Have you made this big benefits mistake?

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When it comes to dismissing an employee without cause, reasonable notice is one of the first things employers consider – but one industry lawyer is urging HR not to overlook an employee’s right to benefits within that period.

“For a severance package to comply with the requirements of reasonable notice, it must put the employee in the same position he or she would have been in, had the contract of employment been performed according to its terms,” stresses Miller Thomson associate Ashley Mitchell.

“If an employer fails to provide reasonable notice, it is liable to an employee for all damages suffered as a result,” he adds.

According to the Vancouver-based employment expert, claims for lost benefits during the notice period can relate to a whole host of different issues including medical or dental benefits, both short team and long term disability, life insurance, pension or RRSP contributions, equity compensation, car allowances or company vehicles, and vacation pay.

The biggest potential risk for employers, warns Mitchell, is damages for lost disability insurance benefits.

“Failing to maintain disability coverage during the reasonable notice period may make an employer liable to pay disability benefits to an employee who becomes disabled during the notice period,” she explains, pointing to one 2011 case – Brito v. Canac Kitchens – which  still makes waves in the employment law landscape.

In the case, Canac Kitchens dismissed Luis Romero Olguin due to restructuring after 24 years of service – within two weeks, the 55-year-old had found another job but it didn’t include disability benefits. A little over a year later, the former employee was diagnosed with cancer and rendered disabled.

Eventually, it was ruled that Olguin was entitled to 22 months of reasonable notice and because the disability took place during the notice period, he was awarded an amount equal to the benefits he would have received from the date he became disabled until age 65 – almost $200,000.

“Generally, where the disability plan is funded by the employer and forms an integral part of the employee’s compensation, the benefits will be deductible,” clarifies Mitchell. “In contrast, disability plans that are more like private insurance plans funded by the employee are usually not deductible.”

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