E.I. Benefits

The amount of eligible EI benefits is based on “average weekly insurable earnings”. The employee will be entitled to 55% of this sum, which is based on an annual cap of insurable earnings of $61,500. This leads to the maximum weekly sum as $650.

The number of required weeks of employment prior to the application date varies by region and the rate of unemployment in that region. It ranges from 14 to 22 weeks. The number of eligible weeks within which benefits will be paid is also subject to regional variations and the number of insured weeks of employment. There is detailed explanation here.

Claw Back

In the event the employee recovers funds from his employer relevant to the time period of benefits payments, there will arise an obligation to repay this sum to the CRA. The relevant section of the Employment Insurance Act reads as follows:

Return of benefits by claimant

45 If a claimant receives benefits for a period and, under a labour arbitration award or court judgment, or for any other reason, an employer, a trustee in bankruptcy or any other person subsequently becomes liable to pay earnings, including damages for wrongful dismissal or proceeds realized from the property of a bankrupt, to the claimant for the same period and pays the earnings, the claimant shall pay to the Receiver General as repayment of an overpayment of benefits an amount equal to the benefits that would not have been paid if the earnings had been paid or payable at the time the benefits were paid.

The arithmetic of this calculation is determined by the regulations passed under the above Act, which read:

36(2) For the purposes of this section, the earnings of a claimant shall not be allocated to weeks during which they did not constitute earnings or were not taken into account as earnings under section 35.

And

36(9) Subject to subsections (10) to (11), all earnings paid or payable to a claimant by reason of a lay-off or separation from an employment shall, regardless of the period in respect of which the earnings are purported to be paid or payable, be allocated to a number of weeks that begins with the week of the lay-off or separation in such a manner that the total earnings of the claimant from that employment are, in each consecutive week except the last, equal to the claimant’s normal weekly earnings from that employment.

It has been determined that a settlement of a wrongful dismissal claim creates a presumption that the funds so received are “earnings” as referenced in the above regulations. ¹ Legal fees and disbursements are deducted from the settlement sum to lead to the claw back calculation.

Once the “earnings” sum has been calculated, this amount is then allocated to a number of weeks by dividing this sum by the normal weekly earnings prior to termination of employment. This will result in identifying the number of weeks for which the EI benefits must be repaid. In Court v AG Canada, the Federal Court of Appeal stated this concept in these words:

Turning to the Regulations, the plain reading of subsection 36(9) of the Regulations is also clear. It requires that all earnings paid to the applicant by reason of the settlement of her wrongful dismissal claim, “regardless of the period in respect of which the earnings are purported to be paid … be allocated to a number of weeks that begins with the week [of her termination] in such a manner that [her] total earnings … from that employment are … equal to her normal weekly earnings from that employment.

This is so, regardless of the minutes of settlement or other document which may describe the time period for which settlement funds have been allocated.

Aggravated Damages

Sums received by the employee which are intended to compensate for pain and suffering relating to bad faith conduct are not subject to the “earnings” definition. As stated by the Social Security Tribunal: ²

Having considered the entirety of the evidence, I am satisfied that the general damages payment was intended to compensate the Appellant for pain and suffering damages relating to the bad faith manner in which she was terminated by her employer. The Minutes provide for payment of the general damages without deduction for taxes or EI repayment, suggesting it was the parties’ intention that the general damages was to compensate for a loss other than loss of income or earnings. The Statement of Claim includes a claim for exemplary and aggravated damages related to the bad faith manner in which the Appellant was terminated and articulates the Appellant’s mental stress as a result of the manner of termination. The Appellant’s testimony concerning the manner in which she was terminated supports the allegations in the claim. The Appellant also testified that it was her understanding that the general damages was to represent compensation for pain and suffering and this evidence was not contradicted.

Damages for Reprisal

A similar conclusion was reached in a fact situation in which the taxpayer had received $22,500 as damages for reprisal. In fact, on appeal, the two parties agreed to this disposition. ³

Onus

It will be incumbent on the taxpayer to introduce evidence to demonstrate the allocation of settlement funds to items such as exempted damages: ⁴

While the Tribunal understands the logic behind the proposed proportional breakdown of the $33,828.83 based on the amounts of general damages, aggravated damages and prejudgement interest claimed by the Appellant, there is insufficient evidence to determine how the damage award was attributed, therefore the Tribunal finds that there is insufficient evidence to conclude that the damages were to compensate the Appellant other than for lost income.  The Tribunal is supported in this finding by the Federal Court of Appeal that held in the decision Minister of Employment and Immigration v. Mayor, A-667-88 that although the claimant, in his suit against his former employer, referred to injury to his reputation, emotional upset and expenses incurred looking for other employment, there was nothing that would allow a trier of fact to determine what, if any part was received in the settlement for these factors rather than for the more usual salary in lieu of notice.   The Tribunal finds that the damages paid to the Appellant in the amount of $33,828.83 constitute earnings because they were paid to her as a result of her separation from her employment and is therefore income arising out of employment.

Surrender Right of Reinstatement

Apart from aggravated and punitive damages, a sum paid to the taxpayer in exchange for surrendering the right to reinstatement will also not constitute “earnings” for this repayment obligation. This was noted by the Federal Court of Appeal in its 2003 decision: ⁵

We recognize that the Board of Referees was not bound in any way by the decision of the Arbitrators and we also acknowledge that the fact that the parties have attached a particular label to a given damage settlement is not conclusive. However, it appears oral evidence was given before the Board and we are unable to conclude that it was unreasonable for the Board to accept the evidence by the Applicant to the effect that the damages represented compensation for the relinquishment of the right to reinstatement. Indeed, there seems to have been little evidence, if any, that the award could represent anything else. In particular, there does not seem to be evidence before the Board of Referees to the effect that the damages represented loss of earnings.

[19]            This Court in Canada v. Plasse [2000] F.C.J. 1671 at paragraph 18, decided that a payment received for renunciation of a right to reinstatement does not constitute earnings under the Employment Insurance Regulations. The Board referred to this most recent relevant law and applied it correctly. We would observe that the Umpire did not refer to this law.

The test for a successful assertion of this submission is as follows: ⁶

Second, money paid after a separation from employment may be considered paid in compensation for giving up the right to reinstatement if this right exists under legislation, among other things; if the worker asked to be reinstated; and if the settlement agreement shows that the money was paid in compensation for giving up this right to reinstatement.

[29] An employee has a distinct, negotiable right to be reinstated, and the right to be reinstated must have arisen and be negotiable.

[30] The agreement between the parties indicates that the Appellant was being paid $2,784 because he was [translation] “giving up taking any action to dispute his separation from employment […] including, but not limited to, a complaint under section 32 of the AIAOD ….

More on Legal Fees

The sum for legals and disbursements is deducted from the total award of the eligible claw back as a means of crediting the employee with such expenses. This must be the net sum incurred, with the offset of any legals paid by the employer. This does not provide an effective deduction in every case. A plaintiff, who for example, recovered 18 months severance will not gain the benefit of the offset for legals. A person who recovered 10 months will. The deduction of legals should be from the maximum EI repayment period, not the total sum received.

Workers’ Comp

The Regulations specifically exempt a payment of Workers’ Compensation benefits from the repayment obligation. The same applies to payments of disability insurance which comes from an individual, as opposed to a group plan, as set out in S. 35(7)a:

(7) That portion of the income of a claimant that is derived from any of the following sources does not constitute earnings for the purposes referred to in subsection (2):

(a) disability pension or a lump sum or pension paid in full and final settlement of a claim made for workers' compensation payments;

(b) payments under a sickness or disability wage-loss indemnity plan that is not a group plan;

Thus, a settlement sum received for Workers’ Compensation benefits will also not be considered “earnings”. ⁷ To the same end is a decision of the Social Security Tribunal in 2021.  ⁸