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There are legal ramifications around changing benefit plans - especially if an employee is being terminated

Benefit plans and legal teams share something in common. They are both in place to protect you in a time of need. And there are certainly legal ramifications to consider when managing the workplace benefits that are offered to existing and departing employees alike.

The quality of workplace benefits can play an important role in managing risk, explains Kyle Armagon, a partner with Pickering-based Walker Head Lawyers - a law firm which also counts itself as a Callery Group client.

Whenever someone approaches him to discuss a workplace settlement offer, some of the first questions inevitably focus on available benefits such as drug plans, dental programs, and short- or long-term disability coverage. "Those factor into whether or not you can negotiate a favourable settlement, because the employee [with benefits] will feel that the employer is taking better care of them," he says.

Most employers are familiar with the need to offer payment in lieu of notice if someone needs to be terminated. But benefits also need to be extended as part of the same package.

"Technically, they're supposed to extend that short-term and long-term [benefits] coverage for as long as the notice," Armagon adds.

Consider the challenges that might emerge with an employee who is offered a year of severance, but is slow to agree to the terms. After the first eight weeks - the statutory notice period under the Employment Standards Act - the benefits provider might increase the price of maintaining the coverage because the person is no longer technically an employee.

The risk begins to rise if the employer then cancels the coverage before a settlement is reached. If that same employee is diagnosed with cancer after four months away from work, they can ask the employer to pay all the medical costs that would otherwise have been covered under the benefits plan.

"The law says that, during the reasonable notice period, the employee is entitled to any and all benefits they would have received had they been sitting at their desk," Armagon says.
Employers can minimize such risks by offering to extend benefits such as drug plans or dental care in lieu of continuing the more costly long-term disability coverage, he adds.

Unemployed workers looking at short-term expenses such as braces for their children might quickly agree.

Employers also need to give all their employees reasonable notice about any significant changes to workplace benefits. "There would be a high onus on the employer to explain that change," he says. "Because benefits are an integral part of our compensation … you have to give appropriate reasonable notice for the change. You can't unilaterally do it."

Effectively, there should be about a month of warning for every year of service.

There are exceptions. A small change such as requiring employees to pay a portion of their prescription costs will not typically require the notice, Armagon says. The challenges are more likely to emerge around benefits that are perceived to be a significant part of the overall compensation plan.

But deciding exactly how much notice should be offered is a blend of art and science. "Typically a year is sufficient for everybody," he says.

"You want to have a very good communication with your benefits provider [about this]."  

Top Tips:

  • Remember that workplace benefits are part of the severance packages offered in lieu of notice.
  • When drafting a severance package, consider offering to extend benefits which leave your business less exposed to long-term costs.
  • Give employees reasonable notice about any significant changes to benefits. A good rule of thumb is to offer one month of notice for every year of service.

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The Buzz Bits
Miscellaneous links to interesting benefits information

Helping employers handle diabetes in the workplace: smallbizadvisor

Do wellness incentives work?: Benefits Canada

Remembering why DC makes sense: Benefits Canada

5 health benefits of juicing: Fitness Cheerleader

The power of total rewards: Benefits Canada

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