What Happens To Group Benefits Coverage When the Employment Contract is Terminated?

December 12, 2015

It is important to understand when group benefits coverage ends as a result of a termination in the employment contract. There are different legislative notice periods that need to be observed in the process; details and considerations are outlined below.

Having said that, under most group insurance contracts, group benefits coverage ends on the last day worked.

 

Statutory Notice Period

The statutory notice period sets out the minimum amount of notice of termination that an employer must provide to an employee. This period is prescribed by federal, provincial and territorial employment standards legislation (details are provided in the attached statutory notice chart).

An employer may ask that the employee work until the end of the statutory notice period, or instead, terminate employment immediately and provide the employee with pay in lieu of working notice. Where an employee receives pay in lieu of working notice, the employee’s benefit coverage still ends on the last day worked, unless the employer is required by statute to continue coverage during the statutory notice period. In that case, most insurers will extend coverage to the end of the statutory notice period.

 

The Common Law Notice Period and Severance Agreements

In certain circumstances, an employer’s obligations regarding termination of employment (including any obligation to continue benefit coverage) may extend beyond the statutory notice period.

This extension period is referred to as the common law notice period (sometimes also referred to

as the reasonable notice period). The common-law notice period is not a fixed period and may be based on a variety of factors such as:

  • Type of employment
  • Length of service
  • Availability of similar employment
  • Qualifications of the employee
  • Extent to which the employee was induced to accept a position with the employer

An employer may also wish to extend coverage for certain benefits beyond what is required by statute, as part of a severance agreement.

In these cases, most insurers will provide an extension in group benefits coverage for a certain period of time, and, reserve the right to have underwriting approve an extension typically beyond 6 months for the following benefits:

  • Basic Life Insurance
  • Basic AD&D Insurance
  • Dependent Life Insurance
  • Health
  • Dental
  • Critical Illness
  • Health Spending Account
  • Employee Assistance Program

Employers may ask for reasonable extensions for employees in similar circumstances and receive similar approvals. Having said that, insurers review each and every case independently to determine the length of time of the extension that they are comfortable in covering based on the associated risks.

In almost all cases, coverage for waiver of premium benefits, short-term disability, long-term disability and elective benefits such as optional life are not extended.

The following chart sets out the minimum amount of notice of termination that an employer must provide to an employee. This chart does not set out whether benefit coverage must continue during the statutory notice period and does not represent the guaranteed length of time your insurer may agree to extend coverage.

20151212 - What Happens To Group Benefits Coverage When the Employment Contract is Terminated? PIC1

20151212 - What Happens To Group Benefits Coverage When the Employment Contract is Terminated? PIC2

Category: Legislative Updates