Employee Benefits During the Notice Period?

Terminating an employee’s employment without cause in Canada comes at a price. The various employment acts and codes set out the requirements for termination notice or pay in lieu of notice (and in Ontario and federal workplaces, severance pay in addition to termination pay). The required termination period will range from 1 to 8 weeks, depending on the length of service of the employee, and depending on the province (plus severance pay, if applicable).

But what are an employer’s obligations during the notice period besides payment of wages?

The Statutory Requirements

Employment statutes in Canada require an employer to pay wages/salary for the notice period, as well as to continue benefit contributions. In Ontario, the Employment Standards Act requires an employer to continue the employee’s wages and terms of employment, and to:

“continue to make whatever benefit 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.”

Notice period obligations, therefore, include the payment of whatever benefits the employee was otherwise entitled to, including benefits such as group health care and dental premiums, life insurance, LTD, STD and travel insurance. When crafting a termination package for an employee who has been terminated without cause, the package must include the continuation of benefits throughout the statutory notice period.

The problem employers run up against is to what extent will the insurance companies continue to insure benefits after an employee is no longer “actively” employed. Most seem to recognize the statutory obligations for general benefits like health care and dental, but some do refuse to insure the bigger ticket items like LTD or life insurance after an employee’s last day of active employment.

At the end of the day, it is the employer who is obligated to provide benefits during a notice period, not the insurer. The insurer is simply obligated to satisfy the terms of the contract between it and the employer.

And then there’s the Common Law

The gap between what is required and what is actually insured during the notice period becomes even greater for the common law notice period. The employment statutes set out minimum employment standards. The courts will almost always award significantly more damages than the statutory minimum for a wrongful dismissal (i.e. a termination without cause without notice).

For example, a judge would award a 62 year old supervisor with 15 years service at the company damages of many more weeks than the 8 weeks of termination pay and 15 weeks of severance pay required under the Ontario statute. Assuming no other issues such as age discrimination (unlikely!), the notice period would probably be in the range of at least a year, and possibly more given the age of our hypothetical employee.

Assuming that the notice period is a year in this example, the case law makes it clear an employer is required to make the employee whole for the entire year’s notice period. In other words, the employee will be entitled to whatever she would have earned had the termination not occurred. This includes for example, any regularly scheduled wage increases, any non-discretionary bonus tied to company performance, and the continuation of all benefits.