Employment Insurance Regulations - Amendments

The following information is out of date.

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Description

The EI Act works on basic insurance principles. Claimants must be out of work due to no fault of their own, looking for work while unemployed and report hours worked and total earnings when they go back to work. Clear instructions are given to claimants to do this and the expectations are that most of them will do this as a matter of course.

However, not all claimants report all earnings while they are receiving EI benefits. This may be due to a reporting error or due to deliberately concealing earnings to receive both earnings from an employer and EI benefits at the same time.

Through the years, the way HRDC handled undeclared earnings did not discourage incorrect reporting of earnings. By 1996, it was felt that claimants had begun to look on overpayments due to incorrectly reported earnings as routine and not as an area of great concern. The government believed that, as part of EI Reform, more needed to be done to deter or prevent incorrect reporting. It chose to impose stricter rules regarding undeclared earnings and to increase the deterrence and prevention aspects of the law. These rules had both educational and punitive elements. They were also expected to reduce the paper burden on employers related to cases of undeclared earnings

In 1996, Human Resources Development Canada (HRDC) introduced a new Record of Employment to simplify the process of reporting earnings from employees for benefit purposes on the Record of Employment (ROE). To complement this, changes were made to the rules for undeclared earnings that were expected to further reduce the paper burden for employers for investigations. It was also expected that these stricter rules would assist in changing claimant behavior and reduce the number of cases of undeclared earnings.

HRDC has been doing ongoing monitoring of the impact of Employment Insurance (EI) reform. This is to ensure that there are no unintended consequences that unfairly penalize claimants or employers. Changes such as the small weeks initiative, Bill C-32 and Bill C-2 have resulted from this monitoring. The present proposed regulatory change is another example.

Monitoring has shown that, while the simplification of the Record of Employment has significantly reduced employer contacts and the overall paper burden on employers, such has not been the case in respect of employer contacts on undeclared earnings.

As a result of monitoring, HRDC noted and corrected an unintended legislative effect of the undeclared earnings rules and made a change to those rules through a revision of the EI Regulations (i.e., subsection 15 (4) of the EI regulations amended from December 16, 1999). The change excluded weeks of no work and no earnings from the period to which undeclared earnings will be assigned. It was believed that this change would remove the main unintended effects of the undeclared earnings rules.

However, ongoing monitoring has found that, despite the regulation change in 1999, there is still a significant number of cases where the undeclared earnings rules result in unfairness. The unfairness is that the current rules create overpayments when there are undeclared earnings in weeks worked but the errors should not have changed the benefits paid in each week.

For example, a claimant may work for a four-week period, correctly declare earnings in week 1 and be paid the appropriate amount in week 1. No benefit would be paid in weeks 2 to 4 due to the high level of declared earnings even though the claimant did not report all earnings. The current undeclared earnings rules consider all 4 weeks as one period and the undeclared earnings in weeks 2 to 4 mean that HRDC must establish an overpayment for the benefits paid in week 1, even though the correct amount of benefits was paid in that week.

The significant incidence of this type of overpayment is clearly unfair. An analysis of the situation has revealed that this unfairness cannot be remedied other than by returning to the weekly allocation of earnings rules that existed before 1996.

Although the overall paper burden on employers has been reduced, the paper burden on employers resulting from undeclared earnings cases has not, as mentioned above. HRDC staff, employers and claimants all agree that verification of employee earnings for cases involving undeclared earnings has become too complex and cumbersome.

As well, there has been no significant decrease in the number of undeclared earnings cases or any indication of a change in claimant behavior. Therefore, while the 1996 changes related to the Record of Employment have achieved their objectives, the change in rules for undeclared earnings has not. In other words, the undeclared earnings rules have retained their punitive effects without any reduction in employer paper burden for cases of undeclared earnings.

The relevant legislative provisions are found in paragraph 54 (d.1) of the EI Act. EI Regulation 15 outlines the earnings to be taken into account and defines the period of employment for purposes of allocating undeclared earnings.

Section 15 of the EI Regulations is being repealed. This means that subsection 19 (3) of the EI Act becomes inoperative. Undeclared earnings will still be allocated on a claim but to the specific calendar weeks where the work was performed or to which the earnings apply. These existing weekly allocation provisions are found in subsection 19 (2) of the EI Act and EI Regulations 35 and 36.

For transitional purposes, the current undeclared earnings rules would apply to all cases where the period of employment ends before August 12, 2001 and the weekly rules would apply when the period of employment starts after August 12. In some cases, the period of employment starts before August 12 and continues after that date (i.e. straddling situation). In a straddling situation, the period of employment rules would apply from the first day worked to August 11 and weekly rules would apply to that part of the period falling on or after August 12.

This approach to the transitional period is the one that is advantageous to claimants as it allows the weekly rules to apply immediately from August 12, 2001.

Repealing Section 15 of the EI Regulations does not mean that HRDC is ignoring undeclared earnings or abuse of the EI Program, including where claimants knowingly make false statements. The weekly allocation rules that apply to declared earnings will also apply to undeclared earnings. The existing provisions related to knowingly false statements by claimants is found in sections 38 and 135 of the EI Act and will continue to apply.

Alternatives

The current punitive rules for undeclared earnings are no longer justified. The other existing legislative provisions for declared earnings for EI benefit purposes provides a fairer and ready-made alternative to the current undeclared earnings rules.

Benefits and Costs

The repeal of EI Section 15 of the EI Regulations does not affect the amount of benefits paid to EI claimants. It changes the method used to calculate overpayments when the claimant has not declared all earnings while receiving EI benefits.

The impact of the repeal of EI Section 15 of the EI Regulations on such overpayments will be cost neutral. Reverting to the weekly method of allocation may reduce the value of overpayments from undeclared earnings to pre-1996 levels. However, HRDC investigative activities will be re-focused on uncovering abuse and misuse in other areas. HRDC will also continue to be involved in prevention and deterrence activities that will generate savings that will easily offset any reductions in overpayments by a change to the undeclared earnings rules.

Consultation

Since 1996, there have been ongoing reviews of the application of the undeclared earnings rules. HRDC has received many recommendations from employee groups, Members of Parliament and members of the public for a change to these rules. There has also been widespread consultation within HRDC on how these rules apply to individual cases.

In March 2001, revoking the undeclared earnings rules was recommended at a hearing of the House of Commons Standing Committee on Human Resources Development and the Status of Persons with Disabilities. There was also a motion at that committee to repeal subsection 19 (3) of the EI Act when the committee was debating Bill C-2 related to EI Adjustments.

All these representations and consultations show that there is wide support for a repeal of the undeclared earnings rules. This responds positively to concerns from key shareholders of the EI Program and the public.

This regulation was prepublished in the Canada Gazette on June 9, 2001.

During the prepublication process, there were two groups that wrote to support the change (i.e., the Canadian Labour Congress and a law firm that represents unemployed workers). Both groups stated that the undeclared earnings rules had never been fair and should not have been introduced in the first place. They recommend that the repeal of Section 15 of the EI Regulations be made retroactive to June 1996 when the undeclared earnings rules were originally introduced.

Also during the prepublication process, the Canadian Payroll Association (CPA) recommended that the repeal of Section 15  of the EI Regulations be delayed until there is further consultation with them on alternate ways to remove unfairness to claimants and minimize the paper burden on employers. These alternate suggestions relate to automated HRDC systems that are used to uncover potential abuse of the EI Program.

The proposal to make the repeal of Section 15  of the EI Regulations retroactive to 1996 is not feasible. Unless otherwise stipulated by Parliament, changes to regulations are meant to apply to the present and future and not to the past. This is based on the principle that one should not reach into the past and declare the rules to be something other than what they were at an earlier date. This would run the risk of unforeseen negative impacts on claimants who acted in good faith under the rules that have applied since 1996. Such negative impacts are to be avoided whenever possible.

The proposal to delay the repeal of Section 15  of the EI Regulations is also undesirable. HRDC will continue to work with the CPA and other employer groups to explore ways to further reduce the paper burden on them. A redesign of HRDC automated systems is underway and this will address the CPA concerns. However, it would be unfair to claimants to maintain the current rules until the systems’ redesign can be completed.

Compliance and Enforcement

There is no need for special compliance and enforcement mechanisms. Existing compliance mechanisms contained in HRDC’s adjudication and control procedures will ensure that these changes are properly implemented.

Contact

Jim Little
Senior Policy Advisor
Policy and Legislation Development, Insurance Branch
Human Resources Development Canada
9th Floor, 140 Promenade du Portage
Ottawa, Ontario
K1A 0J9
(819) 997-8628 (Telephone)
(819) 953-9381 (Facsimile)