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History of Unemployment Insurance - The 1955 Unemployment Insurance Act

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On October 2, 1955, the 1940 Act was repealed and replaced with the revised and consolidated Unemployment Insurance Act, 1955. In broad terms, the new Act contained a number of departures from the original. Its purpose, as noted in the throne speech of that year, was to introduce amendments designed to make unemployment insurance more effective in providing financial support to the unemployed. It was designed to respond to various changes in the labour market that had arisen since 1940.

Some changes were administrative such as the replacement of term “Courts of Referees” by “Boards of Referees.”

A useful comparison of the 1940 Act with the 1955 Act was provided by the Commission in its annual report, and is quoted below in an edited version.

• Coverage 
• Contributions 
• Benefit 
• Qualifying Conditions for Benefits
• Rates of Benefit
• Duration
• Allowable Earnings
• Seasonal Benefit
• Waiting Period
• Transitional
  • New Contribution Rate 
  • New Benefit Rates
  • Implementation of the New Act

Coverage

The revision of the Unemployment Insurance Act did not entail any material change in the basis of coverage. However, several extensions of coverage to employment formerly excepted were made by means of regulations passed under the Act. These extensions included the following:

• employment in those parts of agriculture concerned with the raising of poultry and egg grading, and the raising of race horses, saddle horses or light-harness horses;
• employment in horticulture, except certain employments connected with general agriculture or performed in a nursery or greenhouse;
• employment in forestry, with the exception of certain casual or temporary employment;
• employment of any member of a municipal police force employed after December 31, 1955, with the consent of the municipality and with the concurrence of the Commission. Members of provincial police forces who became employed after December 31, 1955 might also be insured, provided the province concurs.

Contributions

There were three main changes in regard to contributions under the Act. First, contributions would be made in accordance with the amount of earnings in a week rather than on a daily basis. Second, the scale of contributions was revised so that the contributions were a closer approximation to the same percentage of wages in each earnings class. Third, three new earnings classes were added at the upper end to allow higher ranges of benefit to employees as they moved into those earnings classes.

The daily contribution that was involved, entailed much risk of error, and meant both additional work for employers and additional difficulty in processing insurance books and computing benefits. The weekly contribution reduced the difficulties just mentioned and had several advantages over the daily contribution. For example, with one stamp based on the weekly earnings instead of portions of stamps for each day worked, it was immaterial whether an employer’s establishment was on a six-day or five-day week. The spread of the five-day week had caused practical difficulties in applying the system of daily stamps. A weekly earnings stamp also made it easier to record contributions and determine periods of unemployment where there was short-time employment or subsidiary employment or where a holiday fell in the middle of a week. This was an advantage for employers and workers as well as for the administration.

In relation to the corresponding earnings classes, the rates of contributions were, for the most part, slightly lower than before. This benefited both employers and workers. Further, they were more evenly graded as a percentage of earnings. The old rates ranged from 18 cents a week from the employee for earnings under nine dollars a week up to 54 cents for earnings of $48 and over, with a similar amount payable by the employer. Taken as a percentage of average earnings in each contribution class these contributions ranged from 3.21 percent at the bottom of the scale to 0.94 per cent in the highest class, which meant that the person with small earnings paid a much higher earnings bracket. The new scale of contributions ranged from 16 cents for earnings under $15 a week to 60 cents for earnings of $57 and over. These rates work out at very close to one per cent of average earnings in each earnings class. At the bottom of the scale the percentage was 1.36 per cent. The percentage fell very slightly but in the top earnings bracket was still 1.01 per cent. This was about as even a progression as could be achieved with a set of stamps of fixed denominations.

Benefit

With regard to benefits under the Act, the following changes were made.

The qualifying conditions were amended and in some respects made easier.

The conditions for requalifying for a second benefit period after exhaustion of benefit were in some respects made easier.

Most of the benefit rates were increased.

The provisions governing the minimum and maximum duration of benefit were changed.

The non-compensable day was eliminated and the conditions under which a claimant, while receiving benefit, may earn casual, subsidiary or short-time earnings were made more equitable.

Supplementary benefits were integrated with ordinary benefit and called “seasonal benefit.”

No material change was made in disqualifications (leaving employment voluntarily without just cause, participation in labour disputes, etc.) or in the waiting period.

Qualifying Conditions for Benefits

As a preliminary to obtaining benefits, a claimant had to show that he or she was:

• unemployed;
• capable of, and available for, work; and
• unable to obtain suitable employment.

Formerly, having satisfied these three conditions, the claimant also had to show that the prescribed number of contributions had been paid. Under the old Act there were 180 daily contributions paid during the two years preceding the date of a claim for benefits, of which either 60 must have been paid during the 52 weeks preceding the claim (or since the beginning of the immediately preceding benefit year, whichever was less) or 45 must have been paid during the 26 weeks preceding the claim for benefits (or since the beginning of the immediately preceding benefit year, whichever was less). In order to be fair to claimants who were incapacitated for work or who were in business on their own account, the Act allowed an extension of these periods so that a claimant might use contributions made at an earlier period.

Under the new Act, the qualifying contributions were related to the number of contributory weeks rather than to the number of daily contributions. The minimum qualification for benefits was that contributions had been paid for 30 weeks during the two years preceding the date of claim, at least eight of which must have been in the year immediately preceding the claim. This entitled a claimant to the basic minimum period of benefits of 15 weeks. Each additional two weeks of contributions entitled him or her to a further week of benefits up to the point where 72 contributory weeks had been taken into account, for the maximum of 36 weeks of benefits.

While it was necessary to have made contributions in each of 30 weeks to qualify, it was not necessary for a claimant to have been employed for the whole of each week. In this respect, the qualifying conditions were easier than under the old Act. Formerly the requirement of 180 days meant the equivalent of 30 complete weeks of employment, reckoning each week as six working days. Under the new provisions, two days, or even one day, of employment in a week could give a weekly contribution credit both for qualifying and for determining the duration of benefit. Such partial employment, since the earnings per week would be lower, would, if prolonged, result in a lower weekly rate of benefit, but would on the other hand enable a claimant to qualify for benefits sooner than under the old provisions.

The same applied to the requalifying conditions. Instead of 60 days during the last year (or 45 during the last half year), a claimant had to build up credit for eight additional contribution weeks since the start of the previous benefit period. The claimant again had to show that contributions were made in each of at least 30 weeks in the two years preceding the date of the claim. (Contribution weeks which were in the two years immediately preceding the previous claim could be used on a new claim only if they were within one year of the commencement of the new claim. This proviso was necessary to prevent a claimant using the same contributions over and over for benefit without having obtained any further insurable employment.)

Here again, the new Act made it easier for a claimant to requalify for benefits in that a full weekly contribution credit might be acquired even though a claimant had been unemployed and paid benefits in respect of part of that week. Under the old Act a claimant would get credit only for the particular days for which he or she paid contributions. If he or she were working only a couple of days a week, it would have taken two or three times as long to establish a new benefit period.

Rates of Benefit

Because of the rise in wage levels, the old benefit rates did not represent the same percentage of average earnings as before. The scale of benefit originally provided by the 1940 Act was designed to give benefit which would be slightly less than ordinary earnings in the lowest brackets and which would gradually fall to approximately 50 per cent of earnings in the top brackets. Benefit rates were adjusted several times to keep them in line with earnings. The new Act made another such adjustment. Under it, the maximum weekly rate for a single person increased from $17.10 to $23 and the rate for a person with a dependant increased from $24 to$30. (Average weekly earnings, excluding agriculture, were now about $61.) There were adjustments also for persons in lower earnings brackets.

Duration

Under the old Act, a claimant was entitled to one day’s benefit for five days’ contributions in the previous five years, less one third of the benefit days taken in the previous three years. This provided a minimum of six weeks’ benefit and a maximum of one year (less the waiting period) or 51 weeks, depending on the length of time for which an insured person had contributed. However, the nominal entitlement may have been reduced or even wiped out entirely, if the claimant had made many previous claims, because of the one-third deduction.

The great majority of insured persons had a good contribution history, and experience had shown that in many cases the credit thus set up for an unemployed person filing a claim was not being used. For example, during the five-year period 1949 to 1953, although about one third of all those establishing benefits rights were entitled to 180 days (30 weeks) or more, only about one in 20 actually drew benefits for 180 days or more. The average duration authorized for all claimants was 26 weeks; the average benefit taken by all claimants was nine weeks; 90.1 per cent drew only 1 to 19 weeks, 6.4 per cent drew 20 to 29 weeks, while only 3.5 per cent drew 30 or more weeks.

On the other hand, it was found that the minimum duration of six weeks provided for a person who had made the minimum 180 qualifying contributions was insufficient to carry many claimants over their actual period of unemployment. This applied especially to immigrants, to young persons and others who had newly entered insurable employment and to persons unable to obtain steady employment and thus build up a solid record of contributions. Because of seniority clauses in labour agreements, among other reasons, these groups tended to be unemployed sooner than senior employees and also tended to have more difficulty in getting back into employment.

It was the object in designing a new benefit formula to provide a longer basic minimum period of benefit. This was fixed at 15 weeks instead of the old minimum of six weeks. In view of the high percentage of claimants who did not use the long period of entitlement that was often set up for them, it was considered justified to reduce the maximum period of entitlement to 36 weeks.

However, under the new benefit formula the provision of a nominal maximum credit for 36 weeks’ benefit did not mean that 36 weeks was the maximum period during which a claimant could draw benefits. Under the new provisions regarding allowable earnings from part-time employment while on claim, if a claimant earned more than the prescribed amount during a week, while on claim, the benefit, though not necessarily cancelled altogether, would be reduced to some extent. The claimant’s income would be maintained through the receipt of partial earnings and partial benefit. The effect of this provision would be to extend the duration of the potential benefit. If, at the start of the benefit period, a credit amounting to 36 weeks of benefit was set up, the claimant would draw the amount in 36 weeks if wholly unemployed during that time. In many instances the claimant would not draw it in 36 weeks if getting some short-time employment or part-time or subsidiary employment. At the end of 36 weeks the claimant would still have a credit and, if incidental earnings during some weeks were fairly substantial, might continue to receive benefit (with or without partial earnings) throughout 51 weeks instead of 36 weeks, i.e., until the end of the benefit period.

To further illustrate the fact that the new Act was, on balance, quite as generous as the old Act and in some respects more so, it should be noted that under the old Act a claimant could obtain 51 weeks’ benefit only if he or she had a record of solid contributions for unbroken employment over a period of five years preceding the claim, i.e., for 260 weeks. Under the new Act, if the claimant had made contributions for 60 weeks within the two years prior to the claim, he or she could obtain benefits for 30 weeks. (Under the old Act 60 weeks’ contributions gave only 12 weeks’ benefit.) Moreover, the claimant need not have been employed for the whole of each week in the 60 weeks mentioned provided he or she had contributed for some insurable employment in each of those weeks.

Allowable Earnings

In the matter of allowable earnings, the old Act allowed persons on claim to be considered unemployed if they were carrying on some part-time job but only if it was in an occupation which could be carried on in addition to and outside of the ordinary working hours of their usual employment, and if the earnings from this subsidiary occupation did not exceed two dollars a day. This resulted in many anomalies. If a claimant earned, say three dollars a day each day of the week, he or she lost the benefit for the whole week. Another claimant who earned the same amount of money in one or two days received benefits for the other days on which he or she was unemployed. Similarly, claimants earning two dollars or less per day in subsidiary employment outside usual working hours were deemed to be unemployed and eligible for benefits throughout the week, while claimants who earned even a small amount from their regular employer, say for one hour’s work each day, were deemed to be employed and got no benefits for that week.

Anomalies also resulted from the old provision that the first day of unemployment in any period of unemployment was a non-compensable day. As with the waiting period, this device was intended to eliminate claims for very short periods and to help a single plan of unemployment insurance to fit a wide variety of employment conditions. However, the reasons for the provisions were difficult to explain to claimants, and the anomalies were aggravated by the spread of the five-day week. None of the rules which were applied in an attempt to adjust the non-compensable day under these circumstances were satisfactory. Owing to the variations in working weeks, workers in different plants lost the same amount of pay but some got benefits and some did not.

The same sort of anomalies occurred in the treatment of short-time employment. One plant would shorten the working day. They got no benefits. Another plant employed its workers in alternate weeks. They worked the same number of hours as the workers in the other plant. However, these employees got benefits in the unemployed weeks.

Under the new benefit formula, the non-compensable day was eliminated and the rule regarding subsidiary earnings was modified. A scale of allowable earnings related to the ordinary earnings of claimants in the period preceding their claim was provided. During a week on claim, claimants received full benefit payment if the earnings from any casual, part-time or short-time employment did not exceed the allowable amount established in their case. However, if that amount was exceeded, they did not necessarily lose all their benefits. The amount of the benefit was simply reduced by the amount of the excess of earnings over the allowable scale.

Under this provision, it generally followed that a claimant who lost only one day’s work would get no benefit, as the amount of earnings from the other days of employment in that week would so greatly exceed the allowable limit as to reduce the benefit. It was immaterial whether the earnings were obtained on one day or six days. It was also immaterial whether earnings were from casual, subsidiary or short-time work. Claimants would get benefits in proportion to the drop in casual earnings, after taking the allowable earnings into account. This provision eliminated the anomalies arising in respect of short-time work, the five-day week, the non-compensable day and the subsidiary employment rule.

Seasonal Benefit

In regard to seasonal benefits (formerly supplementary benefits), the amendments substantially incorporated the amendments regarding supplementary benefit which were approved by Parliament in January, 1955. Seasonal benefit was payable during the period January 1 to April 15 because it was recognized that at this time of year unemployment was always greater and that persons whose ordinary benefit ran out in the late fall or winter months had greater difficulty at that season in obtaining employment.

Under the new Act, an insured person could qualify for seasonal benefit at the same rate as ordinary benefit if:

• he or she had made 15 weekly contributions since the preceding March 31 (this would qualify him/her for two weeks’ benefit for every three such contribution weeks, giving a minimum of 10 weeks’ benefit and a maximum of 15 weeks); or
• his or her regular benefit period terminated after April 15 preceding the date of claim for seasonal benefits (this would qualify the claimant for 15 weeks’ seasonal benefits).

In effect, a regular benefit period could be extended during the winter from the ordinary maximum of 36 weeks to 51 weeks.

Waiting Period

There was provision made in the new Act for a waiting period of six days. This was the equivalent of the present waiting period of five days plus the first non-compensable day at the beginning of an initial claim.

By comparison with other countries, it appeared that the new waiting period of one week was not severe. All but three states of the United States required a waiting period, and in most cases it was one week. In two states the waiting period was two weeks. In the United Kingdom there was a waiting period but, under a rather artificial arrangement, short periods of unemployment, if not separated by a stated number of weeks, were deemed to be a continuous period of unemployment and the first days were eventually paid for.

Since 1950, the Commission had the power to prescribe conditions under which the waiting period could be deferred in order to prevent hardship for a claimant when a new benefit period began after he or she had been unemployed for some time. The new Act provided that the waiting period in such cases could be waived entirely instead of being merely postponed.

Transitional

Under the new Act, the rates of benefit were increased, the minimum duration was lengthened and the provisions regarding allowable earnings which a claimant may receive without loss of benefit were made more liberal. Taken as a whole, these amendments resulted in more benefits being paid to many claimants than at present. However, there were cases where claimants who had been insured for a long period would have obtained more benefit under the old Act than under the new one. Provision was, therefore, made that during a transitional period of three years any claimants who exhausted their benefits on a first claim after October 2, 1955, would be entitled to any excess benefit which they would have received under the old Act had it been in force.

In practice, the potential benefit under both the old and the new provisions was expressed in terms of a money credit and, if the old Act would have resulted in a larger credit, the excess was translated into the equivalent number of additional weeks of benefit at the new rate.

(1) When earnings are less that $9.00, the contribution (benefit purposes) is counted as ½ week.

Implementation of the New Act

The new UI Act covered 75 per cent of Canada’s 4.4 million wage earners and salaried employees.

Introduction of the new Act required modifications to many of the regulations. For example, the married women’s regulation changed to reflect the move from the daily approach to the new weekly approach of the 1955 Act. New seasonal regulations were formulated in an attempt to increase their effectiveness. This proved difficult in view of the entrenchment of seasonal benefits in the new Act. Though the regulations were made in October 1955, their application was postponed for one year.

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