Simply handing out information isn’t enough – employees must understand benefits packages
Spreading the word about benefits
Benefits packages are common among employers as a way to attract good employees, retain them once they’re working and build employee loyalty. Offering a good benefits package can help forge a positive and productive employment relationship, but things can go sour if employees don’t properly understand what benefits to which they are entitled.
Employees can’t maximize the use of their benefits if they don’t understand them and the power imbalance of the employment relationship places the onus on employers to ensure they do. If not, an employer can be found liable if an employee doesn’t know her full range of options when she needs them.
Mary Picard takes a look at what employers should do when providing information and instructions about their benefits programs to avoid liability.
Employment benefits and rewards programs are a common and effective way of recruiting and retaining employees, but employers must be cautious when describing them to employees. There are legal pitfalls that can come up for employers explaining what they offer if an employee doesn’t grasp the details.
The Supreme Court of Canada has said the employment relationship is a “special relationship,” characterized by a power imbalance in which the employer has the upper hand. Judges have often applied that principle and held employers liable when employees have not fully understood the terms of their benefit programs. Employer liability has been found even when the employer has given accurate information and even when the employer has urged employees to seek independent advice. That’s not enough, the judges say, in this “special relationship.”
Onus on employer to ensure employees understand
In Deraps v. Labourer's Pension Fund of Central & Eastern Canada (Trustees of), the Ontario Court of Appeal said the employer had a legal duty to try harder than it did to ensure a benefits document was understood. Gabriel Deraps went on disability leave after being diagnosed with a terminal illness. He and his wife met with the employer’s benefits counsellor, who explained to the couple the option of the wife waiving her spousal survivor pension. The counsellor explained if Deraps’ wife signed the waiver, Deraps would receive a higher monthly pension amount and Mrs. Deraps would receive nothing when he died. The couple agreed and Mrs. Deraps signed the waiver. After her husband died, Mrs. Deraps sued, saying she didn’t understand what she signed. The employer’s representative couldn’t remember what she had said to Mrs. Deraps, though she did say Mrs. Deraps hadn’t asked any questions. The court found the employer couldn’t rely on the widow’s waiver because the employer “hadn’t gone far enough” to ensure Mrs. Deraps knew what she was signing.
In Spinks v. R., the employer, Canada’s Atomic Energy Commission, was liable for failing to explain the pensionable service buy-back option in its pension plan. The commission described the main features of the pension plan at a standard benefits information session given to Spinks when he was hired. The employer didn’t point out the buy-back feature of the plan in which employees could purchase pension credit for service with a previous employer. Spinks who worked for 20 years with the Australian Energy Commission, said he would have been interested had he known about it. The court said an employer has a “duty of reasonable disclosure,” when the employee has a unique need for specialized information and employees cannot be expected to read the text of a pension plan. Also, the employee cannot be expected to ask questions, the court said, it’s up to the employer to point out aspects of the benefit plan that may be of interest to the employee.
In Allison v. Noranda Inc., the employer’s severance package gave the terminated employee the option of a lump sum versus salary continuance. The letter didn’t spell out the amount of the difference in the pension benefit under the two options but did advise the individual to obtain independent legal advice in considering the offer. The terminated employee picked one option, but later claimed he wouldn’t have done so if he had been aware of the impact on his pension entitlement. The New Brunswick Court of Appeal agreed that Noranda was liable for failing to disclose the difference.
“A caution to seek independent advice cannot override an obligation to make full disclosure,” the court said.
Tips for employers
What are employers supposed to do when describing benefit plans? A few suggestions:
•Get an experienced benefits provider, consultant or lawyer, to confirm the employee booklet is accurate and discloses all of the options employees should be made aware of. Date and keep all versions of the booklet on file.
•Create a written list of issues, Q&As and facts communicated to employees at benefits information sessions for existing employees and new employees. Create a written summary of everything that’s said at benefit lunch-and-learns or similar sessions and keep it on file forever. Make sure if there’s ever a lawsuit where an employee complains he didn’t understand the features of a benefit plan, someone from HR can say that even if he doesn’t remember what was specifically said to the employee, every time an employee information session was conducted, everything was communicated and employees were asked if they had any questions. Ensure every employee understands what’s been communicated at every benefits meeting.
•Know the benefits service provider is the representative of the employer. If the provider gives incomplete or inaccurate information to employees, the employer is legally liable for it. Be aware if there’s a limit on the providers’ liability to the employer as sometimes there are clauses in the legal contracts saying the service provider’s liability is limited to six months’ or a year’s fees. Ensure the service provider commits to a high level of service standards in all employee communications.
Courts expect employers and their service provider representatives to act reasonably to ensure that employees understand their benefits and rewards programs.
For more information see:
•Deraps v. Labourer's Pension Fund of Central & Eastern Canada (Trustees of), 1999 CarswellOnt 2896 (Ont. C.A.).
•Spinks v. R., 1996 CarswellNat 326 (F.C.A.).
•Allison v. Noranda Inc., 2001 CarswellNB 233 (N.B. C.A.).
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Widow surprised to find she signed away her survivor’s pension
A woman’s signature on a pension waiver giving up her survivor’s benefits was invalid because the pension advisor didn’t ensure she understood what she was signing.
Gabriel Deraps was a unionized worker who learned he had lung cancer in 1990. He and his wife, Monique, met with the union’s pension counsellor to discuss his disability benefits. The couple was given two choices: Deraps could receive a lower monthly payment and his wife would receive 60 per cent of his benefits when he died; or his wife could sign a spousal waiver that would give Deraps a higher monthly payment while he was alive.
The couple opted for the higher monthly payments and Monique signed the spousal waiver on Aug. 23, 1990. The form stated if her husband selected an alternate pension plan, she would have no survivor pension or one that was less than 60 per cent. The counsellor didn’t read or explain the waiver form and neither Deraps nor his wife asked any questions.
Deraps called the counsellor in April 1991 when his health deteriorated to ask what benefits his wife would receive when he died. He was told she wouldn’t receive anything. He died a week later and Monique Deraps said she would not have signed the waiver if she knew she wouldn’t get anything after her husband died.
The court found Monique Deraps didn’t understand the spousal waiver she signed largely because the counsellor didn’t provide her with the right information. Nowhere on the actual form did it say she would get nothing upon her husband’s death.
“(The counsellor’s) failure to advise Monique Deraps at all, let alone in a clear way, that she would receive nothing when her husband died if she signed the waiver, was misleading and a misrepresentation,” the court said. It ruled this was a breach of duty to exercise reasonable care that was required of a pension counsellor. The counsellor and the employer she represented were liable for negligent misrepresentation and the spousal waiver was declared null and void.
