A termination decision involving an employee on long-term disability is one of the few workplace moments where the benefits plan, employment law, and human rights obligations all sit at the same table. Underneath it sits a quieter, far more common question every employer faces: what happens to employee benefits during a leave of absence, and who keeps the coverage in force? Handled with the right coverage in place and the right experts on call, both are manageable, well-mapped decisions. The employer’s job is not to master all three fields. It is to have the benefits side built correctly and the legal and HR expertise lined up before the decision ever arrives.
This came into focus recently in PortaLaw’s newsletter, in a review of a Supreme Court of Canada case on whether an employee can collect both severance and disability benefits. Healthwise was quoted in their newsletter referencing the piece. The legal questions in that case belong to employment counsel, and PortaLaw sets them out in their write-up of the case.
A quick note on terms:
- Long-term disability (LTD) is the coverage that replaces a portion of an employee’s income when a leave extends past the short-term window, and it can pay for years.
- Adjudication is the insurer’s process of reviewing and deciding an LTD claim.
- Waiver of premium is a common plan feature: once an LTD claim is approved, the insurer stops requiring premiums for that employee’s LTD coverage while they remain on claim. After further review of the claim the employee may also qualify for Life Waiver of Premium, where the insurer stops requiring premium for this benefit line as well.
Keep the coverage in force
When an LTD claim is filed, the typical practice is to maintain the employee’s group benefits until the insurer has finished adjudication, and to keep paying premiums so the coverage stays in force. Eligibility can hinge on the employee’s last day worked and on whether the disability existed while coverage was active, so an employer who drops benefits early can undercut the very claim the employee is relying on. Through adjudication, the employee is best treated as actively employed on an approved leave.
After approval: the plan keeps working, and so does the relationship
Once the claim is approved, waiver of premium usually takes over, and the plan continues the employee’s coverage without further premium for that person while they remain on claim. The employment relationship often continues as well. An approved LTD claim is not a termination, and treating it as one, is where avoidable problems begin.
Any leave, not just an LTD claim, is a moment to tell the carrier
The principle of keeping coverage in force reaches past the LTD claim itself. Any extended leave is a point where the carrier needs to be told, because most coverage rules require an employee to be actively at work. A parental leave, an unpaid personal leave, and a medical leave are not handled the same way, and the differences matter.
Carriers set their own rules on what continues during a leave, whether any coverage needs re-approval before it can carry on, and how premiums are handled while the employee is away. Some coverage continues as long as premiums keep flowing. Some can pause. The specifics belong to the plan and the carrier, not to a general rule of thumb, so the safe assumption is that every leave has its own handling and should be confirmed rather than guessed.
When an employee returns from a leave, there is usually a limited window, set by the carrier, to notify them and switch coverage back on. Return inside the window and coverage generally resumes cleanly. Miss it and the employee can be treated as a late applicant, which may mean answering medical questions to rejoin the plan they were already on. That outcome is avoidable, and avoiding it is mostly a matter of timing.
None of this is meant to be memorized. It is the clearest example yet of why the reliable move is to tell your advisor as soon as a leave is on the horizon. The rules are carrier-specific and clock-driven, which is exactly the kind of thing an advisor tracks so an employer does not have to.
When a termination decision does come up
Sometimes a termination decision does arrive, for reasons that have nothing to do with the employee’s health: a restructuring, an eliminated role, a business that has changed shape. This is the point where employment law and human rights obligations enter. A termination involving an employee on disability has to account for accommodation obligations and the specific terms of the employment contract, and those are questions for employment counsel. The employers who handle these decisions well are the ones who rely on their experts, such as employment lawyers.
Where severance and LTD meet
If an employee is terminated while on LTD, can they receive severance and disability benefits for the same period, or does one reduce the other? This is the exact issue PortaLaw worked through in the case that prompted this article, and their review is the place to read the answer and its limits (PortaLaw: Disability Benefits and Severance). The benefits-side note is short: the factors that decide it are plan-design factors chosen at setup.
Put it in writing: a continuation-of-benefits policy
It is worth having a preset policy for a simple question: what happens to health and dental coverage while someone is on leave? These are the benefits employees rely on day to day, and the questions tend to arrive at the worst moment: partway through a leave, after a premium has been missed or a return date has shifted. A written continuation-of-benefits policy answers those questions before they are asked, which is why having one matters as much as the coverage itself.
Once an employee stops drawing regular wages, and where premiums are cost shared, there is no paycheque to deduct from, so how their share of the health and dental premium gets paid has to be answered directly. Employers generally handle this one of a few ways: covering both portions for a set period, or arranging for the employee to remit their share while they are away. The point is to settle the arrangement in advance and put it in writing, rather than improvise it once the first missed deduction shows up. That is exactly why cost-sharing belongs in a continuation-of-benefits policy: it tells everyone, ahead of time, who pays what while an employee is on leave, and for how long.
A good policy sets out, in advance, which benefits are maintained during a leave and for how long, how health and dental premiums are handled while the employee is away (who pays, and for what period), that coverage will not be cut during an active disability claim adjudication, and what happens on return. It does not need to be long. It needs to be clear, and applied the same way for everyone.
A written policy takes these decisions out of the moment and off the desk of whoever happens to be handling the leave. It gives the employer one consistent answer, gives the employee a clear picture of what to expect and what it costs to stay on the plan, and gives any expert brought in later the same starting point. Building the policy so it lines up with what the carrier actually allows is part of the plan work an advisor does.
The employer’s real job: build well, then lean on your experts
Build the benefits plan so continuation of coverage is handled correctly. Put a written policy in place. And keep access to the legal and HR experts who take the questions that sit outside a benefits plan. Employers do not have to carry a decision like this alone. Employers can book a plan review with us to see how their coverage would hold up through a claim, and where their expert support sits when a harder decision arrives.
Sources
Canadian Life and Health Insurance Association, Guide to Disability Insurance (general LTD mechanics): clhia.ca, Guide to Disability Insurance
Government of Canada, Canada Labour Code s.239 (benefit continuation during medical leave): laws.justice.gc.ca, Canada Labour Code s.239
PortaLaw, Disability Benefits and Severance (case review; Healthwise quoted): portalaw.ca, Disability Benefits and SeveranceCase referenced by PortaLaw: Sylvester v. British Columbia, 1997 CanLII 353 (SCC), [1997] 2 SCR 315: canlii.org, Sylvester v. British Columbia
