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Persons in attendance
S. H. attended the hearing by telephone.
Decision
[1] The Tribunal finds that the Respondent has correctly applied the requirements of section 45 of the Employment Insurance Act (EI Act), and sections 35 and 36 of the Employment Insurance Regulations (Regulations), and their decision is consistent with the case law regarding the determination and allocation of the settlement monies.
Introduction
[2] The Appellant left his employment at a local university and received $8,521.24 in vacation pay. Subsequently, the former employer paid him an additional $120,000.00 as a “retirement allowance” or terminating grievance settlement. The Appellant’s solicitor requested that the Respondent provide a calculation of the overpayment of benefits, so that amount could be forwarded out of the settlement proceeds. The information was not forthcoming, so they forwarded $13,500.00. Later, the Respondent determined that value of the overpayment to be $15,183.00 and sent him a Notice of Debt for that amount.
[3] The Appellant objected to this decision and requested a Reconsideration Review, which the Respondent undertook. At the conclusion of the review, they advised the Appellant that they had not changed their initial decision. He now appeals to the Tribunal to reverse the unfavourable decision.
Form of hearing
[4] The hearing was conducted by means of a teleconference for the reasons set out in the Notice of Hearing dated May 28, 2014.
Issues
[5] Whether or not the monies received because of the Appellant’s settlement agreement are “earnings” as defined by the Act and Regulations, and if so; whether or not the monies were allocated properly in accordance with the Regulations.
The law
[6] Subsection 35(1) of the Regulations:
(1) The definitions in this subsection apply in this section "employment" means
- (a) any employment, whether insurable, not insurable or excluded employment, under any express or implied contract of service or other contract of employment,
- (i) whether or not services are or will be provided by a claimant to any other person, and
- (ii) whether or not income received by the claimant is from a person other than the person to whom services are or will be provided;
- (b) any self-employment, whether on the claimant's own account or in partnership or co-adventure; and
"income" means any pecuniary or non-pecuniary income that is or will be received by a claimant from an employer or any other person, including a trustee in bankruptcy.
[7] Subsection 35(2) of the Regulations states, in part;
(2) Subject to the other provisions of this section, the earnings to be taken into account for the purpose of determining whether an interruption of earnings has occurred and the amount to be deducted from benefits payable under section 19 or subsection 21(3), 22(5) or 23(3) of the Act, and for the purposes of sections 45 and 46 of the Act, are the entire income of a claimant arising out of any employment, including
- (a) amounts payable to a claimant in respect of wages, benefits or other earnings from the proceeds realized from the property of a bankrupt employer;
[8] Subsections 36(9), (10) and (11) of the Regulations state;
(9) Subject to subsections (10) and (11), all earnings paid or payable to a claimant by reason of a lay-off or separation from an employment shall, regardless of the nature of the earnings or 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.
(10) Subject to subsection (11), where earnings are paid or payable to a claimant by reason of a lay-off or separation from an employment subsequent to an allocation under subsection (9) in respect of that lay-off or separation, the subsequent earnings shall be added to the earnings that were allocated and, regardless of the nature of the subsequent earnings or the period in respect of which they are purported to be paid or payable, a revised allocation shall be made in accordance with subsection (9) on the basis of that total.
(11) Where earnings are paid or payable in respect of an employment pursuant to a labour arbitration award or the judgment of a tribunal, or as a settlement of an issue that might otherwise have been determined by a labour arbitration award or the judgment of a tribunal, and the earnings are awarded in respect of specific weeks as a result of a finding or admission that disciplinary action was warranted, the earnings shall be allocated to a number of consecutive weeks, beginning with the first week in respect of which the earnings are awarded, in such a manner that the total earnings of the claimant from that employment are, in each week except the last week, equal to the claimant's normal weekly earnings from that employment.
[9] Section 43 of the EI Act states:
(43) A claimant is liable to repay an amount paid by the Respondent to the claimant as benefits
- (a) for any period for which the claimant is disqualified; or
- (b) to which the claimant is not entitled.
[10] Section 44 of the EI Act states:
(44) A person who has received or obtained a benefit payment to which the person is disentitled, or a benefit payment in excess of the amount to which the person is entitled, shall without delay return the amount, the excess amount or the special warrant for payment of the amount, as the case may be.
[11] Section 45 of the EI Act states:
(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.
Evidence
[12] The Appellant submitted an application for Employment Insurance (E.I.) benefits on September 13, 2013 (GD3-2 to 3-10). His Record of Employment (ROE) states that he worked for the university from July 11, 1998 until he was dismissed (code “M”) on August 9, 2012. He accumulated 2767 insurable hours and $48,950.25 in insurable earnings. He was also paid $8,521.27 in vacation pay (GD3-11). The ROE was amended in October 28, 2013 to reflect the fact that he had quit (code “E”) and that he had received an addition payment of $120,000 as a “Retiring Allowance” (GD3-13 to 3-15).
[13] On July 30, 2013, the solicitors for the Appellant wrote the Respondent advising them of the settlement, and asking for the amount of the overpayment of benefits, so that the employer could remit the correct amount from the settlement funds. The total amount of the settlement was attributable to lost wages. No legal fees were charged (GD3-16).
[14] The Respondent failed to reply to the lawyer’s request. On October 15 the lawyer wrote to the Respondent stating that the Appellant reported that he had received a total of $13,500.00, and since the overpayment cannot be more than the amount received, they are enclosing their trust cheque in that amount (GD3-18).
[15] On October 29, 2014, the Respondent replied to the Appellant that they determined that he had received $128,521.27 in vacation pay and grievance settlement and that total would be applied to the period September 9, 2012 to April 12, 2014 (GD3-24). He was also sent a Notice of Debt Details totalling $15,183.00 (GD3-26).
[16] The Appellant submitted an appeal to the Tribunal on November 27, 2013 GD-2), but because the Respondent had not been given the opportunity to conduct an administrative review of the original decision, the appeal to the Tribunal was set aside.
[17] On January 15, 2014 the Respondent received his Request for Reconsideration. It was received beyond the 30 day period because of incorrect information given him by Service Canada staff. The Review was undertaken, and on February 20, 2014, they wrote the Appellant that they had completed the review, but maintained their original October 29, 2013 decision GD3-31).
[18] On March 24 the Tribunal received his appeal of the Respondent’s decision (GD2B-1, 2B-2, GD2C-1).
Submissions
[19] The Claimant submitted that:
- a) the $13,500.00 should not have been withheld. He only received $120,000 not $128,521.27. His E.I. benefits were to compensate him for his lack of employment regardless of what he might have received from the former employer. He believes he is entitled to the E.I. benefits he has received (GD3-27 to 3-29).
- b) the settlement he received was compensation for being wrongfully terminated. The Appellant does not agree with the $120,000 being considered wages. He believes that he should be entitled for E.I. benefits as lost wages (GD2-1 to 2-7).
- c) The Appellant submitted an appeal to the Tribunal after receiving a decision on his Request for Reconsideration from the Respondent. He states that he is entitled to E.I. benefits during the period he collected it. He believes that any repayment required should be the responsibility of his former employer (GD2B-1).
- d) During the hearing, he maintained that the allocation of the settlement monies as earnings is wrong. He has not been able to find work since leaving the university, and has exhausted his financial resources.
[20] The Respondent submitted that:
- a) Sums received from an employer are presumed earnings and must be allocated to a period on claim unless the amount falls within an exception in subsection 35(7) of the Regulations or does not arise from employment.
- b) the Appellant had signed the lawyer’s letter confirming that the monies from the settlement in the amount of $120,000.00 were for lost wages (GD3-17).
- c) Based upon the facts on file they determined that the grievance settlement for lost wages and vacation pay the Appellant received constituted earnings pursuant to subsection 35(2) of the Regulations because the payment was made to compensate the him for his dismissal. They further submit that the payment of $128,521.27 was paid by reason of his separation from employment. Consequently, the grievance settlement for lost wages and vacation pay was allocated pursuant to subsection 36(9) of the Act, according to his normal weekly earnings from August 9, 2012 (GD4-3).
- d) the $13,500 estimated by the Appellant was the net amount of the benefits paid, not the gross amount, which was $15,183 (GD3-26).
- e) they calculated his weekly pay to be $1482.81. At that rate, the vacation pay and settlement monies would be allocated to the period from August 5, 2012 to April 6, 2014 – as corrected (GD4-1, 4-2).
Analysis
[21] Section 35 of the Regulations defines income as “any pecuniary or non-pecuniary income that is or will be received by the claimant from an employer or from any other person, including a trustee in bankruptcy, and the earnings to be taken into account including any amount payable to the claimant in respect to wages, benefits or other earnings from the proceeds realized from the property of the bankrupt employer. This would include vacation pay and the settlement payment negotiated with the former employer.
Vacation Pay
[22] The Appellant’s ROE shows that upon his leaving the university, he received $8.521.24 as vacation pay. When vacation pay is paid out in a lump sum at a layoff for separation from employment, the allocation is made in accordance with subsection 36 (8)(b). Vacation pay is allocated pursuant to section 36 (9) of the Regulations when it is to be paid or payable “by reason of a layoff for separation from employment”. The whole amount of vacation pay is payable, even though it is earned in each pay period (CUB 17719).
[23] By dividing the vacation pay by his calculated “average weekly earing” the result is a s follows:
$8,521.24 $1,482.81 3.93 or 3 weeks and 6.5 days
Therefore, based on Regulations 36(9) and 36(10), the vacation pay would delay the start of his EI benefits by nearly 4 weeks.
Severance Pay
[24] As a settlement of a grievance regarding his dismissal, he received $120,000.00 as a “Retirement Allowance”. In the lawyer’s advice to the Respondent, they state that the entire sum is for lost wages, and that there are no legal fees assessed. This is confirmed by the Appellant’s signature on the final page of the letter.
[25] Severance pay is earnings as per section 35 or the Regulations, and is to be allocated according to Regulation 36(9) (CUB 51447).
[26] In Boulianne vs Walsh, (1979), 2 F.C. 186, the Court determined that;
“[A]mounts paid by an employer to a former employee who has been dismissed without notice constitutes income for the employee, provided that such amounts have been paid to the employee to consate [sic] him for a loss of wages that resulted or that may result from an unlawful dismissal.”
[27] In Blais et al vs Canada (A.G.), 2011 FCA 320, Justice Trudel, in writing the decision stated;
“This regulatory provision must be read in conjunction with section 35 of the Regulations, which identifies what constitutes earnings for benefit purposes. For this application, it is sufficient to know that the case law is consistent in stating that severance pay (CUB 178052, 17564, 13063, 20753) and vacation pay (Scully v. Canada (Commission of Employment and Immigration), [1989] F.C.J. No. 965, 107 N.R. 142) are earnings that disentitle the claimant concerned from receiving benefits. Many situations may lead to the allocation of earnings. In the applicants’ case, the Commission applied subsection 36(9) of the Regulations, which provides as follows:
Subject to subsections (10) and (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, e qua l to the c la ima nt’s normal weekly earnings from that employment. [Emphasis added]”
[28] There is a presumption that a settlement or an award for wrongful dismissal is determined to be “earnings” under section 35 of the Regulations, unless the agreement specifically identifies costs attributable to legal fees, disbursements, etc., where it is clear that a portion of the settlement was not recognition for lost income. If the costs are not separated, it must be presumed that the entire amount constituted only loss of income, for the same settlement or adjustment. (CUB 15122A, and in the federal Court of Appeal in M.E.I vs Mayor (1989), 97 N.R. 353 (FCA).
[29] The onus is on the Appellant to show that the settlement or any portion of it was for something other than compensation for lost income. The solicitor’s letter to the Respondent of July 31, 2013 confirms that “The total value of the settlement attributable to lost wages following termination was $120,000.00. Mr. S. H. will not incur legal fees.” (GD3-16). The Appellant attested as to the correctness of these statements (GD3-17).
[30] Therefore, the $120,000 severance is considered earnings, and must be allocated according to the Regulations in the same fashion that the vacation pay was treated. By dividing the severance pay by his calculated “average weekly earing” the result is as follows:
$120,000 $1,482.81 80.93 or 81 weeks
Based on Regulations 36(9) and 36(10), the vacation pay would, delay the start of his EI benefits by a further 81 weeks. Taken together with the vacation pay, the period during which the Appellant would not be entitled to benefits would total 85 weeks. During that 85 week period, the Appellant received $15,183 in EI benefits.
[31] Section 45 of the EI Act states that once the claimant received the money from his employer; he is no longer entitled to the E.I. benefits he had received. Since the Appellant had received a gross benefit payment totalling $15,183 ($13,500 net) for the time he also received severance settlement, there was an overpayment of $15,183. This section also stipulates that the overpayment must be repaid. The Appellant may wish to contact the Canada Revenue Agency regarding the possible refund of the income taxes paid on the E.I. benefits that must now be repaid, thereby recovering the difference between the gross and the net amount of the overpayment.
[32] The effect of not requiring the repayment of the benefit amount would result in the Claimant being paid twice for the same time period; once from the Respondent and once as a severance settlement from his former employer. This was not what the Employment Insurance system was designed for. If he were initially denied benefits while the grievance was in process, he would likely have faced financial hardship immediately, but would have been able to keep all the E.I. payments he would receive after the settlement and vacation pay had been considered.
[33] Likewise, if he received benefits and lost his arbitration he would have nothing to repay, but would have had his E.I. benefits to help him through the benefit period. However, he benefited from the best of both situations; he had the E.I. payments to help him up to the point where his grievance settlement was paid out. Unfortunately, he cannot keep then both.
[34] The Tribunal finds that the Respondent has correctly applied the requirements of section 45 of the EI Act, and sections 35 and 36 of the Regulations, and their decision is consistent with the case law regarding the determination and allocation of the settlement monies.
[35] The Tribunal finds that the Respondent has correctly calculated of the overpayment of benefits, and allocated it as required by subsection 36(9) of the Regulations.
Conclusion
[36] The appeal is dismissed.