTD company or just the employer?

Confirmed what? Deductions?

The employer said that only federal tax will be deducted and no CPP or EI.

Not sure if I can talk to my insurer about it yet. It is not signed.

The only thing I would need to know now if termination pay is deducted from LTD and whether the terms and conditions of this document will impact my LTD. For that I probably need a consult with a lawyer.

As I understand correctly termination pay and a severance would be classified as two different things on a document. If they exclude severence pay it probably doesn’t mean they exclude termination pay as well.

Hi Elaine,

We typically advise that you have these severance packages reviewed as the wording of severance agreement can have an effect on your LTD. It will depend on the terms of severance, it doesn’t disqualify the LTD per se, but wording of any release or payments of severance will affect LTD benefits.

In some cases they can even affect your ability to appeal your LTD claim if cut off in the future. You can reach out to me if you have any questions!


Thank you Jen!

I’ve already forwarded the documents to David for a review.

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My only question is, will LTD claw it all back …!

Depends on your policy but they probably don’t.