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The Progressive Economics Forum

Employment Insurance and Severance Pay

There is a very specific set of issues for displaced workers arising from the treatment of severance pay, which represents compensation for involuntary job loss in recognition of the very real costs incurred by the worker.

Under the current Employment Insurance system, a worker who is laid-off does not normally receive a regular EI benefit cheque until such time as his or her severance pay has been used up.  Severance pay is converted into the appropriate number of weeks based on the pre-layoff rate of pay, and that number of weeks is added to the standard two-week waiting period for EI benefits.  Thus, for example, a worker who is laid off with 6 weeks of severance pay will not receive an EI benefit for the first eight weeks following a layoff.

Receipt of severance pay does not reduce the period of maximum entitlement to EI benefits for someone who remains unemployed.  For example, a person who qualifies for 30 weeks of benefits over a 52 week eligibility period will still qualify for a maximum period of 30 weeks after a period of using up his or her severance pay.  However, the 60% of workers who find a new job before exhausting a claim will receive a lower combined EI and severance benefit than would otherwise have been the case.

Severance pay should not be treated in the same way as normal wages or earnings, and thus as income, but rather as compensation for the loss of a particular job.

Many workers have invested a significant period of their lives with a specific employer, and suffer a loss of an asset if they are obliged to seek new employment.  Laid-off workers – particularly those with long tenure in a job affected by a plant closure – often experience a significant loss of income and future pension benefits in the transition from one job to another.  The requirement to use up severance pay before collecting EI benefits erodes reasonable compensation for the very real cost of losing a specific job.

Often, particularly in the event of large layoffs and establishment closures, employers recognize the need for reasonable compensation for affected workers.  These workers have, after all, invested in job specific skills and made a commitment to an employer in the expectation of continued employment.  Job loss has been caused by shifts in the economic winds over which the individual workers and, often, the employer have little control.  Companies can make efficiency and other gains through “downsizing” and often feel it is appropriate to compensate workers for the gains to the enterprise.

In his recent review of Part III of the Federal Labour Code (Chapter 8), Professor Harry Arthurs broadly endorsed the view that severance and termination pay represents compensation for economic losses, and notes that the courts now typically order quite significant amounts of pay in lieu of notice when employees are terminated for other than just cause, with settlements of 50 or more weeks being common for long-service workers who have the resources and patience to take legal action.  “The greatest obstacle confronting discharged workers is not one made by judges, it is inherent in our system of civil litigation.  Few ordinary workers can afford to sue.  Litigation is too slow, risky and expensive for working people who have lost their greatest asset – their job.” In much more modest recognition of the need for compensation for involuntary job loss, legislated employment standards often provide for severance pay (e.g. 2 days per year of service, with a minimum of 5 days, in the federal jurisdiction).

However, the EI rules create a real disincentive to paying such compensation.  An employer may reasonably ask why the enterprise should pay severance beyond the legal or contractual minimum if it will result in little or no net benefit to the laid-off worker.  Similarly, provinces are discouraged from raising minimum severance pay requirements under employment standards if the benefit to the worker is largely recouped by the federal government’s EI program.

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Comments

Comment from Chris Allison
Time: April 9, 2008, 3:11 pm

Well were gettin royally screwed here on the Miramichi.
We helped put that damn surplus there and now because we have severance , we are not eligible for EI.
Canada is fastly becoming a communist country, where the rich get richer , the imigrants are treated royally , and the rest get shit on !

Comment from tim cable
Time: December 12, 2008, 5:30 pm

i came to canada 2 years ago.
i am a professional, land surveyor, from u.s.a..
i came to canada under n.a.f.t.a. and have been working under a temp. work permit. this permit allows me to change employer if i wish.
3 weeks ago i was laid off, due to a slow time for the company. i find out that i can not get help via e.i..
i have house payments here in canda, a pregnant wife and a 10 yr old son. i cant find a job now in my profession(due to this slow period) and i cant work in another occupation because my work permit will not allow it and i’m not a perm. resident of canada. i had sold my house in the u.s.a. to come here to work, i used all my money for a down payment on our home. now it looks as if i will loose everything. any help from anyone??????? sonofgod@shaw.ca

Comment from Rose marie Villote
Time: June 25, 2010, 1:49 pm

My firend was scheduled to be laid off permanently by Bridgepoint hospital on April 27 but had breast cancer operation on April 9. She got a severance pay of about 6 months and rolled some of it into RRSP. Will this help her to receive employment insurance benefits befofe the 6 month period? Will her sickness also qualify her to receive the benefits earlier?

Comment from Flora
Time: November 27, 2011, 7:15 pm

I agree with Chris Allison’s comment 100%!!! Well put!

Comment from Frank F
Time: November 21, 2012, 10:56 am

Outch Chris and Flora can you please look up the definition of Communism! Neither the practiced nor theoretical definition match your description.
CAPITALISM as defined by A. Smith is a much better match.

Comment from Francisco
Time: November 26, 2012, 9:17 pm

Oh, please! I am an immigrant. Can you tell me where do I go to be treated “royally”? The grass looks greener in the other side of the fence…

Comment from Raj Thiru
Time: February 6, 2013, 2:26 pm

I got layoff recently, I am not able to get EI because I have lump sum severance pay. EI sent me a letter saying use this money for next 20 weeks before reapplying, but i contributed my 60% of my severance and vacation to RRSP. now i don’t have all the money for expenses. what should i do in this case/

Comment from Jim Steeves
Time: February 22, 2013, 9:42 am

One thing about Canada, unless you get rich fast, you never will. The government loves the rich and immigrants but punish regular hard working tax payers. Canada is getting worse and worse. No wonder there is such a large underground economy.

Comment from Edgar Evans
Time: August 2, 2013, 10:46 pm

I agree with Chris Allen’s comment and it’s only getting worse.

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