ithin the last couple of years, corporations have engaged in a balancing act between providing benefits for employees and containing costs. Consequently the concept of flexible benefits has emerged. Now, rather than providing all benefits to all employees, many corporations offer a wide array of benefits, or provide a set amount of money for each employee to spend on benefits, and allow the employee to choose which benefits are most suitable.
This gives the employee choice and the employer the chance to keep costs low. Similar to pension and disability benefits, given that the employer, in many cases, is the administrator of the policies, the employer shoulders a number of duties and responsibilities to its employees.
In particular, when the employer administers group policies of insurance, it becomes the agent of the insurer. When the employer outlines coverage, and advises employees as to their entitlement under the insurance policy, the employer owes a duty of care to its employees. The employer must represent the coverage available, eligibility requirements and the procedure to be followed in filing a claim accurately and properly, thereby administering the policy with reasonable skill and diligence.
London Life Insurance Co. v. Baker
, a decision of the Nova Scotia Court of Appeal, Baker was one of many employees who were included in a long-term disability policy of the insurer. Baker was laid off and subsequently suffered from a cardiac ailment, leaving him totally disabled. The insurer had claimed Baker was not eligible for insurance in the first place and that his disability had occurred when he was no longer covered by the policy. Despite this the court held that because the employee had been assured by his employer he would be covered during this time, he had a right to rely on the information from the employer. As such the court found the employer was an agent of the insurer and that if there were errors in determining eligibility, the errors were made by the agent whose acts bound the insurer.
This case represents the manner in which the court typically analyzes disability situations, demonstrating the court’s preponderance to hold the employer liable.
In another case,
Tarailo v. Allied Chemical Canada Ltd
., Stanley Tarailo, an employee who had a number of employment-related and behavioural problems, resigned when Allied Chemical threatened to dismiss him for unacceptable conduct. Later it was discovered that Tarailo’s behaviour was a result of mental illness. Consequently the court held the employer owed a duty to advise and assist the employee to make a claim under the long-term disability insurance policy. Due to the fact the employer failed in its duty, the court found Allied Chemical was liable for payment of the sickness benefits and for negligence in not assisting Tarailo to make a claim.
Although there is no case law relating to the issue of flexible benefits, it is clear the duty of care which the employer owes to its employees is the same. It would be surprising if a court did not hold the employer to a duty to accurately represent the flexible benefits available, eligibility requirements and any procedures involved in filing the claim. Given that employees rely on information from their employer regarding flexible benefits and their eligibility for these benefits, it is reasonable for the courts to hold the employer responsible. In effect, the employees put their fate in the hands of the employer who must exercise all reasonable care and skill to administer the policies.
A prudent employer will take the following steps in its administration of flex benefits:
•review all policies with the insured to determine the obligations which arise from the policy;
•provide clear, concise and adequate information concerning the entitlement to coverage for all of the benefits; and
•ensure that employees understand the timelines and the proper processes for filing any claims.
While these steps don’t guarantee an employer won’t be held liable, they will assist in minimizing potential liability. While the new trend towards flex benefits is appealing for both parties, employers must keep in mind the same principles which apply when administering short- and long-term disability policies.
For more information see:
London Life Insurance Co. v. Baker
, 1987 CarswellNS 99,  N.S.J. No. 38, 34 D.L.R. (4th) 340,  I.L.R. 1-2164, 77 N.S.R. (2d) 3, 191 A.P.R. 3, 24 C.C.L.I. 38 (N.S. C.A.)
Tarailo v. Allied Chemical Canada Ltd.
, 1989 CarswellOnt 651,  I.L.R. 1-2427, 26 C.C.E.L. 209, 39 C.C.L.I. 85, 68 O.R. (2d) 288, 89 C.L.L.C. 14,040 (Ont. H.C.)
Natalie MacDonald is an associate with Grosman, Grosman & Gale, a Toronto-based law firm specializing in employment law. She can be reached at (416) 364-9599 or email@example.com. Look for her next column in the March 8, 2004 Guide to HR Technology.