Employment Insurance & Wrongful Dismissal Claims

Written on behalf of Peter McSherry
cheque representing wrongful dismissal payment
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Employment insurance benefits present tricky legal issues for employees engaged in litigation for wrongful dismissal. A claim for EI may be made on the termination of employment, and generally, people will make that claim while in litigation over the termination itself. Eligibility will commence after a two week waiting period and will begin after recognition of any severance sums paid by the employer.

The EI sum paid is 55% of average insurable weekly earnings to a maximum insurable sum of $53,100. The situation becomes complicated if the employee is successful in a claim for wrongful dismissal.

Repayment of Employment Insurance

A successful lawsuit will generally require repayment of the EI sum received attributable to the newly-established severance period, with a reduction for legal costs incurred. The employer actually has an obligation to withhold this sum from the settlement in order to ensure prompt repayment.

Suppose, for example, a lawsuit resulted in an additional 9 months of severance pay for the employee. Any insurance payments received for this period must be repaid, again with credit for legal costs, which reduce the amount owing.

Defining the Damage Sums

It gets, however, more complicated.

If the employee in this example remained unemployed after this 9 month severance period, they are entitled to make a new claim for EI, as the severance sum is considered to be insurable income.

But it may not be so simple. The damages awarded to an employee for wrongful dismissal may not all be considered insurable income. Sometimes awards are split. Part of the damages may represent severance pay, while part represents aggravated or punitive damages. Because these sums are not paid in lieu of employment, but rather to punish bad faith by an employer or compensate for undue suffering by the employee, an EI claim cannot be made with respect to these amounts. In turn, if the employee was already receiving EI benefits, these amounts would not come with a repayment obligation, as they are separate and distinct from severance pay.

Say for example that instead of 9 months’ severance, an employee received 4 months’ severance and $35,000 for aggravated damages. If the employee had been receiving EI during the wrongful dismissal litigation, only the severance sum would lead to an EI repayment obligation. The aggravated damages are considered to be a separate award and would not affect an employee’s right to EI benefits.

THe folloiwng types of dmages are not considered to be taxable income, and would not affect and EI claim, nor would they need to be paid back after the settelment:

  • Moral damages
  • A payment made “in lieu of reinstatement” as opposed to severance
  • Damages for personal humiliation due to an alleged human rights violation

This all presumes that the parties are acting in good faith and not inventing claims to avoid EI repayments or the creation of taxable income. Legal counsel is, however, encouraged to be inventive and aware of how to shape the claim in the best interests of the client.

Issue Estoppel

There are other issues to discuss in a later posting. One such problem is that when there is a dispute about whether the employer had cause to terminate, the EI finding may have an impact on the case for wrongful dismissal or other employment claims. Do not consider applying for EI while claiming wrongful dismissal without first discussing the possible complications with an experienced employment lawyer.

Legal Advice Can be Critical

Get advice. Know your rights. Contact the offices of Guelph employment lawyer Peter McSherry. We can guide you through the issues and defend your position. Contact us online or by phone at 519-821-5465 to schedule a consultation.