Failure to Pay Benefits and Overtime

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 for the employer, 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. 

Common claim themes

• Failure to relay changes in benefits coverage to the employees.
• Providing unclear or incorrect information to employees regarding coverage:
  • Long Term Disability (most frequent);
  • Death benefits;
  • Pension plan(including options);
  • Health benefits;
  • Dental benefits;
  • Benefits option following retirement or upon termination of employment.
• Failure to inform the benefits 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 a leave of absence, etc.).
• 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.

Case Study 1

A part-time employee’s disability insurance claim was denied on the basis that the employee was not working enough hours to qualify. The insurance company, insurance broker, administrative services provider, and healthcare organization (the employer) were sued for misrepresentation and failure to properly enroll the employee into the benefits plan. Expert review determined that the employee benefits provider was responsible for providing enrolled employees enrolled with updates to the benefits plan. The employee’s disability claim was ultimately approved. 

Case Study 2

The employee benefit package at a healthcare organization had an automatic death benefit of one times the annual salary with enhanced coverage as an option. An employee elected a death benefit of three times their annual salary. The death benefits were not paid following the employee’s death. The patient’s estate filed a claim with the benefits provider. Expert review determined that the benefits provider never received the paperwork from the healthcare organization advising them of the employee’s enhanced coverage. The estate subsequently sued the healthcare organization on the basis of negligence, breach of contract, and breach of fiduciary duty. 

Mitigation strategies

New Hires

• Implement standardized processes to ensure new employees:
  • Sign an employment agreement including key provisions regarding employee benefits (e.g., 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 benefits 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);
  • Are provided with written information describing the extent of the employee benefit 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.

Reliable Benefits Enrollment Processes

• Establish reliable and consistent internal processes to inform:
  • The employee benefits 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)
• 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).
• 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., maternity or parental leave, long-term disability); ensure that the impact of any leave of absence adjustment is compliant with applicable statutes.
• Adopt comprehensive processes (e.g., periodic audits) 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 benefits plan.
• For unionized employees, ensure that language in the collective bargaining agreement matches and  references what is outlined by the employee benefits provider.
• Implement standardized processes to ensure all terminated employees are informed of any changes to their benefits (e.g., whether, how, and which specific employee benefits will be continued): 
  • Require the employee to sign a release of claims; retain a copy in the employee’s human resource file, and provide a copy to the employee and benefits 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.

Overtime

• Implement a standardized overtime policy which includes:
  • Pertinent legislation and union agreements;
  • Clear definitions;
  • Eligibility criteria;
  • The approval process (not left to the employee’s discretion);
  • The consequences and management of unauthorized overtime (e.g., progressive dismissal, termination);
  • Overtime tracking method.

Monitoring and Measure

• Implement formal strategies to monitor and measure the effectiveness and efficiency of, and compliance with benefits and overtime protocols or guidelines, including (but not limited to):
  • Adoption of formal performance metrics and targets;
  • Learnings from employee and benefit provider feedbacks (e.g., periodic human resources file audits, medical legal and human right tribunal claims).

References

• HIROC claims files.
• Aflac. (2018). 12 Trends Influencing the Future of Workplace Benefits. 
• Brito v. Canac Kitchens, 2011 ONSC 1011.
• Fulawka v. Bank of Nova Scotia, 2010 ONSC 1148.
• HR Compliance Insider. (n.d.). The complete guide to Canadian HR compliance. 
• Luedey B. (2011). Best practices make perfect. Toronto, ON: Benefits Canada.
• Service Canada. (2007, December). Workers’ rights in Canada: Employment standards, workplace health and safety, and human rights [information sheet].
• Ministry of Labour (2012). Employer liability in the administration of benefit plans. 
• Ministry of Labour (2019). Your guide to the Employment Standards Act: Record keeping