When designing for apparel should a design canvas size be considered
based on each shirt to be printed or should it be based on the median
of shirt sizes?
In general, the same artwork size is used for all different sizes but in high quality clothing, it's not uncommon to use a different canvas for a very small t-shirt and another one for a XXL for example. Clothing sizes don't "expand" proportionally, they have different ratios.
Printers do not always resize canvas!
As you know, you need to refer to the printer's specifications for the canvas size. The sizes depends on the market (country) and the machines of the printer.
To create your design: the easiest way to do this is to start with the best seller size as your "demo", which is probably the medium/large sizes; that's the size you can use for your own workflow. If you work in vector it won't be an issue to change the size if your client ever decides to use different templates; for raster, then start with a higher resolution and the biggest canvas size since it's easier to lower the size down than increase it.
And if you know your client will use a print-on-demand type of service, then simply use the medium size as demo; there's usually only one size for all shirts and no option of using a bigger or smaller canvas based on the garment size.
In general, the best is to use all the area you have on your canvas unless your goal is to print something very small!
Would it be proper to suggest to the client the different canvas sizes
even though that could be considered another design fee?
My suggestion is to show a proof with the design on each t-shirt size; you can usually get these garment sizes on the printer's site and if you work with a manufacturer, you can always ask them. Standard sizes depends on which country they're produced for, so be careful if you get this info online.
As you guess, the print on very small size will look very "busy" because the print will occupy a large area of the shirt while the XXL will look "empty". Sometimes the right and left edges of the print on very small size get sewed and "cropped"; apply the same rule to your clothing print as you would for any other print project and make sure you have some safe margin (but bleed isn't necessary).
So yes, after showing your client how the print will look like on the different sizes of shirt, it might be proper to suggest to the client to use different canvas sizes if the artwork looks out of place on some specific t-shirt sizes. By showing the proofs, you'll let the client decide and see if it fits the budget.