Employment Insurance (EI)

Reasons and Decision

Decision

The Claimant, N. S. did not attend the hearing. His representative (spouse), D. S., attended and provided submissions on his behalf.

Overview

[1] On October 11, 2014, the Claimant applied for employment insurance regular benefits after having been dismissed from his employment. He was involved in a grievance process and did not come to an agreement until June 2016 at which time he received settlement monies in the amount of $3,500.00. The Commission retroactively allocated these monies to the Claimant’s benefit period from his last day worked on September 28, 2014 until October 18, 2014 pursuant to sections 35 and 36 of the Employment Insurance Regulations (Regulations). As a result, the Claimant was asked to return an overpayment of benefits in the amount of $2,056.00.

[2] The Claimant submitted that the settlement amount of $3,500.00 is not considered earnings according to case law because it was awarded to him in order to relinquish his rights to reinstatement. The Commission, on the other hand, submitted that the monies the Claimant received constituted earnings because the payment was made to compensate him for having been terminated and thus, was properly allocated.

[3] The Member finds that although there was no formal settlement agreement between the Claimant and the employer, the documentary evidence provided by the Claimant confirmed that the $3,500.00 was compensation for the Claimant to give up his rights to be reinstated to his former position. According to case law, these monies therefore cannot be considered ‘earnings’ pursuant to section 35 of the Regulations and therefore cannot to be allocated to his benefit period.

Form of hearing

[4] The hearing was held by teleconference since (a) the Claimant was going to be the only party in attendance (b) the Claimant indicated that he has a back disability and (c) the form of hearing respects the requirement under the Social Security Tribunal Regulations to proceed as informally and quickly as circumstances, fairness and natural justice permit.

Evidence

[5] The Claimant applied for employment insurance regular benefits on October 11, 2014 after having been dismissed from his employment. He was not paid any separation monies at that time (GD3-13 and GD3-15).

[6] On February 17, 2016, the Claimant’s (Union) lawyer advised the Commission that as result of a grievance, the Claimant was going to be receiving $3,500.00 in settlement monies. On the amended Record of Employment (ROE), the employer confirmed the said gross amount was settlement pay (GD3-15 to GD3-19).

[7] The Commission retroactively allocated $3,500.00 to the Claimant’s benefit period from the day after his last day of work September 28, 2014 to October 18, 2014. As a result, there was an overpayment in the amount of $2,056.00.

[8] On August 26, 2016, the Claimant requested that the Commission reconsider its decision arguing that the Commission erred in allocating the settlement monies because they are not earnings for work that was performed. In a letter to the Commission, the Claimant wrote that he begged for his job back and that the settlement monies were paid for him to relinquish his employment rights (GD3-25 to GD3-27). In support of his position, the Claimant put forth submissions (GD2A-44 to GD2A-51 and GD3-34 and GD3-35) and provided documentary evidence of email to his lawyer in October 2016 (see below).

[9] The Commission unsuccessfully attempted to obtain information from the employer regarding any paper work or information about the settlement agreement (GD3-30 and GD3-31).

[10] On October 11, 2016, the Commission advised the Claimant that it initial decision of August 3, 2016, is maintained.

Claimant’s documentary evidence

[11] The collective agreement indicates that a grievance “shall be adjusted and settled within the terms and conditions as set forth in this Agreement, in the manner provided by this Article” The Article sets out the steps (1 to 4) to be taken during a grievance process for all grievances including termination or layoff matters (GD2A-27 and GD2A-28).

[12] In an email, dated February 11, 2016 the Claimant’s Union lawyer is requesting that the Claimant confirm by return email that he is providing instructions to him (the lawyer) to offer to settle his termination grievance. He writes that “The settlement would mean you would receive the money in exchange for your giving up any rights you might have to reinstatement to your position … and any other claims you have against ... (i.e. for wages etc). It will also require you to sign a release … I need a clear Yes, I instruct you to try to settle on this basis, or NO, do not offer to settle” (GD2A-34 or GD3-36).

[13] On the same day, the Claimant advised his Union lawyer that he was agreeing to withdraw his grievance and accept settlement monies. The Claimant wrote “With this settlement offer, I am giving up any rights to reinstatement of my position … and any other wage claims” (GD2A-35 or GD3-37).

[14] On February 16, 2016, the Claimant’s lawyer confirms “Your offer is accepted” and that the matter was settled. The emails show that it was agreed that the ROE would be changed to “resigned” and the settlement amount would be $3,500.00 (GD2A-38 and GD3-39).

[15] An email from the Claimant’s Union lawyer to the Claimant on October 11, 2016 regarding the Commission’s decision, indicates that “the final “settlement” was just recorded as an email exchange and the grievance was withdrawn …you confirmed your instructions to me to accept the settlement” (GD2A-58).

[16] On October 14, 2016, the Claimant’s Union lawyer emailed the Claimant’s representative noting that he spoke to the employer’s lawyer to have the settlement monies characterized as “damages in lieu of reinstatement”. He noted that “the employer specifically stated that it would not agree to characterize the payment as such. In the absence of an agreement to so characterize the payment that way, it is clear there are taxes payable and EI overpayment remittance owing. You are free to try to convince Service Canada and Canada Revenue Agency otherwise, but we will not be doing so” (GD2A-60).

[17] In a subsequent email on October 17, 2016, the Claimant’s Union lawyer wrote to the Claimant confirming that the balance (after the overpayment is deducted) of the $3,500.00 settlement will be paid to him and that “There will be no CPP/EI deductions” (GD2A-55).

[18] After the hearing, the Claimant submitted evidence of correspondence to his union during the grievance process. On October 2, 2014 immediately upon termination, the Claimant sent a fax to the union noting that he was requesting “reinstatement of full time employment with compensation for any lost wages or earnings suffered” (GD5-3).

[19] A letter addressed to the union dated November 25, 2014 indicates that the Claimant felt he was unjustly terminated and states “I would like to be reinstated without further due delay after investigation.” (GD5-5).

Submissions

[20] The Claimant submitted that the $3,500.00 he received from the employer is monies given to him to relinquish his rights to reinstatement. He submitted that the monies were not for the loss of his employment, for work performed, wages or wrongful dismissal and thus, is not earnings that should have been allocated to his benefit period. He submitted that he met the requirements as per case law. The Claimant submitted that he had the right to be reinstated which he sought by following the prescribed steps in the grievance process of the collective agreement. The Claimant submitted that he requested that the union lawyer act on his behalf to get him reinstated and didn’t withdraw until step 4 in the process just before the scheduled arbitration hearing. He further submitted that although the purpose for the monies is not stated in a settlement agreement, the emails with the employer constitute a binding agreement that shows the monies were paid for that reason. He noted that he “sold his rights” for a “paltry sum” to avoid turmoil while his wife recovered from cancer surgery.

[21] The Commission submitted that the monies the Claimant received constituted earnings pursuant to subsection 35(2) of the Regulations because the payment was made to compensate the Claimant for having been terminated. The said monies therefore were correctly allocated to his benefit period pursuant to subsection 36(9) of the Regulations. The Commission further submitted that the Claimant did not show that, as per case law, he was paid the said monies for compensation to relinquish his rights to be reinstated because it was not (a) in the collective agreement (b) sought by the Claimant and (c) shown in the settlement agreement.

Analysis

[22] The relevant legislative provisions are reproduced in the Annex to this decision.

[23] In cases such as this one, where a claimant receives settlement monies payable or paid during his/her benefit period, the Commission must consider whether the monies received are considered ‘earnings’ and whether these earnings should be allocated to the benefit period. Sections 35 and 36 of the Regulations define what monies are considered ‘income’, what is considered ‘earnings’ for the purposes set out in section 35 and how these earnings are to be allocated to the benefit period.

[24] In this case, the Claimant was not initially paid any separation monies upon being dismissed from his employment. Several months later however, after pursuing the matter with his union through their grievance process, the Claimant was paid a settlement amount of $3,500.00.

[25] The Commission determined that this money compensated the Claimant for having been terminated and therefore is considered ‘earnings’ pursuant to subsection 35(2) of the Regulations. As result, it retroactively allocated the $3,500.00 to his benefit period pursuant to subsection 36(9) of the Regulations. On the other hand, the Claimant submitted that the said monies are not earnings and should not be allocated to his benefit period because it was paid to him in return for the relinquishment of his right to reinstatement.

[26] The Member agrees with the parties that according to the Federal Court, unless the settlement pay could be characterized as compensation for relinquishment of the right to reinstatement, it must be allocated according to the Regulations (Warren v. Attorney General of Canada A-280-11). The Member agrees therefore that monies paid for the expressed purpose of the relinquishment of reinstatement rights are excluded from earnings because these monies cannot be said to have been "earned by labour" or "given in return for work done". Further, the Court has confirmed that the onus is on the claimant to establish that all or part of the sums received as a result of his or his dismissal amounted to something other than earnings within the meaning of the Act (Bourgeois v. Canada (AG), 2004 FCA 117). In this case, the Member finds that for the reasons provided below, the Claimant met the onus of showing that the $3,500.00 settlement pay was to compensate him for relinquishing his reinstatement rights.

[27] The Member considered the Commission’s further submission that the Claimant did not show that, as per case law, he was paid the said monies for compensation to relinquish his rights to be reinstated because it was not (a) in the collective agreement (b) sought by the Claimant and (c) shown in the settlement agreement. The Member agrees with the Commission, that the Federal Court of Appeal has clearly established that the onus is on the claimant to show that following a wrongful dismissal, he/she sought to be reinstated under regional legislation or under the provisions of a collective agreement or contract. If there is a monetary settlement instead, the agreement must indicate that the monies paid were for the relinquishment of the reinstatement rights (Meehan vs. Attorney General of Canada A-140-03; Plasse vs. Attorney General of Canada A-693-99).

[28] In this case, the Member finds that in the absence of a formal settlement agreement, the email evidence provided to the Tribunal is the only documentary evidence that establishes the purpose of the settlement payment. The Claimant’s Union lawyer confirmed to the Claimant that “the settlement” was documented in email exchanges i.e. no formal settlement agreement was ever signed (GD2A-58). The Member finds therefore that the agreement reached as documented in the emails is the “settlement agreement”. The Member finds that these emails show that (a) the Claimant had reinstatement rights under the collective agreement (b) he sought reinstatement through the grievance process in the collective agreement and (c) the $3,500.00 settlement pay was paid to the Claimant in order for him to relinquish his rights to reinstatement. As per case law, the Member considered each of these three factors.

[29] First, the Member notes that the excerpts from the collective agreement entered into evidence do not specifically state that the Claimant had reinstatement rights per se however; it outlines the steps to be followed for all grievances including termination or layoff matters. In this case, the Claimant had been terminated, and as per the emails (see below), he was seeking to be reinstated. The Claimant argued that because there was a collective agreement in place between the employer and the union, it lead to negotiations according to the stated steps in their grievance process. He submitted that when they failed to reach an agreement to reinstate him, the matter proceeded to arbitration. Just before the arbitration date, the employer made the Claimant an offer to settle and he was compensation of $3,500.00 to relinquish his right to reinstatement. The Member also considered that the collective agreement does indicate that a grievance “shall be adjusted and settled” within the terms set out in the agreement. The Member finds therefore, that in order for the Union lawyer to represent, negotiate, proceed through the grievance process and settle, under the understanding that the Claimant was seeking to be reinstated (see below), the Claimant had to have reinstatement rights under the provisions of their collective agreement. That is, the right to reinstatement existed.

[30] Second, the Member finds that the emails dated October and November 2014 from the Claimant to his union clearly indicate that he was requesting that he be reinstated without delay. On October 2, 2014, immediately upon being terminated, the Claimant faxed his union requesting “reinstatement of full time employment with compensation for any lost wages or earnings suffered” (GD5-3). Later, on November 25, 2014, he wrote to his union stating: “I would like to be reinstated without further due delay after investigation.” (GD5-5). The Member finds therefore, that the Claimant was requesting assistance from his union to be reinstated and initially, on the day of termination, he was also asking to be compensated for any loss of wages.

[31] Third, the Member considered whether the $3,500.00 settlement pay that the Claimant received was only for him to relinquish his rights to reinstatement or whether it was also for “any other claims” against the employer i.e. wages. The Member noted that just prior to the arbitration date in February 2016, the Union lawyer acting on the Claimant’s behalf clearly stated that he wanted instructions from the Claimant whether he should to proceed with a settlement where he would receive money in exchange for his giving up his rights to reinstatement to his position “… and any other claims … i.e. wages etc.” (GD3-36). The Claimant agreed to accept the settlement money on that basis (GD3-37 and GD3-39). The Claimant submitted however, that he was properly terminated and the employer did not owe him any money i.e. one cannot suffer a loss of income if one is properly dismissed (GD2A-7, GD2A-17 and GD5-2). The Claimant also argued that if the settlement amount included any loss of wages, it would have been in excess of $75,000 i.e. roughly 17 biweekly pays (GD2A-17).

[32] The Member finds that there is no evidence to show that the $3,500.00 represented termination pay, severance pay or compensation for wrongful dismissal. The Member finds that the $3,500.00 is a settlement pay as is evidenced on the amended T4 that was part of the negotiated settlement agreement (GD2A-22). Further, the Member finds that given that there was no formal settlement agreement in this case, there is sufficient evidence in the emails to conclude that the final $3,500.00 settlement pay was compensation only for the relinquishment of his rights to be reinstated and that there were no other claims such as, wages to be compensated. The Member considered (a) the Claimant’s adamant and consistent insistence that there was no monies owing to him from the employer. The Member finds that there is no evidence that monies, wages or otherwise, were owed to the Claimant and (b) the Claimant’s position is plausible and reasonable given that the final amount was settled from an initial amount discussed of $20,000 less taxes, to a considerably lesser amount of $3,500.00 with no statutory (CPP and EI) remittance deductions (GD2A-55). The Member finds that had the final settlement amount included wages, the mandatory statutory deductions would have to be deducted at source by the employer, which in the final settlement was not the case.

[33] Finally, the Member notes that Commission attempted to obtain information from the employer regarding the purpose/reason for the settlement pay, but was unsuccessful. After the Commission made its decision, the Claimant also attempted through his Union lawyer to obtain confirmation from the employer that the settlement monies were to compensate him for relinquishing his reinstatement rights. The employer however refused to do so (after the fact) and the Union lawyer indicated that he too would not pursue the matter either and it was up to the Claimant to attempt to convince the Commission otherwise (GD2A-60). Given the evidence referred to above, the Member agrees with the Claimant’s argument that just because the employer refused to later (after the Commission’s decision) to characterize the settlement pay as “damages in lieu of reinstatement”, it does not change the reason for the settlement monies as documented in emails at the time of the agreement.

[34] The Member therefore concludes that the Claimant met the onus of showing that the settlement monies in the amount of $3,500.00 were compensation for relinquishing his rights to be reinstated to his former position. Accordingly, these monies are not considered ‘earnings’ pursuant to subsection 35 of the Regulations and thus, should not be allocated to the Claimant’s benefit period.

Conclusion

[35] The appeal is allowed.

Annex

The law

Employment Insurance Regulations

1. 35 (1) The definitions in this subsection apply in this section.
2. employment means
   1. (a) any employment, whether insurable, not insurable or excluded employment, under any express or implied contract of service or other contract of employment,
      1. (i) whether or not services are or will be provided by a claimant to any other person, and
      2. (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;
   2. (b) any self-employment, whether on the claimant's own account or in partnership or co-adventure; and
   3. (c) the tenure of an office as defined in subsection 2(1) of the Canada Pension Plan. (emploi)
3. 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. (revenu)
4. pension means a retirement pension
   1. (a) arising out of employment or out of service in any armed forces or in a police force;
   2. (b) under the Canada Pension Plan; or
   3. (c) under a provincial pension plan. (pension)
5. self-employed person has the same meaning as in subsection 30(5). (travailleur indépendant)
6. 35(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 under section 14 has occurred and the amount to be deducted from benefits payable under section 19, subsection 21(3), 22(5), 152.03(3) or 152.04(4) or section 152.18 of the Act, and to be taken into account for the purposes of sections 45 and 46 of the Act, are the entire income of a claimant arising out of any employment, including
   1. (a) amounts payable to a claimant in respect of wages, benefits or other remuneration from the proceeds realized from the property of a bankrupt employer;
7. 36 (1) Subject to subsection (2), the earnings of a claimant as determined under section 35 shall be allocated to weeks in the manner described in this section and, for the purposes referred to in subsection 35(2), shall be the earnings of the claimant for those weeks.
8. 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.
9. 36(5) Earnings that are payable to a claimant under a contract of employment without the performance of services or payable by an employer to a claimant in consideration of the claimant returning to or beginning work shall be allocated to the period for which they are payable.
10. 36(6) The earnings of a claimant who is self-employed, or the earnings of a claimant that are from participation in profits or commissions, that arise from the performance of services shall be allocated to the weeks in which those services are performed.
11. 36(6.1) The earnings of a claimant who is self-employed, or the earnings of a claimant that are from participation in profits or commissions, that arise from a transaction shall be allocated
    1. (a) if the aggregate amount of earnings that arise from a transaction occurring in a week is greater than the maximum yearly insurable earnings referred to in section 4 of the Act divided by 52, to the weeks in which the work that gave rise to the transaction was performed, in a manner that is proportional to the amount of work that was performed during each of those weeks or, if no such work was performed, to the week in which the transaction occurred; or
    2. (b) if the aggregate amount of earnings that arise from a transaction occurring in a week is less than or equal to the maximum yearly insurable earnings referred to in section 4 of the Act divided by 52, to the week in which the transaction occurred or, if the claimant demonstrates that the work that gave rise to the transaction occurred in more than one week, to the weeks in which the earnings were earned, in a manner that is proportional to the amount of work that was performed during each of those weeks.
12. 36(6.2) The earnings of a claimant who is self-employed, or the earnings of a claimant that are from participation in profits or commissions, that do not arise from the performance of services or from a transaction shall be allocated equally to each week falling within the period in which the earnings were earned.
13. 36(7) The earnings of a claimant who is self-employed in farming shall be allocated
    1. (a) if they arose from a transaction, in accordance with subsection (6.1); and
    2. (b) if they were received in the form of a subsidy, to the week in which the subsidy was paid.
14. 36(8) Where vacation pay is paid or payable to a claimant for a reason other than a lay-off or separation from an employment, it shall be allocated as follows:
    1. (a) where the vacation pay is paid or payable for a specific vacation period or periods, it shall be allocated
       1. (i) to a number of weeks that begins with the first week and ends not later than the last week of the vacation period or periods, and
       2. (ii) in such a manner that the total earnings of the claimant from that employment are, in each consecutive week, equal to the claimant’s normal weekly earnings from that employment; and
    2. (b) in any other case, the vacation pay shall, when paid, be allocated
       1. (i) to a number of weeks that begins with the first week for which it is payable, and
       2. (ii) in such a manner that, for each week except the last, the amount allocated under this subsection is equal to the claimant’s normal weekly earnings from that employment.
15. 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.