Recent rulings show importance of continuing disability coverage during the notice period
With Canada’s hot economy and looming labour shortage, employers are offering many incentives to prevent workers from jumping ship. Health benefits are a critical part of any compensation package and disability benefits are, in turn, an important part of health benefits.
A number of recent court decisions in Ontario have shed light on disability plans and what disability coverage employees are entitled to if the employer terminates their employment.
In Ontario Nurses’ Association v. Mount Sinai Hospital, the Ontario Court of Appeal found a section of the province’s Employment Standards Act to be discriminatory. That provision had previously exempted employers from paying severance to employees whose employment contract had been frustrated due to illness or injury.
In Stelco Inc. Re, the Ontario Superior Court of Justice found the employer was responsible for an employee’s long-term disability benefits from the date of disablement until age 65 because the employer failed to continue a terminated employee’s benefits during the reasonable notice period. The employee in that case became completely disabled during the notice period and did not have any coverage. Stelco was ordered to pay her disability benefits — totaling $350,000 — until she reached 65.
And now that Ontario’s mandatory retirement act has received royal assent and will be the law of the land come December, employers will likely be faced with similar disability and other benefit issues, only this time with the added dimension of age discrimination.
Mandatory retirement and severance
In the past, mandatory retirement policies gave employers the ability to terminate the employment relationship of an employee who was 65 without providing reasonable notice or a severance package and without any other obligations on the employer. But now employers will only be able to terminate workers over the age of 65 according to their statutory and common-law duties, unless the employee is subject to a mandatory retirement policy permitted under the Human Rights Code.
Under Ontario’s employment standards legislation, employers must provide workers with notice of termination or compensation in lieu of notice as specified by the act. If the employee is with the organization for five years or more and the company has a payroll of $2.5 million or more, severance pay in the amount of one week for every year worked up to a maximum of 26 weeks must also be provided.
The employer is also obligated to provide the employee with pay up until the last day of work, vacation pay and to continue benefit coverage over the statutory notice period. The employer must also provide the employee with a record of employment.
However, that is only the statutory minimum to which the employee is entitled. In addition to adhering to obligations under employment standards legislation, the employer must adhere to its obligation under the common law. Essentially, this means there is an implied obligation on the employer to terminate the employee with reasonable notice and this is often a much longer period than the statutory notice period.
The purpose of reasonable notice
The primary purpose for providing reasonable notice is to give the employee an adequate amount of time to find alternative employment. In doing so, the employer must either choose to provide the employee with reasonable notice through either working notice or a severance package. If the employee rejects the working notice, or the severance package, then the employee can sue for wrongful dismissal.
Given this common-law obligation, if the employer chooses to provide the employee with a severance package based on the worker’s entitlement to reasonable notice, the employer must provide the employee with everything he had prior to the termination during the notice period, including salary and benefits.
When it comes to benefits, there are two problems which employers are exposed to when either continuing the employment of someone over 65 or terminating someone over 65.
•Cap on benefits: Many benefit plans have an age cap of 65. For example, long-term disability plans are payable either during the disability or until the employee reaches the age of 65.
•Statutory obligations: Insurers are only required, under Ontario’s Employment Standards Act, to extend disability coverage during the statutory notice period.
Although Ontario plans to maintain the status quo regarding benefits, these two problems may be further compounded if an employee claims age discrimination due to the fact he is not being provided with suitable coverage. In that regard, it will be difficult for the employer to deny the worker was being adversely affected because of his age. Therefore the employer would likely have to prove it would suffer undue hardship to cover the employee in the event it faced such a challenge.
The Manitoba affect
While it is still unclear what effect the elimination of mandatory retirement will have in Ontario, it may be helpful to look at what happened in Manitoba when mandatory retirement was abolished.
The Manitoba Human Rights Code states that the termination of an employee’s long-term disability benefits at age 65 would not be considered unreasonable unless there is a reasonable expectation the employee will recover from the disability and be able to return to work.
Until Ontario employers know for sure what will happen, a possible solution is to offer transitional coverage, if available, to the employee. Because employees often pay the premiums for such disability coverage, if the employer wanted to protect itself during the notice period it might want to advise that if the employee wants additional coverage after the statutory notice period ends, he should go to a transitional disability insurer and the employer should provide the name of one.
And the employer should strongly consider paying the difference between what employees pay for the transitional coverage and what they would have paid under the company plan if they were still active employees.
Natalie MacDonald is a partner with Grosman, Grosman and Gale, a Toronto-based law firm specializing in employment law. She can be reached at (416) 364-9599 or [email protected].
A number of recent court decisions in Ontario have shed light on disability plans and what disability coverage employees are entitled to if the employer terminates their employment.
In Ontario Nurses’ Association v. Mount Sinai Hospital, the Ontario Court of Appeal found a section of the province’s Employment Standards Act to be discriminatory. That provision had previously exempted employers from paying severance to employees whose employment contract had been frustrated due to illness or injury.
In Stelco Inc. Re, the Ontario Superior Court of Justice found the employer was responsible for an employee’s long-term disability benefits from the date of disablement until age 65 because the employer failed to continue a terminated employee’s benefits during the reasonable notice period. The employee in that case became completely disabled during the notice period and did not have any coverage. Stelco was ordered to pay her disability benefits — totaling $350,000 — until she reached 65.
And now that Ontario’s mandatory retirement act has received royal assent and will be the law of the land come December, employers will likely be faced with similar disability and other benefit issues, only this time with the added dimension of age discrimination.
Mandatory retirement and severance
In the past, mandatory retirement policies gave employers the ability to terminate the employment relationship of an employee who was 65 without providing reasonable notice or a severance package and without any other obligations on the employer. But now employers will only be able to terminate workers over the age of 65 according to their statutory and common-law duties, unless the employee is subject to a mandatory retirement policy permitted under the Human Rights Code.
Under Ontario’s employment standards legislation, employers must provide workers with notice of termination or compensation in lieu of notice as specified by the act. If the employee is with the organization for five years or more and the company has a payroll of $2.5 million or more, severance pay in the amount of one week for every year worked up to a maximum of 26 weeks must also be provided.
The employer is also obligated to provide the employee with pay up until the last day of work, vacation pay and to continue benefit coverage over the statutory notice period. The employer must also provide the employee with a record of employment.
However, that is only the statutory minimum to which the employee is entitled. In addition to adhering to obligations under employment standards legislation, the employer must adhere to its obligation under the common law. Essentially, this means there is an implied obligation on the employer to terminate the employee with reasonable notice and this is often a much longer period than the statutory notice period.
The purpose of reasonable notice
The primary purpose for providing reasonable notice is to give the employee an adequate amount of time to find alternative employment. In doing so, the employer must either choose to provide the employee with reasonable notice through either working notice or a severance package. If the employee rejects the working notice, or the severance package, then the employee can sue for wrongful dismissal.
Given this common-law obligation, if the employer chooses to provide the employee with a severance package based on the worker’s entitlement to reasonable notice, the employer must provide the employee with everything he had prior to the termination during the notice period, including salary and benefits.
When it comes to benefits, there are two problems which employers are exposed to when either continuing the employment of someone over 65 or terminating someone over 65.
•Cap on benefits: Many benefit plans have an age cap of 65. For example, long-term disability plans are payable either during the disability or until the employee reaches the age of 65.
•Statutory obligations: Insurers are only required, under Ontario’s Employment Standards Act, to extend disability coverage during the statutory notice period.
Although Ontario plans to maintain the status quo regarding benefits, these two problems may be further compounded if an employee claims age discrimination due to the fact he is not being provided with suitable coverage. In that regard, it will be difficult for the employer to deny the worker was being adversely affected because of his age. Therefore the employer would likely have to prove it would suffer undue hardship to cover the employee in the event it faced such a challenge.
The Manitoba affect
While it is still unclear what effect the elimination of mandatory retirement will have in Ontario, it may be helpful to look at what happened in Manitoba when mandatory retirement was abolished.
The Manitoba Human Rights Code states that the termination of an employee’s long-term disability benefits at age 65 would not be considered unreasonable unless there is a reasonable expectation the employee will recover from the disability and be able to return to work.
Until Ontario employers know for sure what will happen, a possible solution is to offer transitional coverage, if available, to the employee. Because employees often pay the premiums for such disability coverage, if the employer wanted to protect itself during the notice period it might want to advise that if the employee wants additional coverage after the statutory notice period ends, he should go to a transitional disability insurer and the employer should provide the name of one.
And the employer should strongly consider paying the difference between what employees pay for the transitional coverage and what they would have paid under the company plan if they were still active employees.
Natalie MacDonald is a partner with Grosman, Grosman and Gale, a Toronto-based law firm specializing in employment law. She can be reached at (416) 364-9599 or [email protected].
