History of Unemployment Insurance - 1989 Unemployment Insurance Act Amendments (Bill C-21)
Following the general election in 1988, work began on changes to employment and UI policies to increase the capacity of Canada’s labour market to respond to technological change and to growing concerns over competitiveness with other countries.
When UI was developed, it was reasonable to assume that most unemployed workers would find a new job in the same occupation, and probably within the same community. The sweeping structural change in the economy no longer made these assumptions as likely. However, an income support program was seen as doing little to encourage people to gain new skills or otherwise adapt to a more fluid labour market. The Organization for Economic Co-operation and Development had encouraged nations to reallocate resources from “passive” income replacement or support policies such as unemployment insurance to “active” policies that would foster adjustment, such as training, counselling, worker mobility and self-employment initiatives. Arguments favouring this perspective had also arisen in many of the reviews of UI in Canada.
Successive governments had responded to this need through efforts to link UI with employment programming beyond the basic labour exchange function since the 1960s. Since passage of Bill C-27 in 1977, UI funds had been available on a limited scale to support job creation, training and other developmental uses. The government now wanted to extend this active programming.
The vehicle for this was the Labour Force Development Strategy (LFDS). It was first announced in the throne speech of April 3, 1989, and enunciated fully in a statement by the Hon. Barbara McDougall to the House of Commons on April 11. Outlined in a document entitled Success in the Works, Minister McDougall stated that LFDS was designed to achieve four goals:
- more and better private sector training;
- more use of Unemployment Insurance funds for active training and reemployment measures;
- respond to Charter of Rights and Freedoms issues about UI benefits; and
- cut work disincentives in the UI program.
Bill C-21, containing the legislative changes to give effect to the Labour Force Development Strategy, was tabled in the House of Commons on June 1. Implicitly rejecting the Macdonald and Forget recommendations, it maintained the insurance program’s status quo with an increased emphasis on active employment strategies. The bill was intended to be a modest and even-handed reform of the UI program. The government saw it as an effort to reallocate spending in a way that would improve the functioning of the labour market and respond to Charter obligations.
- Broadened Benefits
- Eligibility and Duration Criteria
- Proposed Amendment to UI Benefit Schedule
- Impact of the Suspension of the Variable Entrance Requirement
Broadened Benefits
Ten weeks of parental benefits were introduced to replace both the paternity benefits introduced in 1988 and adoption benefits. These could be all taken by one parent or shared between both at any time from the week of arrival in the home, up to 52 weeks after that date.
An overall total of 30 weeks of special benefits (including sickness, maternity and parental) could be received by a claimant in a single benefit period, even if his or her entitlement to regular benefits was less than that amount. Maternity benefits were still confined to the period surrounding the birth, except when the child was hospitalized. However, they could be collected at any time within the benefit period.
As noted in the last chapter, C-21 incorporated recent Charter and human rights decisions. It extended UI coverage to workers older than 65 years of age while eliminating the three-week special-severance benefit. It also extended coverage to persons employed by relatives or people with whom they were personally involved, if the terms and conditions of the employment were substantially similar to the contract that would exist between persons who dealt with each other at arm’s length, as strangers would.
Eligibility and Duration Criteria
Bill C-21 changed the eligibility and duration criteria to create a one-phase system based on a combination of eligible weeks of work and the unemployment rate of an economic region. It eliminated the repeater provision. The impact was to maintain longer benefit durations for people in high-unemployment regions, although not at the same rate.
Proposed Amendment to UI Benefit Schedule
| Number of weeks claimant can receive benefits Unemployment Rate in Claimant's Region |
| Weeks of Work | 6% and under | over 6% to 7% | over 7% to 8% | over 8% to 9% | over 9% to 10% | over 10% to 11% | over 11% to 12% | over 12% to 13% | over 13% to 14% | over 14% to 15% | over 15% to 16% | over 16% |
| 10 | 37 | 39 | ||||||||||
| 11 | 36 | 38 | 40 | |||||||||
| 12 | 35 | 37 | 39 | 41 | ||||||||
| 13 | 34 | 36 | 38 | 40 | 42 | |||||||
| 14 | 33 | 35 | 37 | 39 | 41 | 43 | ||||||
| 15 | 30 | 34 | 36 | 38 | 40 | 42 | 44 | |||||
| 16 | 27 | 31 | 35 | 37 | 39 | 41 | 43 | 45 | ||||
| 17 | 24 | 28 | 32 | 36 | 38 | 40 | 42 | 44 | 46 | |||
| 18 | 21 | 25 | 29 | 33 | 37 | 39 | 41 | 43 | 45 | 47 | ||
| 19 | 19 | 22 | 26 | 30 | 34 | 38 | 40 | 42 | 44 | 46 | 48 | |
| 20 | 17 | 20 | 23 | 27 | 31 | 35 | 39 | 41 | 43 | 45 | 47 | 49 |
| 21 | 18 | 21 | 24 | 28 | 32 | 36 | 40 | 42 | 44 | 46 | 48 | 50 |
| 22 | 19 | 22 | 25 | 29 | 33 | 37 | 41 | 43 | 45 | 47 | 49 | 50 |
| 23 | 20 | 23 | 26 | 30 | 34 | 38 | 42 | 44 | 46 | 48 | 50 | 50 |
| 24 | 21 | 24 | 27 | 31 | 35 | 39 | 43 | 45 | 47 | 49 | 50 | 50 |
| 25 | 22 | 25 | 28 | 32 | 36 | 40 | 44 | 46 | 48 | 50 | 50 | 50 |
| 26 | 22 | 25 | 28 | 32 | 36 | 40 | 44 | 46 | 48 | 50 | 50 | 50 |
| 27 | 23 | 26 | 29 | 33 | 37 | 41 | 45 | 47 | 49 | 50 | 50 | 50 |
| 28 | 23 | 26 | 29 | 33 | 37 | 41 | 45 | 47 | 49 | 50 | 50 | 50 |
| 29 | 24 | 27 | 30 | 34 | 38 | 42 | 46 | 48 | 50 | 50 | 50 | 50 |
| 30 | 24 | 27 | 30 | 34 | 38 | 42 | 46 | 48 | 50 | 50 | 50 | 50 |
| 31 | 25 | 28 | 31 | 35 | 39 | 43 | 47 | 49 | 50 | 50 | 50 | 50 |
| 32 | 25 | 28 | 31 | 35 | 39 | 43 | 47 | 49 | 50 | 50 | 50 | 50 |
| 33 | 26 | 29 | 32 | 36 | 40 | 44 | 48 | 50 | 50 | 50 | 50 | 50 |
| 34 | 26 | 29 | 32 | 36 | 40 | 44 | 48 | 50 | 50 | 50 | 50 | 50 |
| 35 | 27 | 30 | 33 | 37 | 41 | 45 | 49 | 50 | 50 | 50 | 50 | 50 |
| 36 | 27 | 30 | 33 | 37 | 41 | 45 | 49 | 50 | 50 | 50 | 50 | 50 |
| 37 | 28 | 31 | 34 | 38 | 42 | 46 | 50 | 50 | 50 | 50 | 50 | 50 |
| 38 | 28 | 31 | 34 | 38 | 42 | 46 | 50 | 50 | 50 | 50 | 50 | 50 |
| 39 | 29 | 32 | 35 | 39 | 43 | 47 | 50 | 50 | 50 | 50 | 50 | 50 |
| 40 | 29 | 32 | 35 | 39 | 43 | 47 | 50 | 50 | 50 | 50 | 50 | 50 |
| 41 | 30 | 33 | 36 | 40 | 44 | 48 | 50 | 50 | 50 | 50 | 50 | 50 |
| 42 | 30 | 33 | 36 | 40 | 44 | 48 | 50 | 50 | 50 | 50 | 50 | 50 |
| 43 | 31 | 34 | 37 | 41 | 45 | 49 | 50 | 50 | 50 | 50 | 50 | 50 |
| 44 | 31 | 34 | 37 | 41 | 45 | 49 | 50 | 50 | 50 | 50 | 50 | 50 |
| 45 | 32 | 35 | 38 | 42 | 46 | 50 | 50 | 50 | 50 | 50 | 50 | 50 |
| 46 | 32 | 35 | 38 | 42 | 46 | 50 | 50 | 50 | 50 | 50 | 50 | 50 |
| 47 | 33 | 36 | 39 | 43 | 47 | 50 | 50 | 50 | 50 | 50 | 50 | 50 |
| 48 | 33 | 36 | 39 | 43 | 47 | 50 | 50 | 50 | 50 | 50 | 50 | 50 |
| 49 | 34 | 37 | 40 | 44 | 48 | 50 | 50 | 50 | 50 | 50 | 50 | 50 |
| 50 | 34 | 37 | 40 | 44 | 48 | 50 | 50 | 50 | 50 | 50 | 50 | 50 |
| 51 | 35 | 38 | 41 | 45 | 49 | 50 | 50 | 50 | 50 | 50 | 50 | 50 |
| 52 | 35 | 38 | 41 | 45 | 49 | 50 | 50 | 50 | 50 | 50 | 50 | 50 |
Increased Penalties
The bill increased penalties for claimants who quit voluntarily without just cause, refused a job or were fired for misconduct by increasing the disqualification period to seven-to-12 weeks. The benefit rate after the disqualification was served was reduced from 60 to 50 per cent to strengthen the penalty aspect further.
The net impact of all these changes was projected to create an annual saving of $1.2 billion. These funds were reallocated to pay for some expanded benefits and a larger developmental-use budget to support the training goals of the LFDS.
Other Changes
Bill C-21 simplified the administration of the program and increased fairness and flexibility. Many of the changes updated the labour dispute provisions of the Act to deal with some technical but contentious issues. For example, individuals who had arranged leaves of absence for sickness, maternity or parental reasons, or for training before a work stoppage would now be eligible for benefits.
The bill introduced employer penalties for false or misleading statements and gave the Commission the authority to reconsider applications for premium reduction plans from employers retroactively.
It extended the time limitation for recovery of overpayments from 36 to 72 months.
The legislation also included a transitional provision so that most of its changes would be applied on the basis of “old claims/old rules.”
Developmental Uses
Key changes expanded the developmental uses of UI. These were to include training, relocation assistance, self-employment and re-employment incentives. In addition, the bill provided authority for regulations to make UI funds available for the first time to claimants to cover course costs, such supplementary training allowances as care of dependent children and travel costs, and other expenses such as relocation assistance. It also permitted benefit periods to be extended to 156 weeks from the previous 104 weeks for claimants in training programs.
The bill required the government to consult employee and employer organizations on the cost and design of an annual plan for developmental uses. The revised Act stipulated that the planned expenditures could not exceed 15 per cent of the total estimated UI expenditures.
Financing
In the 1989 budget, the Minister of Finance announced that the government intended to reduce its expenditures by ending its funding of regional extended benefits. This completed the steady shift of the full costs of all UI programming and much of the costs of employment services to premium payers.
Bill C-21 froze premium rates for 1990 through 1992, at $2.25 per $100 for employees and $3.15 for employers. The government recognized that this increase would not be enough to cover anticipated UI expenditures but it was concerned that a larger increase would have a negative effect on the economy. The government promised to loan money to the UI Account to cover the deficit which was expected to reach about $3 billion by the end of 1992.
Debate in the House of Commons
The bill was given second reading on June 21, and referred to a legislative committee. The committee held public meetings across the country and witnesses from business, labour and social-action groups took their traditional perspectives on the issues. While there was general support for many of the enhancements, there was considerable criticism about the withdrawal of the government from UI funding.
One focus of debate was the impact of C-21 on claimants. An impact analysis produced by the department suggested that there would be no significant effects on high-unemployment areas. Studies by and for labour and social-advocacy groups, such as the Canadian Labour Congress and the United Steel Workers, suggested that the legislative changes would force many claimants onto social assistance.
The Committee submitted its report to the House of Commons on October 10, 1989. During consideration of the report in the House, the Minister proposed two significant changes on the basis of representations made during the legislative committee hearings. The first was that a definition of the term “just cause” was included in the Act with a short list of examples such as sexual harassment. Although this concept had always been part of the jurisprudence, it would now be enshrined in the Act.
Just cause for voluntarily leaving an employment was defined to cover situations in which “having regard to all the circumstances. . . the claimant had no reasonable alternative to immediately leaving the employment.” Just cause would apply in the following circumstances but was not limited to them: sexual or other harassment, obligation to accompany a spouse, discrimination on grounds within the meaning of the Canadian Human Rights Act, working conditions that constituted a danger to health and safety, or obligation to care for a child. The determining factor would be “no reasonable alternative.”
Minister McDougall made a second amendment to the bill. There would be an additional five weeks of parental benefit for children with special needs requiring additional care. The bill received third reading in the House on November 6 and went to the Senate.
Economic Regions
On November 7, 1989, the government unveiled a new schedule of economic regions that was to be implemented at the same time as Bill C-21. The number of regions was increased from 48 to 62 and the boundaries were altered to “allow for a fairer determination of benefits paid to claimants and enhance the Unemployment Insurance program’s ability to be more sensitive to regional disparities in Canadian labour markets.”
Debate in the Senate
While Liberal Senators, who were in the majority, had suggested they wanted to study C-21 at length, the government expected the legislation to be in place by January 1, 1990. The government saw the Senate action as obstruction of the will of the elected house.
When the Senate decided to pursue extended consideration of the bill through extensive public hearings, this created problems. For example, the old variable entrance requirement legislation was to lapse on January 4, 1990 and there was no legal authority for the increased premiums on January 1st.
The Senate offered what it said was a compromise to extend the variable entrance requirements through Senate Bill S-2. The government refused to consider it, arguing that prompt passage of C-21 would have the same effect. The variable entrance requirement lapsed. The sudden arrival of a 14-week entrance requirement for all claimants, except repeaters with a 14-to-20-week requirement, forced EIC to reprogram its UI computers and to develop information programs for staff and claimants to explain the impact of the change.
On the issue of premium levels, the government announced on December 22, 1989, that premium rates for 1990 would be held at 1989 levels until the passage of C-21. After its passage, premium rates would be increased, retroactively to January 1st, to $2.25 for employees and $3.15 for employers. Revenue Canada encouraged employers and workers to remit voluntarily at the higher rate starting January 1 or face retroactive payments. They were also asked to begin collecting premiums from workers aged 65 and older. The great majority of employers followed this advice.
After extensive hearings in Ottawa as well as visits to Canso, Nova Scotia, and St. John’s, the Senate Special Committee on Bill C-21 tabled its report in February 1990. The report reiterated many of the concerns with the proposed changes to the entrance requirements, duration of benefits and disqualification penalties. A major focus of the attack was on the future of fishing benefits even though these were not significantly affected by C-21. Liberal Senators argued that the removal of government funding for these benefits would leave them vulnerable to future erosion, since fishermen paid only approximately $20 million in premiums, while receiving $260 million in benefits.
During the following months, there were exchanges of messages between the Senate and the House, and some changes were made in C-21. For example, on the issue of the fishing provisions of the UI program, the government agreed that any future changes to the fishing regulations would be subject to scrutiny in the House before implementation. Fishing benefit regulations continued to use the benefit entitlement structure including the repeater provision and the variable entrance requirement that existed before January 6, 1990.
However, the bill remained stalled as the majority in the Senate fought with the government over C-21 and legislation introducing the Goods and Services Tax. The deadlock continued until Prime Minister Mulroney changed the balance of power in the Senate through regular appointments and the addition of eight new senators through a never-before-used provision of the Constitution. The new Progressive Conservative majority in the Senate assured final approval of C-21 on October 22, 1990.
Implementation
Bill C-21 received Royal Assent on October 23, 1990. The withdrawal of government financing of the UI program took effect the following day, ending a delay that had forced the government to contribute an unplanned $2.4 billion to UI up to that point in the year. Most of the other changes to the program took effect on November 18. The period of about one month was used by the Commission to prepare for implementation.
On October 24, the government tabled changes to the fishing regulations in the House of Commons. This was in accordance with the C-21 agreement with the Senate, to give the House an opportunity to scrutinize changes to the fishing provisions. The tabled regulations preserved features such as the existing variable entrance requirements and repeater provisions but also extended the enhancements of C-21 to fishermen.
Impact of the Suspension of the Variable Entrance Requirement
In 1991, the Standing Committee of the House of Commons on Labour, Employment and Immigration asked EIC to conduct an analysis to determine what the effects of the temporary interruption of the variable entrance requirement between February and October 1990 had been. The study found that five times more claims had been established with 14 weeks than during the same period in 1989. In Atlantic Canada, the increase was almost eight times the 1989 rate.
The study concluded that the increase in entrance requirements had not led to large increases in welfare loads and that changes in entrance requirements produced behavioural changes in UI claimants.
