In Babcock v Thuro Inc., 2026 ABKB 615 (Jugnauth, J), the Alberta Court of King’s Bench determined a wrongfully dismissed employee on LTD was entitled to severance pay during the notice period.
The question of whether the LTD payments he received should be deducted from the severance was not determined due to insufficient evidence.
This decision to allow severance pay during the notice period for an employee on LTD is important because it is directly contrary to a 2019 ABQB decision which found the opposite.
Facts
The following were the pertinent facts summarized by the ABKB:
- Babcock (the “employee”) worked for Thuro Inc. for 24 years and was 62 years old at the end of his employment
- The employee was provided with 13 months’ working notice of termination of employment. He only worked 7 months of that before going on short term disability leave and then long term disability leave (“LTD”). He remains on LTD today
- The employee has rheumatoid arthritis and was having difficulty with the physical demands of his job during his working notice period
- The employee sued for severance pay, which he said included the full period he was receiving LTD, without deduction for amounts received
- The employer argued on the basis of Belanger v Western Ventilation Products, 2019 ABQB 571 (AJ Farrington) that the employee had no recoverable losses for the period he was on LTD
- The employee was unsuccessful before an Applications Judge, who followed Belanger
Analysis / Conclusion
The Court of King’s Bench acknowledged that if Belanger was good law, it operated to prevent the employee from recovering severance pay for any period he was receiving disability payments.
The employee argued Belanger was wrongly decided. He argued Belanger failed to follow the rules Sylvester v British Columbia, 1997 CanLii 353 (SCC) and other decisions which hold that wrongful dismissal damagers are assessed as though the employee had worked throughout the reasonable notice period and are not reduced by a subsequent disability arising after wrongful dismissal. The employee argued that the Applications Judge (in this case) should have assessed whether Belanger was consistent with binding authority before applying it.
The Court found that to the extent Belanger stands for the principle that no reasonable notice (severance) damages can accrue while an employee is receiving LTD, it should not have been followed. The Court found that horizontal stare decisis did not prevent this finding, noting as follows:
[42] Were it otherwise, an erroneous first-instance decision could become entrenched within a court so long as subsequent judges correctly concluded that they were required to follow it. The only issue on appeal of an applications judge’s decision would be whether the later judge faithfully adhered to the earlier decision, not whether the earlier decision was legally correct.
[43] That result would be difficult to reconcile with the error-correcting purpose of appellate review.
The Court explained that the binding direction in Sylvester was only about whether LTD payments received during reasonable notice should be deducted from the severance award, not about whether severance was owing. Sylvester is clear that the Court does not ask whether the employee could have received wages during the reasonable notice period. They are liable for full reasonable notice damages as if they continued to work, subject to some potential deductions.
The Court found that Belanger fell within the per incuriam exception to stare decisis because it did not account for the SCC decision of Waterman v IBM Canada Ltd., 2013 SCC 70 which details how a Court is to consider insurance payments in the notice period within the principles of compensating advantages, deductibility and the “private insurance” exception to deductibility. In other words, Belanger was effectively overturned as a binding precedent in Babcock.
The Court went on to provide the following the following summary of the law:
[70] While subsequent events may be relevant in assessing the damages actually suffered, they do not eliminate the employer’s liability for breaching its notice obligation. In that respect, Dunlop and Noble address the employee’s entitlement to reasonable notice and the consequences of the employer’s failure to provide that notice. Sylvester addresses whether disability benefits should be deducted from damages otherwise payable. These authorities operate at different stages of the analysis and are not inconsistent with one another.
[71] In my respectful view, Belanger treated the receipt of disability benefits as defeating the existence of compensable loss. That approach bypasses the distinct deductibility analysis mandated by Sylvester and later explained in Waterman. The proper question is not whether the employee received disability benefits, but whether those benefits should reduce the damages otherwise payable for the employer’s breach. [underline added]
Turning to whether the LTD benefits ought to be deducted from the severance pay damages in this case, the Court said the following was the proper approach:
[126] The relevant inquiry is whether the employee would have received the benefit as part of their compensation during the reasonable notice period. If so, the court must determine whether the employment contract or governing plan unambiguously removes or limits that common law entitlement: Matthews at para 55.
[…]
[133] Where an employment benefit and the right to wrongful dismissal damages arise under the employment contract, the Court must examine the contractual arrangements and the parties’ intentions concerning whether both amounts may be received […]
[134] The nature and purpose of the benefit are central to the analysis. Two considerations have been particularly important: (i) whether the benefit is intended to indemnify the employee for the same type of loss caused by the breach (such as lost employment income); and (ii) whether the employee contributed, directly or indirectly, to obtaining the benefit […]
[135] At para 56 [Waterman], the Court summarized some general propositions that have emerged from prior Supreme Court jurisprudence:
- benefits have not been deducted where they were not intended to indemnify the plaintiff for the kind of loss caused by the breach and the plaintiff contributed to the entitlement;
- benefits have also not been deducted in cases where the plaintiff contributed to an indemnity benefit; and
- benefits have been deducted where they were intended to indemnify the plaintiff for the kind of loss caused by the breach and the plaintiff did not contribute to obtaining the benefit.
[…]
[137] The more closely the nature and purpose of the benefit resembles an indemnity against the loss caused by the breach, the stronger the case for deduction: Waterman at para 76. Employee contribution remains relevant, as may broader considerations such as equal treatment, appropriate incentives, and the desirability of clear and workable rules […]
[146] […] If the insurer has a right to recover benefits from any damages awarded for the corresponding period, there may be no excess recovery and therefore no compensating advantage requiring deduction from the damages award […]
[147] Conversely, if the policy characterizes the benefits as wage replacement and permits a reduction based upon damages or other compensation received for the same period, that contractual language may support deduction […]
The Court did not have a copy of the LTD plan. The Court determined that it was not possible to properly undertake the Waterman analysis for deductibility without that plan, and declined to make a final judgment on this basis.
The Court found in this case that the employee was entitled to 20 months’ reasonable notice for wrongful dismissal. Interestingly, the Court found that the employer’s breach of contract did not actually occur until the working notice period (13 months) concluded. The Court noted that the date of first providing notice that termination would occur in 13 months was not in itself a breach. It was an anticipatory breach until the actual termination occurred (i.e. at the 13 month mark). The employee’s choice to continue working during the termination notice was an affirmation of the employment contract which lasted until the actual date of termination (i.e. at the 13 month mark). The situation would be different if no working notice had been provided, because there, the breach occurs on the date of termination notice.
My Take
I have a very high level of respect for our Judges from all levels of our courts in Alberta. However, I cannot overstate how relieved I am that Belanger has been effectively overturned. From literally the date that decision was released to the present I have not been able to reconcile that decision with Sylvester (and later Waterman), making it extremely difficult to advise on what will happen with LTD benefits in cases like this in Alberta.
The importance of the finding about the date of termination was not discussed at length in the decision, but it could be very significant to damages in some cases. If the date of termination were considered a contractual breach the day notice was actually given, he may have been considered totally disabled during a period he ought to have been receiving reasonable notice. In that case, if he failed to qualify for LTD as a result of that termination (i.e. no longer an employee), his employer could potentially have been liable for all lost LTD coverage to the end of the policy period – usually around age 65. This is because the “breach” (insufficient notice) would be the direct cause of his lack of LTD coverage.
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This blog post is an original work of Bow River Law LLP. The original publish of this article is on Bow River Law’s website blog.
