Employment Insurance (EI)

Decision

[1] The appeal is dismissed because the Appellant failed to show that the $148,000 received from her former employer constitutes compensation for relinquishing her right to be reinstated to her former position. Consequently, that sum constitutes earnings and must be subject to an allocation, and that allocation was done properly.

Overview

[2] The Appellant lost her employment and applied for Employment Insurance benefits. After reviewing the claim, the Canada Employment Insurance Commission (Commission) paid her benefits. The Appellant’s former employer then paid her $160,000. The Commission decided that $148,000 of that amount constitutes earnings and allocated it to the weeks of benefits. This decision generated an overpayment of Employment Insurance benefits, which the Commission asked the Appellant to repay. According to the Appellant, the $148,000 does not constitute earnings because she received it for relinquishing her right to reinstatement to her employment, thus the appeal before the Tribunal.

Issues

[3] The Tribunal must decide on the following issues:

1. Does the $148,000 constitute earnings?
2. If so, was this sum allocated properly?

Analysis

[4] The Employment Insurance Regulations (Regulations) state that earnings include “the entire income of a claimant arising out of any employment” (section 35 of the Regulations). The case law teaches that the sums that constitute earnings under section 35 of the Regulations must be allocated according to section 36 of the Regulations (Boone et al v Canada (Attorney General), 2002 FCA 257).

a) Does the $148,000 constitute earnings?

[5] The Appellant submits that, based on a settlement reached between her and her former employer, she received the $148,000 because she relinquished her right to be reinstated to her employment. The Federal Court of Appeal has established conditions for when an amount paid after a termination of employment may be considered paid for the relinquishment of the right to be reinstated to an employment. First, the right to be reinstated must exist under a federal or provincial law, a contract, or a collective agreement. Second, the claimant must ask to be reinstated, and the settlement agreement must show that the amount was paid as compensation for relinquishing the right to be reinstated (Meechan v Canada (Attorney General), 2003 FCA 368).

[6] Did the right to reinstatement exist? No, and this finding of the Tribunal is based on the following facts.

[7] The Appellant’s lawyer argues that she was dismissed without serious reasons. The lawyer indicates that the Appellant could not lodge a complaint under the Québec Labour Standards Act because she is excluded from the act’s application as a result of her status as a senior manager. However, the Appellant’s lawyer states that she was entitled to be reinstated to her employment under the general articles on labour law in the Civil Code of Québec (CCQ), notably articles 2091, 2092, and 2094. The Tribunal does not share this view.

[8] The Appellant’s right to be reinstated to her employment is not provided in article 2091 of the CCQ because it states that “[e]ither party to a contract for an indeterminate term may terminate it by giving notice of termination to the other party. The notice of termination shall be given in reasonable time, taking into account, in particular, the nature of the employment, the specific circumstances in which it is carried on and the duration of the period of work.” Furthermore, the right to reinstatement is not mentioned in article 2094 of the CCQ, which states only that one of the parties may, for a serious reason, unilaterally resiliate the contract of employment without prior notice.

[9] Based on the above, the Tribunal is of the view that articles 2091 and 2094 of the CCQ do not provide the right to reinstatement after a dismissal. This finding of the Tribunal is strengthened by the decision of the Québec Court of Appeal in which it mentions the following regarding the right to reinstatement based exclusively on the Civil Code of Québec: [translation] “... our civil code, different from particular legislation like the Canada Labour Code, the Act respecting labour standards, and the Labour Code, assigns to articles 2091 and 2094 the ability of an employer to unilaterally resiliate a contract of employment of an indeterminate term with sufficient prior notice; these provisions enable the definitive termination of the employment relationship and remove the obligation to reinstate ...” (Société canadienne des postes v Rippeur, 2013 QCCA 1893).

[10] For all these reasons, the Tribunal determines that the Appellant’s right to be reinstated to her employment did not exist under the CCQ.

[11] Having determined that the right to reinstatement is not provided in the articles of the CCQ that the Appellant cites, the Tribunal will decide on the contents of the agreement to assess whether it was intended to compensate the Appellant for relinquishing a right to reinstatement (Meechan v Canada (Attorney General), 2003 FCA 368).

[12] Does the settlement agreement show that the amount was paid as compensation for relinquishing the right to reinstatement? The analysis of the agreement signed May 24, 2018, reveals that the $148,000 was not paid for the Appellant’s relinquishment of the right to be reinstated to her employment.

[13] The agreement in question was finalized on May 24, 2018, and its preamble states that it was entered into after judicial proceedings initiated by the Appellant against the employer in relation to her loss of employment. The agreement specifies that the $160,000 was paid to the Appellant as a retirement allowance, as severance pay, and for the relinquishment of her right to reinstatement (GD3-26). Given that the agreement does not specify the value that was allocated to the relinquishment of the right to reinstatement, the Commission questioned the parties about the issue. However, neither the employer, nor the Appellant and her representative were able to provide a clear answer to that question.

[14] On July 10, 2018, the former employer explained to the Commission that the $160,000 was paid as a retirement allowance and as severance pay and that that sum must be allocated as follows: $12,000 as a retirement allowance and the remaining $148,000 as severance pay and a retirement allowance, but it mentioned that the Appellant was entitled to severance pay and the relinquishment of her right to reinstatement. After being informed that a sum paid for the relinquishment of the right to reinstatement does not constitute earnings for Employment Insurance purposes, the employer suggested to the Commission that it consider the $148,000 as paid solely for the relinquishment of the right to reinstatement (GD3-28). The Tribunal assigns little weight to this statement of the employer for the following reasons.

[15] After suggesting to the Commission that it consider the $148,000 paid for the relinquishment of the right to reinstatement in August 2018, the employer issued a Record of Employment where it clarifies that $148,851^{Footnote 1} was paid as severance pay (GD3-39). However, the Record of Employment was changed in September 2018 to indicate that $160,000 was paid as severance pay (GD3-41). Therefore, the Tribunal determines that these Records of Employment contradict the employer’s statement that the $148,000 should be considered paid solely because the Appellant relinquished her right to reinstatement. Consequently, the Tribunal assigns more weight to the Records of Employment and determines that the Appellant received severance pay.

[16] What is more, the Appellant signed the agreement on May 17, 2018; however, in July 2018, she stated to the Commission that she did not know the value allotted to her relinquishment of her right to reinstatement (GD3-29).

[17] Furthermore, the Appellant’s lawyer who negotiated the agreement could not tell the Commission what portion of the $160,000 was paid for the relinquishment of the right to reinstatement, either (GD3-46 to 47). In light of this observation, the Commission determined that the $148,000 constitutes earnings because it was paid as severance pay. The Appellant claims that this amount does not constitute earnings, and she sent the Tribunal an addendum to the agreement finalized in January 2019 that specifies that the $148,000 was paid because she relinquished her right to be reinstated to her employment (GD5). The Tribunal grants little weight to this addendum for the following reasons.

[18] The addendum in question seems to have been entered into solely to shield the Appellant from the application of the Regulations. The addendum was finalized in January 2019, about eight months after the initial agreement was signed in May 2018. Furthermore, this addendum was finalized after the Commission found that the $148,000 had not been paid because the Appellant relinquished her right to be reinstated to her employment.

[19] Moreover, the addendum finalized in January 2019 mentions that the $148,000 was paid because the Appellant relinquished her right to be reinstated to her employment. However, the Tribunal cannot ignore the fact that, in July 2018, the same parties who signed that addendum and the Appellant’s lawyer were unable to clarify the value assigned to the relinquishment of the right to reinstatement. Finally, the Appellant’s lawyer did specify during the hearing that the addendum was created solely to satisfy the needs of Employment Insurance.

[20] For the reasons above, the Tribunal assigns little weight to the addendum finalized in January 2019 because, in the Tribunal’s view, this addendum is only an attempt after the fact to shield the Appellant from the application of the Regulations.

[21] The Court reaffirmed the principle that the claimant must establish that all or part of the sums received as a result of their dismissal amounted to something other than earnings (Bourgeois v Canada (Attorney General), 2004 FCA 117). The Tribunal determines that the Appellant failed to show that the $148,000 was something other than income from her employment.

[22] The agreement signed in May 2018 was entered into as part of an out-of-court settlement following judicial proceedings that the Appellant initiated against her employer. The Appellant’s lawyer indicated that, following her loss of employment, the Appellant asked the Superior Court to award her $400,000 as severance pay, vacation time equal to two years of pay, and compensation for the Appellant’s pension plan. Thus, the Tribunal finds that the agreement reached in May 2018 clearly conveys the parties’ intention because it stipulates that the sum was paid to the Appellant because she initiated proceedings against her former employer relating to the loss of her employment (GD3-25). Therefore, the Tribunal finds that the Appellant was paid severance pay arising from various claims that were directly related to her loss of employment.

[23] Section 35(2) of the Regulations states that the earnings to be taken into account for the purpose of determining the amount to be deducted from benefits is “the entire income of a claimant arising out of any employment.” Unless a sum falls within an exception in section 35(7) of the Regulations or does not arise from employment, it is considered earnings.

[24] In this case, the Tribunal determines that the evidence submitted does not show that the Appellant could have had a right to reinstatement. Since the right to reinstatement did not arise, it follows that the Appellant could not have relinquished such a right in exchange for compensation. Therefore, the Tribunal finds that the sum of $148,000 was paid as part of the agreement to compensate the Appellant for the loss of her employment. Because of this, this sum constitutes earnings within the meaning of section 35 of the Regulations.

b) If so, was the sum allocated properly?

[25] The case law teaches that the amounts that constitute earnings under section 35 of the Regulations must be allocated according to section 36 of the Regulations (Boone et al v Canada (Attorney General), 2002 FCA 257). Severance pay should be allocated according to the manner set out in section 36(9) of the Regulations, beginning with the week of the layoff or separation from employment.

[26] In light of the above, the Tribunal finds that the allocation of the $148,000 was done properly because it was allocated based on the Appellant’s normal weekly earnings as of the date of her termination, which occurred on January 27, 2017.

Conclusion

[27] The Appellant failed to show that the $148,000 received from her former employer constitutes compensation for relinquishing her right to be reinstated to her former position. Consequently, this sum constitutes earnings, should be allocated, and was allocated properly.

[28] The appeal is dismissed.