Canada: Employer's Obligation To Maintain Benefits Upon Termination

When it comes to maintaining a terminated employee's benefits, it is not always clear what an employer's obligations are. While there are many factors that impact this obligation, the below summarizes some basic principles to consider.

Statutory Notice Period:

Under section 60 of the Ontario Employment Standards Act, 2000, S.O. 2000, c. 41, employers must continue to make whatever benefit plan contributions that are required to maintain the employee's benefits under the plan until the end of the statutory notice period to which the employee is entitled under sections 57 or 58.

In principle, this is because the employer is required to make the employee whole throughout the notice period, as if the employee was still working.

Statutory Severance Period:

Employers do not have an obligation to maintain benefits throughout the severance period. This is because the severance period occurs after the employee is no longer employed with the employer.

Common Law Notice Period:

Under the common law, employers have an obligation to continue benefit plan contributions for the entirely of the common law reasonable notice period. Failure to do so can be extremely costly for employers.

This was addressed by the Ontario Superior Court in Alpert v Les Carreaux Ramca Ltee, 1992 CanLII 7748, where the Court awarded 9 months of common law reasonable notice to a 48 year old, senior-level employee with 4 years of service.

The Court awarded Mr. Alpert damages for the loss of coverage under his medical plan based on the employer's costs to maintain the plan throughout the 9 month notice period. The Court did so even though the Plaintiff did not actually incur any medical expenses following his termination.

If the insurance company refuses to continue to insure the employee beyond their statutory notice period, the employer is on the hook if the terminated employee needs to access the benefits during their common law notice period.

Such was the case in Alcatel Canada Inc. v Egan, 2006 CanLII 108 (ON CA), where the Ontario Court of Appeal found the employer liable for Ms. Egan's loss when they discontinued her STD and LTD benefits prior to the end of her common law reasonable notice period.

Ms. Egan became disabled sometime after the end of her statutory notice period, but prior to the end of her common law notice period. She could not access her STD or LTD benefits, because her employer had cancelled them at the end of her statutory notice period.

The ONCA found that the employer had "wrongfully discontinued her coverage prior to the onset of disability" and was liable for the entire value of the disability benefits.

Such liability can be costly. Should the employee become disabled, and fail to recover, the employer could be on the hook for the value of the disability benefits up to the point when the employee turns 65, which was the case in Brito v Canac Kitchens, 2012 ONCA 61.

Take Home:

Employers should be cognizant of these pitfalls when determining how long to maintain the benefit coverage for a terminated employee. Failure to maintain the necessary benefit coverage could be costly.

Originally published May 13, 2020

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.