Digest of Benefit Entitlement Principles - Chapter 5
CHAPTER 5
EARNINGS
5.12.0 Moneys Paid or Payable by Reason of a Lay-Off or Seperation
5.12.1 Definition of Lay-off or Separation
5.12.2 Lay-Off or Separation Moneys: Income Arising out of Employment
5.12.2.1 Expenses, Costs and Allowances Paid or Payable by Reason of a Lay-off or Separation
5.12.3 Termination Moneys Used to Purchase RRSPs or Pension Credits and to Enhance Pensions
5.12.4 Allocation of Earnings Paid or Payable by Reason of a Lay-off or Separation
5.12.5 Wages in Lieu of Notice
5.12.6 Severance Pay
5.12.6.1 Recall Rights
5.12.7 Retirement Payments
5.12.8 Accumulated Sick Leave Credits
5.12.9 Wage Protection Plans
5.12.10 Fringe Benefits
5.12.11 Damages for Wrongful Dismissal
5.12.11.1 The Legal Process and Damages
5.12.11.2 Compensation Other than for the Loss of Income from Employment
5.12.11.3 The EI Process and Damages
5.12.11.4 Legal Costs
5.12.12 Finding of Discipline and Suspensions
5.12.13 Moneys paid for the Relinquishment of Reinstatement Rights
5.12.0 MONEYS PAID OR PAYABLE BY REASON OF A LAY-OFF OR SEPARATION
When the employer-employee relationship is temporarily or permanently severed, certain rights and expectations exist. In the workplace, the employee's rights are protected by labour or contractual agreements and by statutory requirements.
Employees have the right to receive adequate notice of impending lay-offs, or at least pay in lieu of that notice. When the termination of employment is permanent, employees may expect to receive compensation, such as severance pay1 or retirement payments2, for the loss of that employment. Other moneys such as vacation pay3; statutory holiday pay;4 commissions;5 accumulated sick leave credits;6 and bonuses7 may also be owed at the time of lay-off or separation. If the employer does not pay these moneys, or makes an insufficient or otherwise unsatisfactory offer, an employee may take action through the union, a labour arbitration process or through the Courts.8
It is reasonable to conclude that moneys paid or payable on the occasion of or at the time of a lay-off or separation are paid by reason of that lay-off or separation. However, if a claimant establishes that the payment was only coincidental to the lay-off or separation, the earnings cannot be said to be paid or payable by reason of a lay-off or separation.9 Similarly, if it is established that earnings which were paid or payable prior to the termination of employment were really paid by reason of the lay-off or separation, these earnings are treated as earnings paid or payable for that reason.
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- see 5.12.6, "Severance Pay";
- see 5.12.7, "Retirement Payments";
- see 5.10.0, "Vacation Pay";
- see 5.7.2.1, "Designated Holidays";
- see 5.8.0, "Commissions";
- see 5.12.8, "Accumulated Sick Leave Credits";
- see 5.14.0, "Bonuses, Gratuities and Tips";
- see 5.12.11, "Damages for Wrongful Dismissal" and see 5.12.12, "Finding of Discipline and Suspensions"; and 5.12.13 « Moneys paid for the Relinquishment of Reinstatement Rights »
- D. Carr (A-572-95, CUB 28759), Plasse (A-693-99), Meechan (A140-03).
5.12.1 Definition of Lay-off or Separation
Normally the last day of work coincides with the date of lay-off or separation and the allocation commences from that date. However, in some cases, a separation occurs during a period of lay-off. In these cases the date of separation does not equate with the last day of work. When this occurs and termination moneys are paid or payable, it is essential to determine which event gave right to the moneys, the lay-off or the separation. When termination moneys are paid for the later separation and not the lay-off, the allocation of earnings commences from the date of the later separation.1
| LAY-OFF | SEPARATION |
| Lay-off normally refers to a temporary cessation of work or to a period of inactivity or idleness, that is, a shortage of work, a suspension or a general vacation period. During a lay-off period the employee often retains residual employment benefits such as recall or seniority rights. The lay-off may last for only a few days or it may be a substantial period of time. The key is whether the employer considers the person an employee with certain rights or obligations during the period of lay-off. | A separation refers to the final and complete severance of the employer-employee relationship. Usually it is occasioned by a dismissal, a restructuring, a closure or a voluntary separation. A separation may occur immediately on the last day of work. It may also occur during a lay-off when recall rights expire or are surrendered,2 or it may be the result of an event unrelated to the original cessation of work, such as a later decision to close the plant. |
| TERMINATION | |
| Termination or termination moneys or termination earnings are used in reference to either a lay-off or a separation. The word refers to a cessation of work and any moneys paid in relation to that cessation. | |
- CUB 14854;
- see 5.12.6.1, "Recall Rights."
5.12.2 Lay-off or Separation Moneys: Income Arising out of Employment
The nature of moneys paid or payable on lay-off or separation must be examined to determine whether they are part of the entire income arising out of employment. The payment of severance pay, pay in lieu of notice, and vacation pay is intended to compensate for the loss of wages or other benefits or advantages related to employment, or to pay out unused entitlement to certain benefits under the terms of the contract, collective agreement or legislation. As such, these moneys arise out of the employment relationship with the employer and they are income arising out of employment.
Moneys paid by an employer, or any other person, at the time of, or by reason of, a termination of employment, is payable in relation to that employment. Payments made by reason of a lay-off or separation are intended to compensate for the loss of wages and other benefits related to that employment unless there is evidence to the contrary. Any income arising out of employment and paid by reason of a lay-off or separation is earnings to be allocated.
If the claimant is able to establish that the payments are not related to the employment or are not intended to compensate for the loss of wages and other employment-related benefits, the moneys are not earnings. For instance, a payment made after the termination of employment that is intended to reimburse a job-related expense,1 or money paid to compensate for losses unrelated to advantages arising from employment is not income2.
A payout of equity in a business (that is, a return of the amount the claimant invested in a business) is not related to employment, even if the claimant was employed by that business.3 If a payment does not arise out of employment, it is not earnings.4
Relying solely on the terms used by the parties is sometimes insufficient. When doubt exists about the true nature5 of separation payments, the intentions of the parties must be examined by reviewing all relevant documents and contacting all the parties involved. Ultimately, the onus is on the claimant to provide adequate facts to show that any income received upon the termination of employment is not earnings.6
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- see 5.12.2.1, "Expenses, Costs and Allowances Paid or Payable by Reason of a Lay-off or Separation";
- see 5.12.11, "Damages for Wrongful Dismissal" and 5.12.13, “Moneys paid for the Relinquishment of Reinstatement Rights”
- D. Carr (A-572-95, CUB 28759) and CUB 21381; see 5.16.0, "Earnings from Self-Employment";
- see 5.3.1.6, "Return on Investment or on Capital";
- CUB 5810– while this case is very old it is still frequently referred to by Umpires when the true nature of moneys is discussed;
- CUB 24888.
5.12.2.1 Expenses, Costs, and Allowances Paid or Payable by Reason of a Lay-off or Separation
When employment ceases, an employer may make payments in addition to pay in lieu of notice or severance pay.1 These additional payments may be called expenses, costs or allowances, for example, moving expenses, moving costs, or moving allowances. Although claimants and employers may use the terms allowances, expenses and costs interchangeably, an allowance differs slightly from a straight reimbursement of an actual expense or cost. An allowance is a set amount that is designed to reimburse an anticipated expense or cost associated with employment, or a set amount intended to mitigate the loss of employment.2 Nevertheless, the same general principles apply whether the expenses are paid during employment or on termination.
The payment of job-related allowances and the reimbursement of job-related expenses and costs are excluded as income when the moneys do not represent a gain or a benefit. On termination of employment, the definition of job-related expenses is expanded to include payments related to the loss of employment. Relocation costs associated with a move to another community, or tuition and text book costs associated with retraining, as well as other moneys specifically paid to reimburse actual expenses related to job loss and re-employment, are intended to mitigate the employment loss and are not income.
Moneys provided as a living allowance while attending a course, cannot be treated in the same way as those provided to cover the direct, specific and actual costs or expenses associated with the termination, such as tuition fees or books, which are associated with the taking of a course. A living allowance is more like a wage or income replacement or income support allowance, and is intended to permit the individual to survive while attending the course. As such, a living allowance paid by an employer is considered earnings paid by reason of a lay-off or separation.3
The claimant cannot claim an expense for which money was not provided by the employer expressly for that purpose. For instance, a decision to move to another location or to go to school does not entitle the claimant to claim the expense of the move or the cost of the tuition and books if the employer did not expressly intend to reimburse the claimant for these costs. The exception to this rule would be any expenses directly incurred to obtain the termination moneys, such as legal fees, court costs and other legitimate expenses directly related to the legal action.4
The best way for the claimant to prove that moneys are intended to compensate for an expense is to show that the employer either pays a third party directly for the expense, such as paying a moving company or university, or only reimburses the claimant the actual amount of the cost or expense when bona fide receipts are presented. The employer's statement to this effect is generally sufficient and receipts are not required.
When the employer gives the employee a lump sum that is specifically intended to reimburse an expense or cost, the claimant must demonstrate that the cost or expense actually occurred by providing receipts. An exception to providing receipts would be for a relocation. Receipts are not required when the move, which the employer intended to compensate, actually occurred and the allowance paid by the employer is reasonable under the circumstances. Even when the claimant is able to save by reducing the expense or cost, the payment is not considered income. For example, the employer may calculate a moving allowance based on hiring a moving company, but the employee may rent a truck to move, and pocket the difference. As long as the employer based the payment on a reasonable estimate of the expense or cost, the difference is not considered to be a gain or a benefit. However, in the situation where the claimant moves to a closer location than that which the employer intended to reimburse, only the actual cost of the move can be considered; the balance is considered income. If the claimant does not move at all, then a benefit has accrued to the claimant because there was no expenditure. The entire amount would therefore be considered earnings paid or payable by reason of the lay-off or separation and allocated.5
There may be situations where payments are made for job search and job training expenses or costs which have not yet been incurred because the claimant did not have the funds to incur these expenses prior to receiving the moneys from the employer. In these situations, the claimant must demonstrate that there is a genuine intent to spend the moneys for the purpose for which they were paid in order that these moneys not be considered as earnings paid or payable by reason of the lay-off or separation.6
If the amount paid by the employer appears excessive in relation to the intended expense, or there is reason to doubt the validity of the payment, receipts would be required as proof of the expenditure. Excessive means exceeding the usual, proper, or normal and implies an amount too great to be reasonable or acceptable. When receipts are required and the compensation exceeds the receipts, the balance would be considered income and allocated. Likewise, when the expenditure did not actually occur, the Commission may conclude from the evidence that the money was intended to compensate for the loss of wages and would allocate the entire amount as earnings.7
When the amount of the expense or cost incurred exceeds the amount that was given in the agreement for a specific purpose, only that portion of a termination payment which was specifically intended to reimburse that expense or cost can be excluded as income. In other words, the costs that exceed the amount given by the employer for this specific purpose cannot be claimed to reduce other moneys that are earnings, such as severance pay and vacation pay.
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- proper notice or pay in lieu of notice is a legislated requirement in all provinces and generally other payments cannot be substituted;
- see 5.3.2, "The Entire Income"; see 5.3.3.1, "Expenses and Considerations Specifically Compensated by an Employer" and see 5.3.3.2, "Expenses and Considerations Not Specifically Compensated by an Employer";
- living allowances may not be deducted from benefits if the claimant is attending a course to which he or she has been referred by the Commission; EIA 19(4); EIR 16;
- see 5.12.11.4, "Legal Costs";
- EIR 36(9); EIR 36(10);
-
M. Radigan (A-567-99, CUB 42598A);
- J. Dunn (A-231-95, CUB 27115); CUB 15507.
5.12.3 Termination Moneys Used to Purchase RRSPs or Pension Credits and to Enhance Pensions
Employees may choose to have termination earnings, such as severance pay, which are payable on separation, sent directly to a financial institution to purchase a regular RRSP, or a non-commutable and locked-in RRSP1. Whether the claimant accepts a cheque and deposits it into a savings account; accepts a cheque and purchases a RRSP; or has the employer purchase the RRSP, the result is the same for EI purposes.2 The termination earnings are considered paid or payable3 by reason of the lay-off or separation and are allocated from the date of whichever event gave right to the money.4 Purchasing a RRSP does not alter the nature of the earnings, nor the fact that the earnings were immediately due and therefore considered paid or payable. The critical factors are the reason for the payments and the fact it was paid or payable, not the use to which the employee chooses to put it.
The same is true when employees choose to have all or part of their severance or other termination pay deposited directly into their pension plan in order to purchase additional pension credits and enhance their pension entitlement.5 The choice to use one benefit (severance pay), to improve another (pension), does not alter the nature of the severance pay, nor the fact that it was paid or payable.
For employees who choose to forego all legal rights to severance pay in favour of an enhanced pension they are no longer entitled to severance pay. In these situations, the employee has a legal right to choose between two options: to receive severance pay OR to have an enhanced pension, either immediately or in the future. The choice is to receive only one of the two possible benefits. If the claimant chooses to have an enhanced pension, instead of the severance pay, then of course no severance pay is payable nor will it be paid. By this choice, only one benefit is now payable (the enhanced pension), the claimant is no longer entitled to the severance pay. The enhanced pension is earnings only when the claimant makes application for pension benefits and they become payable.6
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- this does not include locked-in pension credits that are transferred from one locked-in vehicle to another;
- J. Granger (A-684-85, CUB 10909);
- see 5.6.1, "Paid or Payable";
- EIR 36(9); CUB 13063;
- CUB 19846;
- see 5.13.0, "Moneys Arising out of a Pension Fund" for complete information on pensions.
5.12.4 Allocation of Earnings Paid or Payable by Reason of a Lay-off or Separation
Once moneys are determined to be earnings paid or payable by reason of a lay-off or separation, the allocation always commences from the week of the lay-off or separation, whichever event was the reason for the payment.1 The allocation is such that the total earnings from that employment are, in each consecutive week except the last, equal to the claimant's normal weekly earnings from that employment.2
| If the earnings are paid by reason of a lay-off or separation, that fact remains unalterable regardless of the method or time of payment. These earnings are allocated from the week of the lay-off or separation and not from the date of payment. |
Earnings paid or payable by reason of a lay-off or separation are allocated concurrently with earnings from other employments, and consecutively with earnings from THAT employment.3
Termination earnings from past employments that might affect a current entitlement to benefits are also allocated. This is necessary because neither the Act nor the Regulations prescribe a maximum period of time over which the earnings may be allocated.4 These earnings would be allocated concurrently with any earnings from other employment.
If an allocation of earnings by reason of a lay-off or separation has already been made, any subsequent earnings paid or payable by reason of that same lay-off or separation are added to the previously allocated earnings.5 Then the revised total is allocated from the date of the lay-off or separation.6
The claimant's choice of the method or time of payment, or a delay by the employer in issuing payment, or a payment of separation moneys prior to the termination of employment does not affect the period for which the earnings are allocated. Any allocation of earnings commences from the date of the lay-off or separation. In other words, the method or timing of payment only affects when the Commission allocates the money, not the period for which it is allocated. For example, if an employee chooses to receive quarterly payments for three years, the earnings cannot be allocated until each payment is made, because the earnings are not payable until each quarterly period arrives.7 Regardless of the number of payments made, there is still only one event, either a lay-off or a separation, not a series of separations that caused the earnings to be paid8. Each subsequent payment is added to the termination money that has already been allocated. On the other hand, if the payment is only delayed because of administrative reasons, such as the timing of payroll runs, the earnings are still payable and would be allocated immediately, even if the actual payment has not yet been made .9
[June 2003],
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- see 5.6.1, "Paid or Payable"; CUB 14989;
- EIR 36(9);
- see 5.6.3.1, "That Employment";
- CUB 16195;
- EIR 36(10);
- EIR 36(9);
- if the claimant agrees, all the separation pay may be immediately allocated from the date of the lay-off or separation. By this method, once the allocation has ended, the claimant is entitled to benefits. However, if the claimant does not agree to this method of allocation, then an allocation can only occur each time a payment is made;
- EIR 36(9); EIR 36(10);
- see 5.6.1, "Paid or Payable."
5.12.5 Wages in Lieu of Notice
By law an employer must give employees adequate notice of a lay-off. Salary or wages paid in lieu of notice are simply payments made when the employer has been unable to provide sufficient notification of a lay-off or separation. The termination of employment may involve a complete severance of the employer-employee relationship or it may simply be a temporary lay-off where the period of lay-off may or may not be known.
Usually the calculation of the number of weeks of notice that must be given, or paid, is based on the number of years the employee has been employed by the company. Provincial legislation generally dictate the minimum notice that must be given. Collective agreements, company policy or the circumstances may prescribe a greater period. The employer can give the proper notice and expect the employee to work during the notice period; release the employee immediately without notice and pay wages in lieu of notice; or provide both a proper notice period and pay wages in lieu of notice. Occasionally wages in lieu of notice may be paid when there is no requirement to do so, such as, when an employee is dismissed for cause.
In some provinces, if a lay-off is expected to last less than a period of time set by that province's legislation, wages or pay in lieu of notice (sometimes called termination pay), need not be paid when the employment terminates and the employee ceases to work. Even when the lay-off is for an indefinite period, which may exceed the time period set by legislation, the employer may delay payment until the time limit is reached. When the lay-off exceeds this legislated time period, the termination pay, if not already paid, becomes payable. The passage of time only prompted the payment of earnings that were really payable by reason of the lay-off, that is, to provide proper notice of that lay-off.1 These earnings would be allocated from the date of the lay-off.
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Severance pay is a form of recognition for years of service and is paid to compensate for the loss of employment. It is almost always paid only when the employer-employee relationship completely terminates. Collective agreements or company policy may contain a clause requiring the payment of severance pay in certain circumstances. Factors such as length of service and the employee's position may dictate the amount of the payment. Severance pay paid to comply with provincial legislative requirements is a legislated form of recognition for service and the amount is also based on a formula related to the years of employment with that employer.
Labour legislation, when applicable, may require the payment of severance pay immediately upon separation or when, by provincial statute, a separation is determined to have occurred. In those provinces where such legislation is applicable, the last day of work, that is, date of lay-off, is the date used to calculate the beginning of the lay-off period. When the claimant has not been recalled to work after a designated number of weeks or months has passed, the provincial legislation states that a separation occurs at that time, and requires the payment of severance pay.1 In this scenario, both a lay-off and a separation have occurred at different times. Severance pay is payable by reason of the separation, which occurred only after a certain period of time passed, and not by reason of the lay-off. In this case the severance pay would be allocated from the date of the termination of the employment. Wages in lieu of notice may also be payable and would be allocated from the date of either the lay-off or separation depending on which event gave right to the money.2
Severance pay is earnings paid or payable by reason of a lay-off or separation. It is therefore allocated at normal weekly earnings from the date of the lay-off or separation, depending on which event gave right to the money.3
Where a valid Order is issued by a Court of competent jurisdiction, be it by consent or decree, which orders the division of a matrimonial asset, such as severance pay, this division is accepted and only the portion of the severance pay which is the property of the claimant is allocated.4
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- see 5.12.6.1, "Recall Rights" when the payment of severance pay is conditional to relinquishing recall rights;
- EIR 36(9); see 5.12.5, "Wages in Lieu of Notice";
- see 5.12.4, "Allocation of Earnings Paid or Payable by Reason of a Lay-off or Separation";
- CUB 29337.
The terms of a Collective Agreement or company policy may state that a laid-off employee retains recall rights until they are surrendered or a specified period of time expires. The payment of severance pay MAY be linked to recall rights. When the payment of severance pay is linked to this condition, the employee does not become entitled to severance pay until the recall rights are surrendered or expire, and a separation occurs.1 In this case the severance pay is payable by reason of the termination of the employer-employee relationship, that is, separation, and not because of the cessation of work, that is, lay-off.
Sometimes an employee does not wish to take immediate advantage of a legislative right to severance pay if the right to the payment is conditional to relinquishing recall rights.2 If the option of maintaining the employer-employee relationship is available with the employer, the employee may be able to request that the severance pay be paid in trust directly to a provincial labour department.3 If the severance pay is only payable when a separation occurs which might happen only when the recall rights are surrendered or expire by the passage of time then the severance pay, even if paid in trust to a provincial labour department, was not paid nor payable to the claimant. Only when the severance pay is immediately due to the claimant can an allocation occur. When doubt exists, the provincial legislation and the employer's policy regarding recall rights may have to be examined.
In other cases the severance pay is not linked to recall rights and is payable even though the employee still retains recall rights. When the payment of severance pay is not linked to the recall rights being surrendered or having expired by the passage of time, the severance pay is considered payable by reason of the lay-off, and would be allocated from that date.
Whether the severance pay is payable immediately by reason of the lay-off, and recall rights are not affected, or whether it is payable only when the separation is final and recall rights have been surrendered or expired, the employee may have the right to choose the method or time of payment. Once that choice, if available, is made, each time that the payments are made, the allocation commences from the date of the lay-off or separation, whichever event gave right to the payment.
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- CUB 24614;
- see 5.12.6, "Severance Pay";
- in some provinces the severance pay must be paid in trust to the provincial labour department when the employee chooses to retain recall rights. This is to ensure that at the time the recall rights expire or are surrendered, the money is available to be paid.
Retirement payments1 are generally a form of severance pay. Retirement payments may be in lieu of severance pay,2 or in addition to severance pay,3 or an enhancement of severance pay. The term retirement does not necessarily mean the employee is retiring from the workforce–only from a specific employment. The payment may be paid in a lump sum, or paid periodically. Retirement benefits are usually paid from general company revenue funds, but any return of employer contributions is paid out of a pension fund. For the purposes of this section, retirement payments or benefits do not refer to pensions.4
The amount of the retirement payment may be based on years of service or based on a formula related to the number of months left before the employee reaches early or normal retirement age. The employer may be discharging a contractual obligation to a departing employee, offering a gratuitous payment in consideration of the circumstances, or offer an early retirement incentive outside the usual terms of the employment contract.
Both lump-sum and periodic retirement payments are often offered as an incentive for early retirement. These incentives can be offered in many different forms. Some employees may be given a leave of absence with full or reduced pay prior to going on pension. The continuance of an employee's salary, even without the performance of services, would prevent an interruption of earnings; however, if an interruption of earnings from another employment has occurred, the salary continuance earnings are allocated to the period for which they are payable.5 In other cases, the claimant may cease to be an employee, yet still receive a periodic payment equivalent to the normal salary or a reduced salary. The reduced salary may equal what the pension would be. This is a type of bridging benefit, but it is not a pension bridging benefit.6 If the claimant is no longer an employee, the payments are considered paid or payable by reason of the lay-off or separation and allocated like all other termination earnings.7
A payment of all or a portion of the employer's pension contributions that were not locked in to the pension fund is also considered to be a type of retirement benefit.8 Such payments, whether they are allowed under the terms of the pension plan or as a gratuitous payment by the employer, are earnings as they arise out of employment. Since they were paid by reason of a lay-off or separation, they would be allocated in the same fashion as any other termination payment.9 A return of the employee's own pension contributions10 has no current consequences, as these moneys are part of the claimant's gross earnings11 during the period of employment.12
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- retirement payments may be called retirement benefits or retirement or retiring allowances;
- CUB 11952;
- CUB 13043;
- see 5.13.5, "Periodic Pensions";
- EIR 36(5); however, if the employee on the leave of absence is receiving his or her usual remuneration for the period of the leave, the issue may be one of not unemployed, see Chapter 4, "Week of Unemployment";
- see 5.13.5.2, "Pension Bridging Benefits";
- EIR 36(9) and EIR 36(10);
- CUB 18681; see 5.13.8.2, "Return of Employer Contributions" and see 5.13.8 "Return of Contributions on Termination of Employment";
- EIR 36(9); see 5.13.8, "Return of Contributions on Termination of Employment";
- see 5.13.8.1, "Return of Employee Contributions;
- EIR 35(2);
- EIR 36(4); EIR 36(5).
5.12.8 Accumulated Sick Leave Credits
The payment of accumulated sick leave credits is a form of compensation for all or a portion of an employee's unused sick leave. These moneys are not paid to compensate for incapacity.1 Compensation for unused sick leave credits or payments based on some type of sick leave formula may be given different names by employers and employees.2 Regardless of the name given to the money, it is income arising out of employment, which is earnings that must be allocated.3
When any payment, including the payment of accumulated sick leave credits, is made by reason of a lay-off or separation, the earnings are allocated from the week of the event that gave right to the money.4 However, if the reason for the payment of the accumulated sick leave credits is because the employment contract requires an anniversary date payment, then the earnings are only allocated to the week of the transaction5, which is the week of the anniversary date.
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- when earnings are paid for incapacity, EIR 36(12) requires that paid sick leave, or sickness or disability payments paid by a group wage-loss indemnity plan, be allocated to the weeks in respect of which the payments are paid or payable; see 5.11.1, "Paid Sick Leave" and see 5.11.2, "Wage-loss Indemnity Plans";
- CUB 18031;
- EIR 35(2);
- EIR 36(9);
- EIR 36(19)(b); G. Hamel (A-1028-91, CUB 20198).
Some provinces have established labour legislation to compensate employees who have lost their employment due to the employer's bankruptcy or other types of insolvency. These provincial programs usually compensate an employee only to a maximum amount, but may include payment for loss of wages, unpaid vacation pay, severance pay and wages in lieu of notice. The provincial government or labour department that administers the program, meets the criteria of any other person as defined by the EI legislation1 and a provincial Wage Earner Protection payment is income arising out of employment2.
Payments made to compensate for unpaid wages are allocated to the period in which the work was performed.3 Other payments, such as, vacation pay, severance pay and wages in lieu of notice are considered paid or payable by reason of the lay-off or separation and allocated from the date of the event that gave right to the money.4 The event that gives rise to the payment is the separation from the employer5 and not the settlement of the bankruptcy or when subsequent employment with the trustee ends6.
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- EIR 35(1); CUB 23644; see 5.3.2, "The Entire Income";
- EIR 35(2); CUB 23644; see 5.3.1, "Arising out of Employment";
- EIR 36(4);
- EIR 36(9) and EIR 36(10); CUB 23806;
- CUB 23806;
- W. Van der Veen (A-560-94, CUB 25305).
The value of some non-pecuniary fringe benefits1 is not allocated when these fringe benefits are enjoyed during periods of employment.2 The value of these fringe benefits is still not allocated, even if the employer continues to provide these same non-pecuniary fringe benefits beyond the termination of employment. This may occur when the employer continues health or dental insurance coverage or allows the free use of a company product, such as, free air travel for airline employees during the period of lay-off or for a specific period beyond the separation from employment.
If the employer pays the claimant moneys in lieu of the insurance-type non-pecuniary fringe benefit, these moneys must be allocated3 because the fringe benefit is no longer non-pecuniary and is a benefit or advantage arising out of employment. This remains so, even if the claimant uses the money to purchase the insurance coverage the money was given to buy.
When the termination moneys include a payment in lieu of a non-pecuniary fringe benefit, normal weekly earnings include the value of the compensated non-pecuniary fringe benefit. Termination moneys may not include a payment in lieu of non-pecuniary fringe benefits as such; the employer may base the calculation of the amount of termination moneys on the employee's basic salary plus the value of the weekly non-pecuniary fringe benefits the employee received when employed. In these situations, normal weekly earnings then include both the basic salary and the value of the weekly non-pecuniary fringe benefits.
The value of the fringe benefits is included in the normal weekly earnings only if the calculation of the termination settlement is based on the basic salary plus the value of the non-pecuniary fringe benefits.
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- see 5.3.2.2, "Fringe Benefits";
- these are the insurance type of fringe benefits as well as any of the following types of fringe benefits: savings obtained by financing or purchasing through the employer, such as, reduced interest on loans and mortgages, staff discounts on product purchases or subsidized meals; or free use of an employer's product or service, such as, free transportation for airline, rail, bus employees or car rental employees, free hotel rooms for hotel employees, free or subsidized course attendance for school employees or their dependants where this advantage is not a normal part of the wages;
- EIR 36(9) and EIR 36(10).
5.12.11 Damages for Wrongful Dismissal
Determining whether an award for damages for wrongful dismissal is income arising out of any employment uses the same process as any other moneys paid as a result of a termination from employment. Actions lodged for wrongful dismissal may cover a variety of issues ranging from abusive dismissal, failure to give proper notice, libel and defamation, loss of income, loss of status, etc.
Damages for wrongful dismissal include any moneys that are awarded by a court or a tribunal, or agreed upon in an out-of-court settlement, following a dismissal that the employee claims was wrongful. Wrongful can mean either that the employment was terminated without cause or that the amount of notice was insufficient. Without cause simply means the employee was not at fault or that dismissal was too harsh under the circumstances. An employment contract does not have an indefinite existence. It may be terminated by either the employer or the employee at any time, without the other's consent, and no wrong is done by the termination itself unless the employment is protected by legislative or contractual provisions. Termination in these cases is in itself wrong if there is no just cause. An employee who is not at fault is entitled to reasonable notice of the lay-off or separation. If due notice is not provided, the employee is entitled to remuneration for the notice period, that is, pay in lieu of notice.
An employee who is fired for cause is not entitled to notice or to pay in lieu of notice, although it may be offered. Likewise, pay in lieu of notice is usually not offered when an employee quits. However, if the employee claims that the circumstances forced a resignation, that employee may still seek damages. Awards or settlements made in these circumstances are damages for constructive dismissal and are treated in the same manner as damages for wrongful dismissal.
When pay in lieu of notice is offered, the employee may accept or reject the offer. If the offer is accepted, that is usually the end of the matter. The principle of received and accepted is covered in another section.1 If the employee refuses the offer, no allocation is made until the settlement is reached and accepted by the claimant.
Whether remuneration is or is not offered, the employee may decide to challenge the dismissal itself, or the terms of the separation offer, if one was made. A dismissed employee is protected only to the extent provided for by federal statute; by the labour legislation of the province where the work is performed; or by a union contract. The employee may file a grievance through a union to try to become reinstated or consult a lawyer and claim damages for wrongful dismissal through the courts.
Whether the case proceeds to court and is settled by a judge, or the case is settled out of court, any payment made by that process is generally known as damages for wrongful dismissal. Whether the employee is reinstated or not is important only in determining distribution of payment, which begins with the week of dismissal or termination of employment regardless of the methods or date of payment.2 The amounts paid to an employee to compensate for wage loss do not represent damages.3 The question of payments for wage loss paid to a employee reinstated after being wrongfully dismissed is addressed in another section,4 as are payments in exchange for the relinquishment of the right to be reinstated.5
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- see 5.6.1, "Paid or Payable";
- moneys to compensate for lost wages where the employee is reinstated are allocated under EIR 36(5) or EIR 36(11);
- moneys for wrongful dismissal are allocated according to EIR 36(9) and EIR 36(10);
- see 5.12.12, "Finding of Discipline and Suspensions."
- see 5.12.13 "Moneys paid for the Relinquishment of Reinstatement Rights"
5.12.11.1 The Legal Process and Damages
The initial position of an employee, who is claiming damages for wrongful dismissal through the court system, is outlined in a statement of claim. The statement of claim filed with the Court usually lists the categories for which the employee seeks damages. Often, but not always, the amount of compensation, that is, money sought for each category of damages, is listed. In addition to pay in lieu of notice, dismissed employees may request, in their civil suit, compensation for moving costs; costs to become re-employed, including retraining costs; and loss of company benefits such as dental plans. The statement of claim may also claim damages for intangibles such as mental distress.
After the employee's lawyer sends a statement of claim, which is the employee's "wish" list, the parties and their lawyers are free to meet and negotiate a settlement out-of-court. Out-of-court settlements are common and avoid the risks and trouble of a trial. A successful out-of-court settlement is followed by letters of understanding, minutes or memorandum of settlement, or settlement agreements, plus a final release. Out-of-court settlements are written by the lawyers, not by a judge or arbitrator. The lawyers are free to phrase the terms of the settlement in any manner that benefits their client. The terms of out-of-court settlements may be very specific or very general. They rarely lay blame, nor accept fault on the part of either the employer or the employee, although they may be phrased in such a way as to appear to do so. After both parties have agreed to the terms of the agreement, a final release is usually signed by the employee, along with the settlement agreement, agreeing to the terms and agreeing not to take any future action.
If the parties cannot agree on a settlement, the case would be heard by a judge or a labour arbitration tribunal. In the court system, it has long been settled that the principal consideration in assessing damages for wrongful dismissal is the notice period given for the dismissal. In other words, what was wrong with the dismissal, was the amount of notice or payment given in lieu of notice. This principle was confirmed by the Supreme Court of Canada which ruled that damages for wrongful dismissal should usually be restricted to compensating an employee for damages which are tangible and estimable, for example, wages and other employment-related benefits which are lost when the employment ended.1 Damages for wrongful dismissal which are awarded by the courts, are therefore usually confined to putting employees in the financial position they would have been in had they been given reasonable notice.
In the courts, damages for intangibles such as loss of prestige, injury to reputation and emotional upset are usually awarded only when damage arises from an injury which is not related solely to the dismissal itself. For example, if mental distress is claimed, the civil court or the labour arbitration tribunal must consider if the actions complained of are independently actionable, that is, could the claimant sue the employer for mental distress if a dismissal did not occur? The Court reasoned that stress is normal in any dismissal and should not normally be compensated for in suits for damages for wrongful dismissal.2
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- VORVIS v. Insurance Corp. of B.C. 1989; WALLACE v. United Grain Growers Limited 1997;
- VORVIS v. Insurance Corp. of B.C. 1989; WALLACE v. United Grain Growers Limited 1997.
5.12.11.2 Compensation Other than for the Loss of Income from Employment
Damages for wrongful dismissal are presumed to be compensation for the loss of income from employment, and are therefore earnings arising out of employment, unless it can reasonably be concluded that the money does not represent lost wages or lost employment-related benefits.1 The Commission may presume that awards do not usually contain monetary compensation for intangibles, such as, loss of prestige, injury to reputation and emotional upset, unless there is clear evidence to the contrary.2
Any part of an award for damages, which is not related to the direct and tangible advantages enjoyed by the claimant during employment, is not earnings. Wages and employment-related benefits, such as, premiums paid by the employer for insurance-type benefits can be considered tangible advantages of employment. Therefore an award to compensate for the loss of those wages or employment-related benefits enjoyed during employment is earnings. An award for an intangible, such as mental distress, is not earnings because compensation for the loss of one's health is not compensation for lost wages, nor is it compensation for loss of an employment-related benefit.3 An award not related to the advantages of employment is not earnings for benefit purposes.4 The treatment of expenses, such as, legal, relocation and retraining expenses, which may form part of an award, is covered in another section.5
Frequently claimants will allege that a settlement was not for lost wages, or for other advantages related to employment6 but to buy peace and avoid a trial7; or as a compromise to terminate controversy8; or for damages for a loss of career9 or a change in status10. These arguments were unsuccessful for two reasons. First, the name given to a payment does not necessarily define its true nature. Second, the claimants were unable to show that the award was not intended to compensate for the loss of wages and other employment-related benefits enjoyed during employment11.
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- K. Walford (A-263-78, CUB 4927); D. Tétrault (A-527-85, CUB 10589), H. Mayor (A-667-88, CUB 15122) and W. Harnett (A-34-91, CUB 17395A); J. Dunn (A-231-95, CUB 27115);
- D. Tétrault (A-527-85, CUB 10589), H. Mayor (A-667-88, CUB 15122) and W. Harnett (A-34-91, CUB 17395A); J. Dunn (A-231-95, CUB 27115);
- payments or for medical expenses are NEVER earnings for benefit purposes as they are not meant to compensate the individual for the loss of income from employment;
- D. Carr (A-572-95, CUB 28759);
- see 5.12.2.1, "Expenses, Costs, and Allowances Paid or Payable by Reason of a Lay-off or Separation"; and see 5.12.11.4, "Legal Costs";
- W. Harnett (A-34-91, CUB 17395A);
- S. Cantin (A-639-90, CUB 18313);
- CUB 20773B;
- A. Klarer (A-367-79, CUB 5552);
- H. Sohet (A-604-79, CUB 5684);
- W. Harnett (A-34-91, CUB 17395A).
5.12.11.3 The EI Process and Damages
When a case proceeds to court or labour arbitration, and the text of the judgement allocates the amounts awarded to various categories, the judgement can usually be relied upon to contain an accurate representation of what the award actually represents.1 Such clearly worded judgements should not be questioned even if all or part of the award compensates the claimant for damages unrelated to the loss of wages or employment-related benefits. Any moneys paid for the loss of wages and employment-related benefits are earnings. It should be noted that a Consent Order is not a decision of the court made after a hearing but rather it is a ruling confirming agreement reached by the two parties.
When the text of the court or labour arbitration judgement is not specific and simply awards a lump sum, the Commission may assume that the entire award is earnings arising out of employment and the entire lump sum awarded by the court or tribunal, less any applicable expenses expended to obtain the award,2 such as, legal expenses, is allocated.
When the matter does not proceed to a court or labour arbitration tribunal, and an out-of-court settlement is concluded, the memorandum of settlement and final release may be very general and assign only a final total dollar value for the damages sought. When the memorandum of settlement or final release is worded in general terms, the entire amount of the out-of-court settlement, less any applicable legal expenses, is considered earnings arising out of employment and allocated.
The final agreement may also be very specific. Memorandums of settlement are written by lawyers. It is their job to respond to the needs of their clients. To benefit their clients they may indicate in the documents that all or most of the money paid by the employer is not for lost income from employment. Keeping in mind that the courts usually restrict themselves to awarding damages for tangibles related to benefits enjoyed during employment, any out-of-court settlement which claims to have little or no concern with lost employment income must be carefully examined.
If the claimant claims that an out-of-court settlement is not for compensation for the loss of wages or other employment-related benefits, the jurisprudence requires that the claimant must show that either the money was paid for some other reason, such as, unpaid wages, moving expenses or retraining expenses or for the relinquishment of the right to be reinstated3. This means that the onus is on the claimant to prove that the settlement, or any portion of it, was not paid for lost income from employment. Claims and allegations made in a Statement of Claim are never proof that the employer has agreed to compensate the claimant for anything other than loss of wages.
To exclude money from the category of earnings paid to compensate for the loss of employment income, the claimant must establish that the payment was requested for other reasons and that the employer agreed to compensate the claimant for the injury, damage or expense. Proof may be found in the final release or in the correspondence between lawyers.4 In addition, the claimant must show that the injury, damage or expense claimed actually occurred and that the payment and the amount were reasonable in light of the injury, damage or expense. For example, if mental distress is claimed, the Commission may reasonably expect that the claimant sought professional help to deal with the distress. If this were not done, the claimant's allegation would be less credible. Receipts for expenses, which the employer agreed in the wrongful dismissal suit to pay for, are adequate proof that the money was not paid to compensate for the loss of employment income and benefits.
The employer must also confirm that the payment was for something other than for lost employment income. A straightforward, clear and uncontradicted statement is only questioned if the employer's confirmation appears to arise out of collusion with the employee, and the intent is to circumvent the purpose of the EI Act. Likewise if the employer's statement appears to be motivated by a desire to accommodate the employee, the out-of-court settlement would be questionable.
Only rarely is any portion of a generally worded out-of-court settlement not considered earnings. These very rare cases happen only when the evidence clearly demonstrates that the settlement is not for lost employment-related income.5
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- CUB 19298;
- EIR 35(10)(a);
- Meechan (A-140-03), CUB 56407);
- CUB 21081 and CUB 23983;
- CUB 20773B and CUB 23801.
The claimant may be awarded or given an amount of money to reimburse the cost of taking legal action in order to obtain termination moneys or to become reinstated. Legal costs or expenses include lawyer's fees, as well as court costs; disbursements and other legitimate expenses directly related to the legal action. As long as the claimant actually had expenses in connection with taking the action against his or her employer, that portion of a payment is not be considered earnings. Money paid by the employer specifically to reimburse legal expenses is not income because it is not intended to pay for lost wages or lost employment-related benefits.
Sometimes the amount awarded may not be sufficient to cover actual legal costs, or no special amount is awarded. The amount of the legal costs, which exceeds an actual award for legal costs, or the entire amount of the legal costs where none was awarded, is deducted from the settlement. These types of expenses or costs are deducted from income because they were incurred for the direct purpose of earning that income.1 However, if a sum of money is recovered which includes both income replacement and other sums which are not considered earnings due to their nature, the total amount of legal fees paid may not be deducted. Only the amount of the legal fees paid to recover the income replacement portion can be deducted as the legal costs. This amount is obtained using the percentage that the income replacement portion is of the total award amount received. This may be adjusted if the claimant can establish that the amount paid to recover the income replacement portion was higher than the calculated proportional amount.2
The claimant cannot include the value of their own time or personal expenses, expended to resolve a suit for wrongful dismissal.3 Costs related to other legal matters such as pursuing an appeal to the Board of Referees are not valid deductions.4
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- EIR 35(10)(a); see 5.3.3.2, "Expenses and Considerations Not Specifically Compensated by an Employer";
- CUB 34664;
- CUB 20720;
- CUB 14503.
5.12.12 Finding of Discipline and Suspensions
When misconduct is involved or alleged the employer has several options up to and including dismissal. Sometimes the employee may be fired immediately; suspended with pay pending an investigation and later fired; suspended without pay and later fired; suspended initially with full pay or reduced pay and later without pay and later fired; or suspended as a disciplinary measure before returning to work. In short, the employer's options are many and varied. The employee also has several options that may include grieving the action or commencing an action for wrongful dismissal. Any earnings paid in relation to the suspension or dismissal might affect a claim for benefit and would have to be allocated.
Earnings paid or payable by reason of a lay-off or separation must be allocated from the date of the event that gave right to the money. When an employee is suspended without pay and later fired, the termination of employment is related to the suspension.1 If the claimant receives any other earnings during the period of suspension such as vacation pay, any earnings considered paid or payable by reason of the suspension, which in this case is equated with a lay-off, must be allocated so that the earnings do not exceed the claimant's normal weekly earnings.2
In some cases, when an employee has been suspended or fired, the employer and the employee come to an agreement, or have a decision settled upon them, that the duration of the suspension or the dismissal was too severe a penalty in the circumstances and the period of suspension may be shortened or the employee may be reinstated. If the employer then pays the employee an amount to cover lost wages for the period following the amended suspension period. These earnings are allocated to that subsequent or amended suspension period, rather than from the date of the original suspension.3 Any earnings payable because of any subsequent dismissal is allocated from the date of that subsequent dismissal.
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5.12.13 Moneys paid for the Relinquishment of Reinstatement Rights
Following an award resulting from a grievance or complaint due to his/her dismissal, an employee can obtain a reinstatement order. The right to a reinstatement results either from the federal law (Canada Labour Code ), provincial or territorial legislation or from the statutes of a collective agreement. A settlement may then be reached between the parties that the employee gives up the right to be reinstated. The monies paid for the purpose of the relinquishment of reinstatement rights – acquired either through legislation or the terms of the collective agreement – are excluded from earnings1. It is not necessary to determine if it is the worker or the employer who initiated the relinquishment process.
Contrary to monies paid in compensation for wrongful dismissal – which are paid to cover the period that the individual would have worked had he/she not been dismissed, – monies paid for the express purpose of the relinquishment of reinstatement rights are excluded from earnings because these monies cannot be said to be «earned by labour» or «given in return for work done».
It is essential that a right to reinstatement under the federal legislation (Canada Labour Code), a provincial or territorial legislation, or under a contract or collective agreement exist and it must clearly be established that the payment was made to compensate for the relinquishment of that right. However, in cases where the employee does not have the right to ask for reinstatement through either of these recourses, but pursues wrongful dismissal actions through the courts, the damages granted by the Court2 constitute earnings for wrongful dismissal. A court does not have the authority to issue a reinstatement order where there is no right to reinstatement under a federal, provincial or territorial law or, alternatively, under a contract or collective agreement.
To support a finding that the monies were paid in exchange for the relinquishment of reinstatement rights, the claimant must prove that the following requirements have been met:
- The right to reinstatement existed;
- The employee sought reinstatement;
- The reinstatement was obtained and
- The monies were paid to compensate the renunciation of that right to reinstatement.
Compensation obtained through a settlement when no right to reinstatement exist will be considered as a compensation for loss of wages and will be allocated as separation earnings pursuant to Regulation 35 and 36 except where it is demonstrated that parts of the settlement – or the whole of it – was paid due to special circumstances such as reimbursement of legal fees, relocation, retraining costs, job search expenses and damages for pain and suffering3. If the right to reinstatement does not exist or if the employee has not acquired reinstatement rights, he/she then cannot be compensated for relinquishing something he/she does not have.
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- Plasse (A-693-99) and Meechan (A-140-03)
- See 5-12-11 Damages for Wrongful Dismissal
- Radigan (A-567-99)
