Employment Termination and Group Insurance Coverage - 25.10.2011

sTermination Pay

Termination pay generally refers to salary paid in lieu of notice for the statutory notice period. This also includes vacation pay, salary and/or overtime pay that may be owed to the employee at the time of termination.

In most provinces, termination pay does not affect benefit coverage. An employee’s benefit coverage still ends on the last day worked. However, it is important to note that employees working in Ontario, the Northwest Territories or Nunavut are entitled to benefit coverage until the last day of the statutory notice period. For example, an employee working in Ontario, the Northwest Territories or Nunavut with one year of service is entitled to a two-week statutory notice of termination. If salary is paid in lieu of notice, coverage continues until the end of the two- week period.

In all other jurisdictions within Canada, coverage ends on the employee's last day of work.

Severance Pay and Agreements:

Severance pay is generally used to refer to additional payment in excess of statutory termination pay. If an employee receives severance pay, it does not affect their benefit coverage end date.

Severance agreements are distinct from an employment contract. Once the employee-employer relationship ends, the employee no longer meets the definition of an “insurable employee” and therefore is no longer covered by the group insurance contract.

There may be situations when you may wish to extend coverage for certain benefits beyond the usual benefit termination date, as part of a severance agreement. Providing the extension applies to all employees in similar circumstances, your insurer will, under certain circumstances, consider extending coverage for Basic Life and AD&D, Dependant Life, Healthcare, and Dentalcare for a limited time period. Short Term Disability, Long Term Disability, and elective benefits such as Optional Life cannot be extended.

If you are considering extending benefit coverage as part of a severance agreement, please contact us for approval by the insurer before offering it to the employee.