The Social Security Tribunal of Canada’s Appeal Division has rejected a worker’s claim that a settlement payment he received was not “earnings” for Employment Insurance (EI) purposes.
It concluded that the settlement funds stemmed from lost income rather than general damages. As a result, the worker is required to repay part of the EI benefits he collected.
H.L., the appellant in this matter, was employed for about two months when he injured his hand and required surgery. He returned to work but soon realized he could not continue. After he asked his employer for an extended leave, the employer terminated his job without cause. He received one week of pay in lieu of notice, which he believed was insufficient. He reached a settlement of $8,890.63 with the former employer. After deducting $1,506.96 in legal fees, the Canada Employment Insurance Commission decided that the remaining $7,483.67 was “earnings” and allocated it across specific weeks of H.L.’s EI benefit period.
When the Commission allocated the settlement as earnings, H.L. lost entitlement to three weeks of EI benefits. He was issued a notice of debt for $1,950.00. H.L. asked the Commission to reconsider, but the Commission stood by its position. He then appealed to the Tribunal’s General Division, which dismissed his claim. He appealed once more to the Appeal Division, but it reached the same result, writing, “I have substituted my decision for that of the General Division, but I still find that the settlement payment was earnings and that it was correctly allocated.”
Background of the dispute
H.L. began working for his employer only two months before his hand injury. After surgery and a brief return to work, he felt he could not continue and requested additional leave. Instead of granting more time off, the employer dismissed him. H.L. believed he was wrongfully terminated, arguing that he deserved more than the single week’s pay the employer offered.
He hired a lawyer, who sent a demand letter claiming various damages, including wrongful dismissal, discrimination on the basis of disability, and bad faith. Though negotiations initially led the employer to offer $4,400.00, it eventually doubled this figure, culminating in a final settlement of $8,890.63. The parties chose to label the entire settlement amount as “general damages.” Despite this label, the Commission determined that most of the sum was compensation for lost earnings.
“I am dismissing the appeal because I have reached the same result as the General Division,” wrote the Tribunal, ruling that H.L. had not proven any special circumstances indicating the settlement was something other than lost income.
General Division errors and Appeal Division findings
H.L. argued that the General Division committed an error of jurisdiction and made an important error of fact. While he raised the jurisdiction issue in his application to the Appeal Division, he did not pursue it during oral arguments. The Tribunal found no basis to question the General Division’s jurisdiction, noting that the lower division ruled only on the same issues the Commission addressed during reconsideration.
On the factual side, the Commission conceded that the General Division “made an error of fact by ignoring evidence that the Claimant was paid severance,” and the Tribunal agreed. Nonetheless, it concluded that correcting this oversight did not change the outcome. It explained that H.L.’s testimony about receiving “three weeks severance” was inconsistent with the employer’s initial offer of one week and the settlement negotiations that followed.
H.L. insisted that the final figure of $8,890.63 was meant to compensate for “general damages” related to discrimination and bad faith, rather than replacing lost income. He pointed out that the parties’ documents specifically called the payment “general damages.” However, the Tribunal wrote, “General damages could be almost anything, and both the Claimant and the employer could have their own reasons for characterizing the payment as such.” He added that if it was genuinely meant to cover intangible harm like reputational damage or injury to dignity, parties would typically include details or calculations to support such claims. Instead, the final offer closely mirrored amounts one might expect for lost wages in a short-term employment scenario.
Allocation of earnings
Because the Tribunal classified the settlement (minus the deducted legal fees) as lost earnings, it applied the allocation rules set out in the Employment Insurance Regulations. The relevant provision holds that amounts arising from dismissal should be considered earnings and allocated beginning the week of separation. “I agree with the General Division that there was no evidence that any part of the payment was paid to compensate the Claimant for any discriminatory action of the employer prior to its termination,” the ruling stated.
The Tribunal accepted the figure of $2,885.00 per week as H.L.’s normal weekly earnings, which matched information H.L. provided to the Commission. That calculation led to a conclusion that H.L. was overpaid EI benefits for three weeks. As the Tribunal noted, “I find that the settlement amount of $8,890.63, less the legal fees and disbursements of $1,506.96, was earnings… and I agree that it was correctly allocated by the Commission.”
Impact on claim
With the settlement considered earnings, H.L. must repay $1,950.00 in benefits he was not entitled to receive. The decision underscores that a payment labelled “general damages” in a wrongful dismissal settlement is still presumed to be compensation for lost earnings unless an individual can prove otherwise. “Absent special circumstances, employment insurance law presumes that wrongful dismissal settlements are for lost income,” the ruling noted, adding that general statements from an employer about its reasons for settling will not overcome that presumption.
For more information, see HL v Canada Employment Insurance Commission, 2024 SST 1375 (CanLII).
