Failure to Pay Benefits

The appearance of misrepresentation of employee benefit coverage can create liability in situations where an employer is perceived as misrepresenting the nature of benefits. In addition, administrative errors leading to a failure to pay disability or death benefits, pensions, or overtime earned may result in human rights complaints, reputational harm, and class action lawsuits. Errors arising from these actions can be minimized by ensuring transparent communications are maintained between all parties. Changes, such as, listed employee beneficiaries, benefits coverage plans, or changing benefits providers require strategies that ensure accurate, clear, and concise communication. Mechanisms, such as, regularly scheduled audits should be conducted to help with the early identification of administrative errors.

Expected Outcomes

Adopt standardized processes to support initial and ongoing employee awareness of benefits coverage, available options, and eligibility requirements with contact information for all plan carriers and products.

Adopt audit procedures to ensure the employee’s current deductions, beneficiary changes, salary information, and eligibility are reflected in the employee’s human resource files as well as records on file with the benefit provider.

Implement formal strategies to ensure staff involved in benefit coordination / administration receive adequate and appropriate ongoing training and support.

Common Claim Themes and Contributing Factor

Organizational

 

• Failure to effectively relay changes in benefits coverage and options (where available) to employees.
• Failure to fulfil legislative obligation to offer pension contribution to employees during leaves where indicated.
• Providing unclear, inaccurate, or incorrect information to employees regarding coverage:
  • Short-term and long-term disability;
  • Death benefits;
  • Pension plan (including options);
  • Health benefits;
  • Dental benefits;
  • Benefits options following retirement or upon termination of employment.
• Failure to inform the benefit provider of an employee’s change in status (e.g., employee beneficiary information, from full-time to part-time, from employee to contractor, from union to non-union, commencement of or a return to work from a leave of absence, etc.) resulting in denial of coverage.
• Benefit source deductions not consistent with employee instructions.
• Inconsistent audit practices to confirm that benefit source deductions correspond with employees’ intentions and with the records of the benefits provider.
• Miscommunication and errors arising from the transfer: 
  • Of employees between corporations, amalgamations, or mergers between organizations;
  • To new benefit plan providers.

Mitigation Strategies

New Hires

• Implement standardized processes to ensure new employees:
  • Sign an employment agreement that includes (but not limited to) key provisions regarding employee benefits; 
  • Are provided with written enrollment information describing the extent of the employee benefit coverage, available options, and eligibility requirements with contact information for all plan carriers and products;
  • Evidence of coverage; 
  • Sign off on confirmation, refusal, or change of enrollment in benefits (with copy to employee and copy to employee record);
  • Informed of the consequences of applying late or not applying for employee benefits (Grodinsky & Bonhomme, 2022).

Additional Considerations

Examples of key information that should be shared with new hires regarding benefits:

• Description of the nature of any benefits; 
• What will happen to benefits in the event of termination, resignation, or retirement;
• That the full terms of the benefit provider policies governing the employee’s entitlement may not be fully described in a summary booklet or statement; 
• Requirement to designate a beneficiary; 
• Right of the employer to modify or discontinue benefits from time to time in its sole and absolute discretion.

Benefits Enrollment Processes

• Adopt a formal best practice based plan for communicating the employee benefit plan to all eligible and enrolled employees.
• Establish reliable, consistent, and effective internal processes to inform:
  • The employee benefit provider of enrollment and changes to an employee’s status that could impact benefits;
  • Employees of changes to benefit providers and changes to benefit plans (e.g., new benefits, renewal rate adjustment);
  • And remind employees to update their beneficiary (e.g., marital status change) (Forster, 2015) (Ito, n.d.).
• Ensure periodic review (including audits) and confirmation of benefits enrollment by employees (e.g., sending a confirmation letter to the employee regarding changes to benefits or beneficiaries) (Forster, 2015).
• Obtain legal advice where significant changes to the employee benefits plan or services are planned.
• Develop a standardized policy for the continuation of benefits for employees who are not actively at work (e.g., parental leave, long-term disability); ensure that the impact of any leave of absence adjustment is compliant with applicable statutes and collective bargaining agreements (Forster, 2015).
• Adopt comprehensive audit processes to validate:
  • Employee benefit source deductions correspond with the employee’s information in the human resource file and the records on file with the benefit provider;
  • Beneficiary changes;
  • Current salary information;
  • Ineligible employees are not maintained on the organization’s employee benefit plan (Forster, 2015) (Ito, n.d.).
• For unionized employees, ensure that language in the collective bargaining agreement matches and references what is outlined by the employee benefit provider (Forster, 2015).
• Implement standardized processes to ensure all terminated employees are informed of any changes to their benefits (Forster, 2015) (Ito, n.d.).

Additional Considerations

Examples of key elements to consider related to employee terminations and benefits:

• Require terminated employees to sign a release of claims however consult with expert legal counsel before withholding agreed to / required compensation, stipends etc. where the person refuses to sign the release; retain a copy in the employee’s human resource file, and provide a copy to the employee and benefit provider;
• Consider whether long term disability coverage will be extended during the applicable statutory notice period, particularly in cases where the terminated employee is known to have a health issue that could result in a claim for disability benefits or where the circumstances surrounding the termination increase the likelihood of a claim for disability benefits being made by the terminated employee. 

Team Training and Education

• Implement effective strategies to ensure designated benefit coordinators / administrators receive formal training and access to ongoing coaching related to benefit coordination / administration.

Additional Considerations

Benefit plan coordinators / administrators are accountable to keep employees informed about the details of their benefits plan. To help ensure compliance with applicable legislation and reduce legal liability, learning  outcomes for benefit training may include:

• Comprehensive understanding of the employee benefit plan(s) and applicable legislation;
• Comprehensive understanding of the organization’s  and benefit provider(s)’s workflows to administer the plan;
• Provision of expert benefits-related advise including (but not limited to) options, timelines, and consequences for late / delayed applications.

Documentation

• Ensure complete and timely documentation of all meetings and discussions with employees related to benefits, including (but not limited to) advice provided; retain all such records as a permanent part of the employee’s human resource file.

Monitoring and Measurement

• Implement formal strategies to monitor and measure the effectiveness and efficiency of, and compliance with benefit protocols or guidelines.

Additional Considerations

Examples of monitoring and measurement strategies:

• Adoption of formal performance metrics and targets;
• Learnings from employee and benefit plan provider feedback (e.g., periodic human resources file audits, medical legal and human right tribunal claims).

References

• Forster, E. (2015, 5). Employer Liability in the Administration of Benefit Plans. Retrieved from Blaney McMurty LLP: https://www.blaney.com/files/EmployerLiabilityAdminBenefitPlans_EForster_2015.pdf
• Grodinsky, M., & Bonhomme, R. (2022, 5). Employment and Employee Benefits in Canada: Overview. Retrieved from Thompson Reuters Practical Law: https://uk.practicallaw.thomsonreuters.com/6-503-1258?transitionType=Default&contextData=(sc.Default)&firstPage=true
• Ito, E. (n.d.). Benefits and Employer Liabilikty. Retrieved from Miller Thomson LLP: https://www.millerthomson.com/assets/files/seminar_attachments/VANLE_ETI_BenefitsEmployerLiability.pdf