The Government of Canada has implemented temporary changes to employment insurance (EI) benefits rules in response to the trade war with the United States, which will significantly impact the treatment of wrongful dismissal settlements (and impact settlement negotiations).
In particular, the Government of Canada announced on March 22, 2025 that it would introduce temporary EI measures to help support Canadian workers whose jobs were impacted by the reciprocal tariffs between the United States and Canada. At a high level, these changes include waiving the one-week waiting period for claimants to receive EI benefits, artificially boosting regional unemployment rates to increase access to EI benefits, and temporarily suspending the rules around the treatment of severance pay and other separation payments received by workers upon dismissal.
Background
The federal Employment Insurance Act has established a mandatory employment insurance scheme across Canada, under which EI contributions must be deducted from employees’ employment income by their employers and remitted directly to the Canada Revenue Agency (“CRA”). In exchange, employees are eligible to receive EI benefits where they are unable to work at no fault of their own, so long as they have accrued a sufficient number of insurable employment hours in the last 52 weeks or since their last EI claim.
Although employment insurance is commonly referred to as unemployment benefits, there are a range of EI benefits available to workers who are unable to work for various reasons. That said, this article focuses on Regular EI benefits, which are for employees who have lost their job or been placed on temporary layoff.
To properly understand the new temporary measures, one must understand the rules that usually apply to EI benefits. First, absent the new temporary measures, there is a one week waiting period for employees to receive Regular EI benefits. In other words, employees who are otherwise eligible to receive EI do not receive any EI benefits for the first week that they are unable to work, before their benefits kick in. Second, the number of insurable hours of employment required to be eligible for EI and the maximum duration of Regular EI benefits that an employee can receive depend on the unemployment rate in the region in which the employee lives. In other words, employee eligibility and the maximum duration of Regular EI benefits that employees may potentially receive, increase with the rate of unemployment where they live. Finally, where an employee receives any type of separation payments as a result of losing their job, whether it be termination pay, severance pay, pay in lieu of common law reasonable notice, or a retiring allowance, it is normally considered employment income. Depending on the timing of when the employee receives such separation earnings, this means that the employee will either: (i) not receive EI benefits until after the period for which they received the separation earnings and/or have their EI benefits for this period reduced by the amount of separation earnings; or (ii) have to repay EI benefits that they already received in relation to a period for which they received separation earnings, as they will be deemed to have received an overpayment of EI benefits.
The New Temporary Change to EI Benefits
The government implemented the new temporary changes to EI benefits through the Regulations Amending the Employment Insurance Regulations (Pilot Project No. 24): SOR/2025-115. The temporary changes include:
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No one-week waiting period – The government is temporarily waiving the one-week waiting period that normally applies to all types of EI benefits for claims that start between March 30, 2025 and October 11, 2025, such that eligible employees can receive benefits for the first week that they are unable to work;
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Artificially boosting regional unemployment rates – The government is artificially boosting the unemployment rates in all regions that have employment rates under 13.1% for claims which start between April 6, 2025 and July 12, 2025, which reduces the number of insurable hours employees need to qualify for Regular EI benefits (which range from 420 hours to 630 hours, depending on the region) and increases the maximum duration of Regular EI benefits that employees can receive (ranging from 14 to 45 weeks);
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Suspending Usual Treatment of Separation Earnings – The government is temporarily not treating separation payments (which includes, among other things, termination pay, severance pay, pay in lieu of common law reasonable notice, and retiring allowances) as “employment income” for EI purposes for claims that start between March 30, 2025 and October 11, 2025.
The third of these changes is most notable, and means that employees who are dismissed and receive termination pay, severance pay, pay in lieu of common law reasonable notice, a retiring allowance, and/or other separation payments are: (i) eligible to receive EI during the same period for which they received any separation payments, without those benefits being reduced by the amount of the payments; and (ii) not required to repay any EI benefits that they already received in regard to a period for which they subsequently received separation payments.
The Bottom Line
In addition to providing support to workers whose jobs have been impacted by the tariffs, employers should take these temporary measures into account when negotiating wrongful dismissal settlements. This is because the temporary changes to the EI rules will generally mean more money in employees’ pockets when they receive separation payments as part of a wrongful dismissal settlement, which can be strategically leveraged by astute employers.
In particular, employers facing wrongful dismissal claims should expressly advise employees of this special temporary benefits when responding to demand letters and emphasize that any settlement package offered is in addition to the EI benefits the employee has received. This will help put the employer’s settlement offer in the proper context, and aid in negotiating a less expensive settlement. This could prove particularly valuable for employers facing financial challenges arising from the ongoing impacts of the trade war who have had to reduce their workforces as a result. That said, this is but one strategic consideration, and employers would be well advised to seek expert legal representation when faced with wrongful dismissal claims, as adopting an adept settlement strategy from the outset of negotiations will save your business or organization money in the long run.
If you require assistance with defending against wrongful dismissal claims and/or settling such claims in the most cost-efficient manner possible, please do not hesitate to contact us for expert legal advice and guidance.
