The interplay between a terminated employee’s severance package and Employment Insurance benefits often leads to many questions – this article answers some of those questions for non-unionized employees in Canada. If you are a unionized employee, please note that there are other considerations which may apply.
When to Apply
As soon as you stop working, you must apply for Employment Insurance (‘EI’) regular benefits, even if you have yet to receive your Record(s) of Employment (‘ROE’). If you delay in filing your claim beyond four (4) weeks after your last day of work, you may lose benefits.
The following criteria must be established in order to be eligible for EI regular benefits:
- You were employed in insurable employment;
- Lost your employment through no fault of your own;
- Have been without work and without pay for at least seven (7) consecutive days in the last 52 weeks;
- Have worked for the required number of insurable hours in the last 52 weeks or since the start of your last EI claim, whichever is shorter;
- Are ready, willing, and capable of working each day; and
- Are actively looking for work (you must keep a written record of employers you contacted, including when you contacted them).
The main problem people face when trying to claim their EI benefits is with respect to the second requirement mentioned above. What does ‘through no fault of your own’ mean and how do you prove it?
If you were terminated because of shortage of work, seasonal or mass lay-off, or even simply because your employer took the position that he or she no longer wanted to employ you, you have lost your employment through no fault of your own. The following does not qualify as ‘through no fault of your own’:
- Quitting your Job
If you choose to leave your employment (a) voluntarily and (b) without just cause, you are not entitled to receive EI regular benefits. This means that where just cause for leaving your employment exists and can be proven, you will be able to claim these benefits. Just causes include harassment, discrimination and dangerous working conditions.
- Dismissed for Cause
If you are dismissed for misconduct, you are not entitled to receive EI regular benefits. Misconduct can include voluntarily committing an inappropriate action, a violation, or professional misconduct. Nevertheless, you may still be eligible to receive other forms of EI benefits.
Also important to note, if you choose to retire, you will no longer fall within the eligibility requirements of being ‘ready, willing and capable of working each day’ or ‘actively looking for work’, and therefore would also not be eligible for EI benefits.
The easiest way for you to prove that you lost your employment through no fault of your own is by way of your ROE.
The Record of Employment (“ROE”)
An employer is responsible for issuing an ROE each time an employee experiences an interruption of earnings, defined as a period of time when an employee has had or is anticipated to have seven (7) consecutive calendar days with no work and no insurable earnings from the employer. An employer also has to issue an amended ROE when the information on the original ROE needs to be changed, corrected or updated.
If your employer submits your ROE to Service Canada electronically, you need not submit a paper copy yourself. If your former employer submits a paper copy of your ROE, you must provide Service Canada with the original copy. Even though the application process for EI benefits can begin without an ROE, the actual processing of the benefits can be delayed without it. Service Canada can help you obtain your ROE if you are having difficulties.
Reason for Issuing an ROE
Block 16 on an ROE enables your former employer the opportunity to set out the reason why they are issuing your ROE, which is typically because they have either terminated your employment or laid you off.
If you have either lost your job because your employer was cutting back or you have been temporarily laid off, Code ‘A – Shortage of work’, would be the appropriate code for your employer to use in Block 16. If instead you were terminated, regardless of whether it was ‘for cause’ or ‘without cause’, your employer should use Code ‘M – Dismissal’ in Block 16. Then, in Block 18, your employer should specify whether your termination was ‘for cause’ or ‘without cause’ (no further description is required) in order for your claim for benefits to be processed in a timely manner. Even though Code ‘K – Other’ in Block 16 was often the manner by which employers specified the reason an employee was terminated, this Code should now only be used in exceptional circumstances.
EI Rate, Period and Length of Benefits
The basic rate for calculating EI regular benefits is 55% of the average for your highest weeks of earnings for your previous year. As of January 1, 2014, the maximum anyone can receive is $514 per week (this amount is reviewed each year), and once the weekly benefit rate is established, it will remain unchanged over the life of the claim. EI benefits are taxable, no matter what type of benefit you receive, and taxes will be deducted from your payment automatically.
A two-week waiting period must be served on a new claim before you are entitled to receive a payment. Generally this period is the first two (2) weeks of your claim and is akin to a deductible for insurance proceeds. There is no two-week waiting period for a reactivated claim. You should receive your first payment within 28 days of the date Service Canada receives your application and all required documents.
You can receive EI benefits for a period ranging from 14 to 45 weeks, depending on the unemployment rate in your region and on the number of insurable hours you accumulated during the qualifying period.
The length of the benefit period is generally 52 weeks, but can be extended to a maximum of 104 weeks in certain situations, including when your benefits are interrupted because you received severance pay from your former employer. Nevertheless, the number of weeks that benefits can be paid will not change.
Repayment of EI Regular Benefits upon Settlement or Judgment
You must report any income you receive to Service Canada when you file your EI benefit claim, and must also inform Service Canada of any income you receive after you started receiving your EI benefits, such as damages for wrongful dismissal.
Amounts Received at Termination
If upon termination you received severance pay, termination pay, vacation pay or an amount that was put into an RRSP, the date on which you begin to receive EI benefits may be delayed. For example, if you received severance pay equal to 12 weeks of income, the payment of your regular EI benefits will be delayed by 12 weeks, whether you received this amount as a lump-sum payment or over the 12 week period. Block 17 (‘Separation Payments’) of your ROE will include any separation payments that your employer has paid or will pay to you on account of ‘separation’, defined as the period during which you experience an interruption of earnings. The separation can be either final (if terminated) or not final (if temporarily laid off).
In this situation, you will still have to file your EI benefit claim as soon as you become unemployed so that your claim can be processed as quickly as possible, and in order to avoid any lost benefits.
Amounts Received After Termination
You may also receive severance pay, termination pay, vacation pay or an amount that you wish to put into an RRSP after filing your benefit claim, either by way of a settlement or a damages award. The addition of these amounts to your insurable earnings may, among other things, extend the duration of your benefit claim or increase the amount of benefits to which you are entitled. However, if you receive any of these amounts after having already started to receive EI benefits, you will need to repay some of your EI benefits.
According to section 45 of the Employment Insurance Act, you must repay any EI benefits that you have received when your former employer pays a judgment or a settlement in respect of that employment. However, only ‘earnings’ need to be repaid, and therefore any amounts that do not fall within that definition will not apply for purposes of your EI repayment obligation. A payment which is completely unrelated to advantages arising from employment will not fall within the definition of ‘earnings’, such as the following:
- Legal fees;
- General damages;
- Human rights damages;
- Outplacement counselling;
- Reimbursement for job search, relocation or retraining expenses; and
- Payment in lieu of an existing right to reinstatement of employment.
Even though unpaid wages, such as unpaid overtime hours, would seem to fall within the definition of ‘earnings’, these amounts would also not be considered for the purposes of repaying the EI benefits but would instead be used to recalculate your allowable benefits.
The reasoning behind the repayment obligation is that Service Canada would not have paid out your EI benefits had you received these ‘earnings’ when you were terminated. The repayment obligation is intended to prevent employees from receiving both earnings and EI benefits for the same period of time.
For example, if you received EI benefits for six (6) months and subsequently received a settlement that compensated you for six (6) months’ worth of income, all of the EI you received would have to be repaid.
Moreover, section 46(1) of the Act provides that it is the obligation of your former employer to withhold an amount equal to the EI benefits you have already received from any judgment or settlement and remit this amount to Service Canada as repayment of an overpayment of benefits. However, this is only true if your former employer has reason to believe that you have received these benefits. Still, practically speaking, the repayment obligation falls on you – the employee – whereas employers often proceed to pay out all settlement amounts while ensuring they will not be on the hook for these overpayments by requiring the signing of a Release. In this case, the employer’s only obligation would be to issue an amended ROE.