Extending benefits during notice period

What benefits have to continue?

Question: When an employee is terminated, what types of benefits must always be continued for the duration of the reasonable notice period and what benefits can be discontinued without employer liability? Can these be set out in policies and employment contracts?

Answer: Generally speaking, most contracts of employment contain an express or implied provision that they can only be terminated for just cause or, upon reasonable notice. At common law, the amount of reasonable notice that must be given varies from employee to employee as it is based upon factors which affect the employee's ability to find comparable employment such as the employee's age, length of service, level of responsibility and salary. In addition, employees are entitled to a minimum statutory notice period under the labour standards legislation in each province.

If an employer fails to provide reasonable notice of termination, it may be held liable for damages suffered as a result of that failure, such as the value of the employee's lost salary and benefits during the notice period less the amount that the employee earns through alternative employment. An employee is obligated to seek alternative employment during this period as part of her duty to mitigate any damages.

Most benefit plans, including short-term and long-term disability benefits, cease to provide coverage when the employee's active employment is terminated. Therefore, the employer can be exposed to significant risks if the employee is injured or becomes ill during the notice period and the benefits have previously been discontinued. In fact, it can held liable for the full cost of the care that would have been provided under the benefit plan for the duration of that care, however long-term that may be. Therefore, it is advisable for employers to address these risks at the commencement of the employment relationship as this type of situation is preventable with careful drafting of the employment contract.

It must be noted that employment standards legislation in some provinces expressly requires that benefits must continue for the duration of the statutory notice period, as employees are deemed to be in “active employ” during this time. However, the common law reasonable notice period may extend beyond that minimum and, thus, most of the risk lies in this period if the issue of benefit coverage has not been adequately addressed beforehand. Often, employers and employees will negotiate severance packages at the time of termination which specify an agreed upon period of notice and compensation amount. To decrease the risk to employers, it should be clearly stated in the employment contract that certain benefits will not be continued during this notice period. In addition, in exchange for such a severance package, employees should be required to sign a suitable form of general release. In this way, the employer will be protected from any further liability should the employee become ill or injured during the notice period.

Some additional steps that employers can take to avoid this type of liability include:

•Reviewing the language used in the employee benefits handbook and ensuring that it is clear to the employees that certain benefits will cease immediately upon termination.
•Clearly setting out the expectations with respect to benefit continuation on termination in the employment contract.
•Exploring the possibility of purchasing “bridge coverage” from an insurance provider who will assume the risk for the employer during the notice period.

Brian Kenny is a partner with MacPherson Leslie and Tyerman LLP in Regina. He can be reached at (306) 347-8421 or bkenny@mlt.com.

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