Am I Still Employed While on Long-Term Disability in Canada?

When illness or injury takes you out of work for months, uncertainty follows. Most people worry not just about recovery, but about whether their job will still be there when they’re ready to return. 

According to Sun Life, mental health conditions now account for nearly 40 percent of all long-term disability claims in Canada, and that number continues to climb. Behind those statistics are real people trying to understand what happens to their livelihood while they’re unable to work. To many, the system can feel opaque.

At Whitten & Lublin, we guide employees through the uncertainty that can follow employment conflicts and challenges, including the long-term disability claim process. 

The short answer to the question at hand is that being on long-term disability (LTD) does not automatically end your employment. The longer answer depends on the specifics of your situation. 

How Long-Term Disability Works in Canada

Long-term disability coverage supplements your income when you can’t perform your job duties due to illness or injury. Most plans pay between 50 -70 percent of your pre-disability earnings. Payments usually come from a group insurance policy arranged through your employer, though some people carry private coverage as well.

Once your LTD claim is approved, the insurer starts monthly payments to cover a portion of your lost income. This does not redefine your employment status. Your job remains, in most cases, on hold.

What “Still Employed” Means in Practice

During long-term disability insurance coverage, employees are usually considered on an unpaid leave of absence. The employment relationship continues even though the employee is not actively working, however, employment can’t stay suspended forever.

An employer can end employment if medical evidence shows that the employee will not be able to return in the foreseeable future. This concept is referred to as “frustration of contract”. It applies when the essential purpose of employment, performing work, can no longer happen because of the disability. Frustration, however, is a narrow exception. Employers must show that a return to work is not realistic, even with reasonable accommodation.

If the employment ends due to frustration, the employee may still qualify for severance pay or statutory notice pay under Ontario’s Employment Standards Act or their employment contract. 

The Role of the Insurance Company

While you’re receiving long-term disability benefits, your insurer determines whether you meet the policy definition of disability and whether benefits will continue. The employer may have little involvement beyond maintaining records or processing premiums.

For the first two years, most LTD insurance policies assess whether you can perform the duties of your own occupation. After that, the question changes to whether you can perform any occupation based on your education, experience, and training. That shift is significant and often when claims are terminated or reduced.

If your claim is denied at this stage, don’t assume it’s final. A legal review of your disability insurance claim can help determine whether the insurer’s decision is justified and what next steps to take.

 

Frequently Asked Questions About Long-Term Disability

Is Long-Term Disability Considered Income?

Technically, long-term disability benefits are not considered earned income. They’re insurance payments that replace lost wages. If your employer paid the full premium for your LTD insurance, the benefits are taxable. If you paid the premiums yourself, they are generally tax-free.

This distinction can affect eligibility for other income support programs. LTD payments may be offset by Canada Pension Plan (CPPD) disability benefits, Quebec Pension Plan (QPP) disability, or Employment Insurance (EI) benefits. Most insurers may eventually require you to apply for CPPD/QPPand will reduce your monthly payment by the amount you receive.

 

Can my employer contact me while I’m on long-term disability?

Yes, but contact should be limited to legitimate work-related or administrative matters, such as benefits, documentation, or updates about your leave status. Frequent or unnecessary communication can feel intrusive, especially when you’re recovering. If communication becomes excessive or the employer pressures you to return before you’re medically ready, it may violate human rights legislation.

Can my employer replace me while I’m on long-term disability?

An employer can hire someone temporarily to fill your position, but that doesn’t automatically end your employment. If you’re medically cleared to return, the employer must make reasonable efforts to reinstate you to your former position or a comparable one. 

Can I be fired while on long-term disability?

It’s possible, but only under specific conditions. Employers can terminate your position if it is genuinely eliminated for business reasons unrelated to your disability. Even then, you may still be owed severance pay and accrued entitlements.

How do short-term disability insurance benefits connect to long-term disability?

Short-term disability benefits generally cover the first three to six months of absence and are designed to bridge the gap before long-term disability coverage begins. Once you reach the end of the short-term benefit period, your insurer determines if you qualify for continued benefits under the long-term policy.

What About Vacation and Other Employment Benefits?

While on long-term disability, most employees do not accrue vacation or seniority unless their employment contract or collective agreement explicitly says otherwise. Contributions to pension plans and other benefits are usually paused unless the employer continues them voluntarily or through policy.

Still, your years of service before the disability are preserved. If you return to work, they count toward seniority and termination calculations. If you are later dismissed, those years factor into your reasonable notice entitlement. Many employees don’t realize that an extended leave does not erase prior service. It’s one of the few constants during a long disability absence.

When Does Long-Term Disability End?

When LTD benefits stop, whether due to recovery, a denied claim, or the end of the policy period, the employment question resurfaces. If your employment status remained active, you may have the right to return to work or to request accommodation if medically appropriate. If returning isn’t possible, the employer must decide whether to continue holding your position or end the relationship with notice and severance.

These transitions can be messy. Employers, insurers, and medical professionals often move at different speeds, leaving employees caught in the middle. Some discover they were technically terminated years earlier. Others are told they were never terminated but are denied the right to return. Both outcomes can be challenged under employment and disability law.

 

Get Clarity on Your Employment Status

Employment law and disability law can overlap in ways that few people anticipate. The insurer manages your claim, but the employer controls your job status, which is why legal advice can be so helpful if you are facing a decision or situation that affects your benefits or employment.

An employment and disability lawyer who understands both areas can interpret your employment situation and insurance policy in context. 

If you’re on long-term disability and uncertain about your employment relationship, speak with one of our Toronto employment lawyers. You’ll get straightforward guidance from experienced professionals with many years of accumulated experience in Ontario employment law. 

We’ll help you understand your rights and protect the income and security you’ve worked hard for.

If your job situation has become uncertain or you’re struggling to get clear answers, contact us online or call 416-640-2667 to discuss your options.