Typically when an employee is dismissed, unless they are moving immediately into another job they will apply for employment insurance benefits. This doesn’t affect you as an employer, unless you are making a severance payment to the employee after they have received EI benefits.
- 46 of the Employment Insurance Act (the “Act) obligates an employer who thinks that an employee has received EI benefits to ascertain whether there has been an overpayment of benefits as a result of the severance payment and further obligates the employer to repay the overpayment of benefits to the Receiver General. The rationale for this is that any income received is to be taken into consideration in the determination of the amount of benefits that is payable to a claimant under the Act. A severance payment is considered to be income for the purposes of the Act and is considered to be paid beginning the first week of unemployment, regardless of when it is actually paid. When a claimant receives EI benefits and then is later paid a severance payment, that changes the amount that they should have been receiving as a benefit and results in a repayment obligation. While that repayment obligation is that of the claimant, the Act imposes a requirement on the employer to repay the overpayment as well.
If a severance payment is made and the employer fails to take the steps required of it under the Act to ascertain whether the payment results in an overpayment of benefits to the claimant, the Act imposes a liability on the employer and the Receiver General can look to the employer for repayment of the overpayment rather than seeking the repayment from the employee who received the benefits.
This doesn’t have an impact when the severance payment is made on termination as those payments will be reflected on the Record of Employment.
It does affect employers who are making a severance payment at a time after the Record of Employment has already been issued and the employee may have received EI benefits. In those circumstances, the employer must take steps to ascertain whether the payment of severance has resulted in an overpayment of benefits and the employer then has an obligation under the Act to repay that overpayment to the Receiver General.
In practical terms what this means for employers is that at the time that they enter into an agreement to pay severance, a term or condition of that payment must be that it is conditional on determination of whether there is a repayment obligation to Service Canada and conditional on that repayment obligation being satisfied by the employee.
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