Canada: Benefit Premium Surcharges For Unvaccinated Employees – When The Carrot Isn't Enough
Labour, Employment & Human Rights Bulletin

Employers have been trying to encourage employees to get vaccinated against COVID-19. Some employers paid bonuses. Others provided gift cards. What happens when rewards are not enough? A US employer recently announced a different approach: all unvaccinated employees enrolled in the company's healthcare plan will be subject to a $200 monthly surcharge, starting November 1, 2021. In deciding to implement the new surcharge, the employer pointed to the fact that all of its employees who were hospitalized with COVID-19 were not fully vaccinated. The average hospital stay for those employees cost the employer $50,000 per person.

The health care situation may be different in Canada, but some are already asking if they can follow suit in Canada and increase health benefit premiums for unvaccinated employees. This bulletin outlines a number of things to consider before making that decision.

• Is there a defensible rationale for an increase? For the US employer that announced its plans, there is a clear and reasonable rationale for the surcharge. Although 75% of its US workforce is vaccinated, its small unvaccinated employee population is having a direct and significant financial impact on the business from health care costs. There are usually fewer direct health care costs for Canadian employers. What surcharge rationale can you prove and defend at arbitration or in court? If you are self insured for short term disability, have you seen an increase in paid benefits to unvaccinated workers who get COVID-19? If you are providing paid sick time, are you seeing an increase in paid sick time to unvaccinated workers? Is there another rationale?
• Is the surcharge large enough to create a risk of constructive dismissal of non-union employees? A unilateral and substantial change to the terms and conditions of employment can amount be a constructive dismissal giving rise to similar termination obligations as a without cause termination. A small and reasonable increase to health benefit premiums is unlikely in most cases to rise to the level of a constructive dismissal.
• What does your collective agreement say? Unionized employers should look first to their collective agreements to determine what rights and obligations apply in relation to benefits and benefit premiums. A union could challenge an increase as a breach of a specific term of the collective agreement, as an unreasonable exercise of management rights, or another creative argument. If the union can prove its case at arbitration, the employer may be ordered to cease the benefit increase, reimburse employees and, depending on the case, to pay other damages or costs.
• How big is the surcharge?  The decision about how much to increase premiums should ideally be tied to the actual financial costs of the employer from the employees' decision not to vaccinate. The size of the increase is also related to the risk of a constructive dismissal for non-union employees, and to the reasonableness of your actions for union grievances alleging an unreasonable exercise of management rights.
• What does your benefit plan say?  Read your plan carefully. Does charging a surcharge conflict or breach the terms of your benefit plan?
• What about refusals linked to protected grounds under human rights legislation? There may be employees who are unable to vaccinate due to a protected ground under human rights legislation – like a medical condition or religious reason. Consider whether these employees need to be exempt from the surcharge or whether you can justify treating all employees who refuse vaccination – regardless of the reason – the same and subject to the surcharge.
• How much notice will you give? Ideally, you should give employees enough advance notice so that they can choose to get vaccinated and avoid the surcharge. That is the point after all. If an individual is considered fully vaccinated 14 days after receiving their second dose of a two-dose COVID-19 vaccine series, consider delaying the implementation of the increase two or more weeks.
• How will you know if employees are vaccinated? Perhaps you already know who is vaccinated. If you do not, how will you determine who to surcharge? Are you requesting or requiring proof of vaccination from employees? If so, how will you justify this? What privacy issues are engaged and how will you address them?
• How will you collect the surcharge? In some jurisdictions, employment standards legislation prohibits employers from making a deduction from an employee's wages, unless the employee has provided written authorization for the deduction. Is your current authorization to deduct premiums sufficient authority to deduct a surcharge? What are the risks you face, if not?
• Do you have other risks if you differentiate in benefits? In some jurisdictions, employment legislation prohibits employers from offering a benefits plan that treats employees differently on a number of grounds. Does your surcharge distinguishing between vaccinated and unvaccinated workers comply with these rules where they exist?

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.