Employees in Ontario are entitled to reasonable notice of the termination of their employment. Notice and/or pay in lieu of notice is intended to assist an employee (financially or otherwise) while they seek out new employment following the termination of their previous employment. Employers can satisfy their obligation to provide an employee with notice by providing the employee with an appropriate amount of notice that their employment will be terminated or by providing the employee with pay in lieu of the notice that the employee should have been entitled to.
Employees may be able to dispute the amount of notice or pay in lieu of notice that they receive and as a result, many employees and employers may negotiate a more advantageous “termination package”. For example, the employer and employee may come to an agreement such that the employee will be provided with more pay in lieu of notice than what was originally offered. Employees may also file a wrongful dismissal claim against their former employer and collect damages in relation to their termination. However, before proceeding, we recommend that employees consult with experienced employment legal counsel to determine whether they have legal grounds to raise such a dispute.
While this negotiation/litigation is taking place, an employee may have filed a claim for employment insurance (“EI”) benefits. In simple terms, EI benefits are intended to provide eligible employees with financial compensation following an interruption in earnings.
Employees may justifiably collect EI benefits while they come to an agreement with their employers regarding the contents of their termination package or while they undertake litigation. Complexity arises, however, once a settlement has been reached with the former employer or once a damages award has been ordered.
Informing Service Canada of Earnings
Employees are required to inform Service Canada of earnings they receive after they have started receiving EI benefits.
The addition of these amounts to an employee’s insurable earnings may, among other things, extend the duration of the employee’s benefit claim or increase the amount of benefits to which the employee is entitled. Most importantly, if an employee reports earnings after having already started to receive EI benefits, they will need to repay some/all of the EI benefits received during the period in which the earnings were earned.
In particular, according to section 45 of the Employment Insurance Act, employees must repay any EI benefits that they have received when their 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 this definition will not apply for purposes of this EI repayment obligations.
In short, once an amount for termination pay is agreed upon (either via settlement or court order), an employee has an obligation to inform Service Canada and Service Canada will then issue the employee a “Notice of Debt” certificate for the sum of money that it requires to be repaid. The employee then provides that notice to the employer, who remits the payment directly to the Receiver General (the same party who collects taxes). Any residual amount is paid to the employee, less any applicable statutory deductions.
Back to Policy: Why Are Employees Repaying?
The reasoning behind the above-noted repayment obligation is simple, although sometimes difficult for employees to accept: EI benefits are meant to assist employees when there has been an interruption in earnings. If an employee collects an amount from the employer (i.e., pay in lieu of notice, etc.) that should have been paid out immediately following the termination of employment, then Service Canada essentially sees the interruption in earnings as been triggered later than when the employee originally reported. As a result, the employee has double collected and is required to pay back the EI amounts provided for in the Notice of Debt.
Employees Should Plan Ahead to Avoid Being Caught Off-Gaurd
While it is generally advisable for employees to file their EI benefit claim as soon as they become unemployed so that their claim can be processed as quickly as possible, and to avoid any lost benefits, employees must be aware and prepared for the fact that any amounts received from negotiating a termination package or as a result of litigation will need to be paid back in some measure.
If you have questions specifically relating to reporting amounts received to Service Canada, we recommend contacting Service Canada directly. To understand your rights upon the termination of your employment, including whether you may be entitled to a more generous separation package than that being offered by your employer, please contact Toronto employment and immigration lawyers, Sultan Lawyers, at 416-214-5111 or via email at email@example.com.
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