The Quebec Court of Appeal rules that disability insurance benefits should not be deducted from the indemnity in lieu of notice of termination
In a decision rendered on September 1, 2022 , the Court of Appeal ruled that disability insurance benefits received by an employee should not be deducted from the indemnity in lieu of notice of termination, even if the employer funded the insurance plan.
In this case, Ms. Girard, a manager who had been employed by the Caisse Populaire Desjardins de Saint-Raymond-Sainte-Catherine (hereinafter the “Caisse”) for nearly a year, was sent home by its new general manager. At the time of this event, on April 17, 2014, Ms. Girard had 35 years of seniority with the Desjardins Group.
Several months later and as she sank into a deep depression, Ms. Girard learned that she was being dismissed.
Ms. Girard received disability benefits for a period of 28 months and then started a new job in a different sector with much lower pay.
Before the Quebec Superior Court, Ms. Girard alleged that she had been dismissed without just and sufficient cause, abusively and unlawfully and intentionally violating her reputation, dignity and honour. She claimed an indemnity in lieu of notice of termination of 36 months, as well as substantial moral and punitive damages. Ms. Girard also claimed that the Caisse should pay her additional punitive damages for having dismissed her while she was suffering from a disability, namely depression, for which she was on leave at the time of her dismissal.
Thus, before the Superior Court, Ms. Girard claimed a total amount of $2,516,530.10.
1. The Superior Court Decision
The Superior Court first concluded that Ms. Girard’s dismissal was not for cause.
As for the determination of the indemnity in lieu of notice of termination, the Superior Court granted a 24-month indemnity, taking into account Ms. Girard’s age, her high hierarchical level, her 35 years of continuous service with Desjardins Group and the reduced employment prospects in the future. This 24-month indemnity represents a total of $234,502, taking into consideration the bonuses and salary increases that Ms. Girard would have received during this period. Since the disability insurance plan in effect provided for the cost of premiums to be shared between the employer (80%) and the employee (20%), the Court deducted from the 24-month indemnity the amount equivalent to the benefits received by Ms. Girard between February 16, 2015 (the date of her termination) and August 21, 2016 (the date the benefits ended), corresponding to the portion of the funding provided by the Caisse. Furthermore, the Caisse did not demonstrate that Ms. Girard had breached its obligation to mitigate her damages. Consequently, the Court established the amount of severance pay at $129,709.
With respect to the moral damages claimed by Ms. Girard, the Superior Court determined that the April 17, 2017 action of Ms. Girard’s manager in immediately sending her home, in a manner that was as terse as it was humiliating, was untimely, cavalier and brutal. His subsequent silence for several weeks demonstrated a complete lack of respect and empathy on his part for Ms. Girard and in so doing, the Caisse demonstrated negligence and abusive conduct. Given the facts and circumstances of this case, the Court awarded a total of $75,000 to compensate Ms. Girard for the harm done to her reputation, honour and dignity and for the trouble, stress and inconvenience caused by her wrongful and abusive dismissal. However, the Court rejected Ms. Girard’s claim for punitive damages, as the evidence did not reveal any unlawful intention on the part of the Caisse to harm Ms. Girard’s reputation or to terminate her employment because of her depression.
The Superior Court was also of the opinion that Ms. Girard had established the merits of her claim in the amount of $6,565.01 in recognition of her 35 years of service with the Desjardins Group, to which should be added the sum of $1,000 for consultation and orientation fees and the sum of $11,130.02 for accrued and unpaid vacation time at the date of her dismissal.
As a result, the Superior Court ordered the Caisse to pay Ms. Girard a total of $213,404, including $129,709 for a 24-month indemnity in lieu of notice of termination, $75,000 for non-pecuniary damages and $18,695 for certain expenses and the loss of benefits related to her employment.
2. The Court of Appeal Decision
Unsatisfied with the Superior Court’s decision, both parties, by way of appeal and cross-appeal, sought the intervention of the Court of Appeal.
The Court of Appeal first considered the length of the notice period and confirmed the decision of the Superior Court to take into account Ms. Girard’s seniority within the Desjardins Group in assessing the length of the notice period. The Court of Appeal upheld the 24-month indemnity in lieu of notice of termination, stating that, in light of all the circumstances, in particular Ms. Girard’s age (52), her 35-year career with Desjardins Group and the high hierarchical level of the position she held, a notice period of 24 months was not exaggerated, even though it may seem generous in light of the precedents submitted by the Caisse.
It is important to note that the Court of Appeal refused to confirm that 24 months would be an absolute cap in Quebec on notice periods, which in our view opens the door for the courts to consider longer notice periods in the future.
As for the bonuses and salary increases, the Court of Appeal held that they were part of Ms. Girard’s working conditions and were not purely discretionary, even though they depended on the achievement of certain objectives. Moreover, Ms. Girard’s salary was always increased under the incentive plan. Thus, the Court of Appeal rejected the Caisse’s claim that Ms. Girard was not entitled to the bonuses and salary increases provided for in her contract.
The Caisse argued before the Court of Appeal that the Superior Court erred in ordering it to pay $75,000 in non-pecuniary damages in connection with the April 17, 2014 meeting, as this event would constitute a work-related accident within the meaning of the Act respecting industrial accidents and occupational diseases. The Caisse added that there was no evidence that it committed an abuse of right or a distinct fault and, in the alternative, that the amount of damages was exaggerated. The Court of Appeal agreed that Ms. Girard could not claim from the Caisse, in the form of damages, what she could have obtained from the CNESST for the physical and moral injury that her discharge from work on April 17, 2014 caused her and as a result of which her disability began. However, Ms. Girard retained her rights and remedies under the common law based on a “separate cause of action”, in this case the termination of her employment contract on February 16, 2015, and any separate fault committed by the Caisse that would not constitute an work-related injury. As a result, the Court of Appeal reduced the amount of the non-pecuniary damage award to $20,000.
With respect to the deduction of the disability insurance benefits received by Ms. Girard, the appeal focuses on the application, or not, of article 1608 of the Civil Code of Québec (the “Code”) to Ms. Girard’s situation. This article provides that “[t]he obligation of the debtor to pay damages to the creditor is neither reduced nor altered by the fact that the creditor receives a benefit from a third person, as a result of the injury he has suffered, except so far as the third person is subrogated to the rights of the creditor”.
According to the Court of Appeal, the Superior Court should not have deducted the disability insurance benefits received by Ms. Girard during this period from the indemnity in lieu of notice on the grounds that the Caisse participated in the financing of the insurance plan. In this regard, the Court of Appeal wrote:
 With respect to the contrary opinion, I am of the view that article 1608 C.C.Q. applies whenever an employee receives disability benefits from an insurer, regardless of whether the employer pays all or part of the cost of the insurance premiums. This employer contribution is part of the employee's terms and conditions of employment and should not be confused with the disability benefits paid by the insurer. To conclude otherwise would be to transform disability insurance for the benefit of the employee into insurance that would insure the employer against the pecuniary consequences of its obligation to give reasonable notice of termination (a kind of liability insurance).
 […] It would be different if the employer paid not the insurance premiums but the salary or part of the salary in the event of disability. In that case, the employee would not receive a benefit from a third party and article 1608 C.C.Q. would not apply. [...] [our emphasis].
The Court of Appeal also explained that this principle does not apply to “self-insured” employers who are paying disability insurance benefits themselves.
Thus, according to article 1608 of the Code, the employer’s obligation to pay an indemnity in lieu of notice of termination is neither mitigated nor modified by the fact that the employee receives a benefit from a third party insurer. The Court of Appeal stated that it is not accurate to speak of double indemnity, as the disability benefits are not compensation for an injury suffered, but rather are the subject of the insurer’s obligation under the insurance plan. Accordingly, the Court of Appeal increased the indemnity in lieu of notice of termination by the amount deducted by the Superior Court as disability benefits paid by the insurer.
Finally, the Court of Appeal rejected Ms. Girard’s claim for “the replacement value of her pension fund”, since this argument was tantamount to denying the right to unilaterally terminate the employment contract conferred by article 2091 of the Code. The Court of Appeal also rejected Ms. Girard’s claim for employer contributions to the Régime des rentes du Mouvement Desjardins for the notice period, as it was of the opinion that the evidence presented did not make it possible to quantify this benefit or this lost profit.
Accordingly, the Court of Appeal reduced the compensation for non-pecuniary damages to $20,000, subtracted $11,130 to the indemnity in lieu of notice of termination for vacation pay and increased the indemnity in lieu of notice of termination to $203,185.
This decision of the Court of Appeal confirms that disability insurance benefits paid by an insurer should not be deducted from the indemnity in lieu of notice of termination, even if the employer funded the insurance plan.
However, the Court of Appeal clarified that this would not be the case if the employer did not pay the insurance premiums, but rather the salary or a portion of the salary in the event of disability (i.e. under a self-insured plan). In such a case, deduction of the disability benefits paid by the employer from the indemnity in lieu of notice of termination would be appropriate.
It should be noted that this decision was rendered in the context of the Civil Code of Québec. Our Labour & Employment team will be closely monitoring the application of this decision in the context of the Act respecting labour standards, if applicable, as well as the decisions that will apply these principles in the coming months. For more information on this topic, please do not hesitate to contact a member of our L&E team.
Caisse populaire Desjardins de Saint-Raymond--Sainte-Catherine c. Girard, 2022 QCCA 1171 [in French only].
Girard c. Caisse populaire Desjardins de Saint-Raymond-Sainte-Catherine, 2019 QCCS 4770 [in French only].