Jan 31, 2020  By John Hyde

How to Avoid EI Clawbacks Resulting Out of Wrongful Dismissal Settlements


If you sue your employer for wrongful dismissal, and your case is straightforward, your lawyer might advise you not to apply for employment assistance.

The reason for this is that any settlement or award you receive for wrongful dismissal, is considered 'earnings that were earned after your employment ended'. Therefore, if you received EI benefits following termination, you will have to pay that money back to EI.  

That said, a wrongful dismissal claim is often not just for wrongful dismissal; it may include unpaid overtime, special damages, intellectual property rights and other issues.

An experienced employment lawyer can negotiate a settlement agreement that is structured with the goal of minimizing EI clawbacks in mind.

If you choose to collect EI benefits, consider using these 7 strategies to avoid unnecessary clawbacks and retain more money from your wrongful dismissal settlement.


Payment for unpaid overtime, banked lieu time and vacation.

Although payments for overtime and vacation are taxable earnings, they are usually found to be earned during your employment, before you collected EI, so they may not be subject to EI clawback.

Payment for bonuses, commissions or royalties.

Like overtime, bonuses and commissions are usually considered to have been earned during your employment, before you claimed EI, so they are usually not subject to EI clawback. It is a common strategy for employers to terminate employees just before the payment of a bonus, so this is important to consider when negotiating your settlement.

Pay your legal fees out of your settlement (even if you have already paid them).

Your legal fees are not subject to tax or EI clawback, so allocating a portion of your settlement for 'legal fees' will reduce your tax burden.  

Sue for special damages.

Inappropriate employer conduct may lead to an award for damages for emotional distress or human rights violations. This settlement is compensation for damage to your health, medical bills, psychological trauma, and injury to your dignity or reputation. Depending on how they are characterized, these types of payments are usually not classified as lost wages, and therefore not subject to EI clawback.

Waive your right to reinstatement.

You may have a right to reinstatement under the Human Rights Code, the Canada Labour Code, the Occupational Health and Safety Act or the Employment Standards Act. If you accept a settlement instead, this payment will be taxable, but not typically subject to EI clawback.

Waive your intellectual property rights.

Payments in exchange for intellectual property rights may not be subject to EI clawback.

Payment for confidentiality, non-disparagement, non-solicitation/non-competition covenants.

These types of payments are also often immune to EI clawback.

Careful planning with your legal team can help you get maximum value from your wrongful dismissal settlement or award.


Contact Hyde HR law for expert legal advice and representation.

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