Buying out entitlement to benefits

If an employee is fired without cause, entitlement rules vary by jurisdiction
By Brian Johnston
|Canadian HR Reporter|Last Updated: 06/25/2018

Question: When an employee is fired without cause, can the employer buy out the entitlement to benefits during the notice period?

Answer: It depends on the jurisdiction and legal basis for the notice period in question.

Most jurisdictions have statutory minimum notice periods, but employees are normally entitled to an extended notice period at common law (reasonable notice or compensation in lieu).

With respect to the statutory notice period, it depends on whether the particular jurisdiction requires benefits continuation during this period.

For example, Ontario employment standards legislation stipulates that during the statutory notice period, the employer “shall continue to make whatever benefit plan contributions would be required to be made in order to maintain the employee’s benefits under the plan until the end of the notice period.”

As a result, benefit continuation is mandatory in Ontario through the statutory notice period. To the extent of any inconsistency, legislation trumps contractual agreements to the contrary.

By way of contrast, there is no similar requirement in the Nova Scotia employment standards legislation. Therefore, in Nova Scotia and some other jurisdictions, benefit continuation during the statutory notice period can be treated in the same way as during any extended common law notice period.

There is no absolute legal entitlement to benefit continuation during any extended common law reasonable notice period.

However, during any such notice period, an employer is required to make the employee “whole” with respect to any compensation — including benefits — that would have been received during that period but for the termination of employment.

If an agreement can be reached, an employer can “buy out” the employee’s entitlement to benefits during the reasonable notice period.

For example, the employer could be more generous in terms of the notice period duration or with some other benefit, such as job transition counselling, and not provide benefits. Contractual agreements can replace entitlements that would otherwise apply at common law.

If no agreement can be reached, employers should be aware that if coverage is nonetheless discontinued during the notice period, it is taking a risk should the employee fall ill with a condition that would have been covered, thereby incurring a loss.

In that case, the employer could be liable for the expenses that the employee would have been entitled to under the benefits plan.

For example, in Brito v. Canac Kitchens, no agreement was reached and after long-term disability benefits were discontinued at the end of the statutory notice period, the employee became permanently disabled during the extended common law notice period.

The employer was held liable for the long-term disability the employee would have received had the benefits not been cancelled (not just the premiums).

In that case, the employer was liable for a decade’s worth of long-term disability benefits, because the employee was 55 years old and coverage would have continued until the age of 65.

For more information, see:

Brito v. Canac Kitchens, 2012 CarswellOnt 760 (Ont. C.A.).

Brian Johnston is a partner at Stewart McKelvey in Halifax. He can be reached at (902) 420-3374 or bjohnston@stewartmckelvey.com.

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