Do benefits continue if they receive pay in lieu of notice?
Question: Is an employer always required to continue paying medical benefits after a dismissal without cause if the employee is no longer at the workplace? Can a termination clause in an employment contract eliminate benefits for the notice period if the employee agrees to it?
Answer: This question provides me with yet another opportunity to repeat a favourite mantra: Employers should have all employees sign employment agreements that, at the very least, address what will happen in the event of dismissal without cause.
By default, employees that are dismissed on a without cause basis are entitled to all forms of compensation that they would have received had they continued to work through the notice period. Of course, this is easy if working notice is provided and the relationship continues through the notice period. However, that is the exception rather than the rule. In most cases, individuals are provided with some form of pay in lieu of notice. This question, or variations thereof, are frequently asked. Unfortunately, many employers assume their only obligation is to continue the employee’s base salary. However, in the absence of an enforceable agreement or policy that states otherwise, the obligation is to continue all forms of compensation, which would include salary, bonuses, commissions and all benefits.
As suggested above, it is possible to modify this requirement contractually. The best practice would be to have an employment agreement (entered into in a manner that would be enforceable, as discussed in previous articles) that clearly and definitively sets out what the employer’s obligations will be in the event of dismissal without cause. The first issue to address would be the amount of notice, or pay in lieu thereof, that is required. This can be approached in a number of ways. For example, the contract can set out a number of weeks of notice per year of service. Alternatively, it can provide an absolute amount of notice or pay in lieu, or a base amount which will increase with the length of service. Regardless of the approach, it is crucial that the amount of notice not have the potential to be less than that required by the applicable employment standards legislation, or the termination clause will be unenforceable.
Once the amount of notice has been established, it is open to the parties to agree upon which forms of compensation will, and will not, continue. Where the employee is paid based upon commission, it is crucial that the contract set out what will happen in the event of termination. Otherwise, there are often conflicts with respect to sales that the dismissed employee was involved in but have not yet closed, and other related matters. In addition to addressing commissions, the parties should address bonuses and benefits. One example of an issue to address is that of disability coverage. Typically, insurers will not provide such coverage to employees that have been dismissed, beyond the statutory notice period. In order to avoid any uncertainty and potential liability, it should be made clear in the contract that this will be the case.
