Benefit Continuation Upon Termination

Under the Employment Standards Act (the “ESA”), an employee who is given working notice upon termination, is entitled to the continuation of benefits throughout the statutory notice period. Section 60 of the Act reads:
“During the notice period under section 57 or 58, the employer shall continue to make whatever benefit plan contributions would be required to be made in order the maintain the employee’s benefits under the plan until the end of the notice period.”

Section 61 is a similar provision which applies to an employee who has been terminated without notice.

Thus for example, where a ten-year employee loses the job, he remains eligible for benefits covered under the group insurance plan for a period of eight weeks. It is therefore advisable for an employee (or members of his family who are covered by the plan) and who require a particular dental procedure or new eyeglasses, for example, to arrange to receive the treatment or order the product within the notice period available under the Act to ensure that they will be reimbursed for their expenses.

• What happens when the plan of insurance requires that an employee be actively employed for benefits to be effective?
This is an interesting legal issue, given that the ESA only obliges the employer to continue to make payment of premiums. In all likelihood, the insurer will acknowledge liability for benefits which are owing during the statutory notice period. In the alternative, an employee in such circumstances may have a claim against the employer as a result of such loss.

An employee is also entitled at a minimum to his wages over the statutory notice period, “which amount shall not be less than his regular wages for a regular work week”. Where the employee is not provided with working notice, he is entitled to his “regular wages”, which is a defined term under the ESA.

At common law, an employee who has been wrongfully dismissed can seek to recover not only the loss of income he would have likely earned over the reasonable notice period but the loss of fringe benefits as well. In other words, ESA payments are usually only a small fraction of a terminated employee’s entitlements/damages.

The fundamental principle underlying an award of damages for wrongful dismissal is that the employee should be put in the same economic position the employee would have been in had he worked to the end of the reasonable notice period. The Courts will therefore also factor in the amount of overtime pay the employee received over a comparable period prior to termination unless the employer can show that overtime hours were reduced or eliminated for its remaining employees in the period following termination. A terminated employee will also be entitled to compensation for loss of commissions that would probably have been earned during the period of reasonable notice.

Depending on the terms of the employment contract and the nature of the bonus and profit sharing plan in place at termination, the calculation of damages may also include an amount for loss of these additional payments during the notice period. The terminated employee may also be entitled to pension plan contributions from the employer and/or stock options post-termination.

The terminated employee is also entitled to recover for loss of fringe benefits during the reasonable notice period whether or not the employee has incurred out-of-pocket expenses that would otherwise have been covered by the group benefit plan. Where no medical expenses have been sustained during the period of reasonable notice, the employee may be able to obtain compensation for loss of benefits based upon the cost of obtaining alternate private coverage or the cost of premiums borne by the employer during the period of employment.

A terminated employee may also be entitled to convert group life insurance to a private plan without having to undergo the medical examination which is often required for private coverage. The conversion privilege is a time-limited opportunity available to the terminated employee. The employer has an obligation to advise the employee of this opportunity at the time of termination.

The foregoing represents some but not all of the entitlements available to an employee at termination and during the period of reasonable notice. As the above suggests, payments upon termination are not a simple matter of providing wages and wages alone for a set number of weeks or months. An employee facing termination is well advised to seek legal advice before accepting any termination package so that he fully understands what his rights are upon termination.