When it comes to employment and the many benefits it poses for people, in states like Canada, we should also talk about unemployment and how welfare states ensure that their citizens continue to lead their lives without any issue and maintain their lifestyle when they may not be employed actively and may not be dependant on a paycheck from an employer. However, given that the concept of severance pay and unemployment benefits seems to be inherently different from each other, almost headed on a collision course, you can expect there to be some restrictions and impacts that either one may have on the other.
In this blog post, we will look at how severance pay impacts unemployment benefits in Canada, and what the law states about this potential conflict that puts your benefits at hold, or requires you to pay back the amount that you may have gotten from the state in lieu of unemployment benefits. As always, to understand the matters of severance pay and unemployment benefits best and for sound legal advice no matter what employment case you might have, trust Dharsi Law with the best services for all employment law in Toronto.
Let’s first start by discussing what severance pay and unemployment benefits are, and then we will progress onto the relationship both of these have and how it affect the disbursement of either one of them.
Severance Pay: What Is It?
Following the guidelines laid down by the ESA, severance pay is described as ‘compensation paid to an employee whose employment has been severed by their employer’. The term ‘severance’, as per the ESA, is the imperative part of the equation, and the conditions associated with severance need to be present in an employee’s case for them to be eligible to claim severance pay. Once again, severance pay is aimed at a very specific purpose: it is aimed at the compensation for the long-term employees of their losses upon termination from the organisation.
However, unlike other forms of end-of-term benefits like termination pay, severance pay only has a few very basic requirements set forth by the ESA. According to the laws, the minimum severance pay set out in the ESA applies to employees who have worked with their employer for five years or more in Ontario.
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Now, let’s discuss unemployment benefits and what they entail under ESA or Canadian law.
Unemployment Benefits: What Is It?
As the name suggests, unemployment benefits are provided by the state to an individual who may have been laid off or let go from their place of employment after having been previously employed for a predetermined period. It is important to note here that unemployment benefits do start once the individual has had a job for a specific period, but this caveat varies from province to province and region to region. As such, local laws will always take preference in determining whether or not an individual qualifies for unemployment benefits and just how much exactly they are qualified to receive from the state.
Unlike severance pay, which is treated as an essential extension of your salary or remuneration (as if you were still working there), unemployment benefits are supposed to reflect the situation that the individual is in and are set at the level that a person with no active employment and income and get by with relative ease. This, obviously, presents a conflict of interest, one that will be explained below.
Severance Pay: How Does It Affect Unemployment Benefits
Unemployment benefits start when a person loses their job, and in most cases, the job details or employment contract usually does not provide for end-of-term payouts or benefits, like severance pay. In this case, unemployment benefits can be classified as necessities; they help keep the individual afloat even when they don’t have active employment and remuneration.
However, if the contract provides for end-of-term benefits and supposes the person to be eligible for severance pay, the concept of receiving unemployment benefits is considered moot since, once again, receiving severance pay is considered an ‘extension’ of the working period essentially; the individual gets paid for the work they would have otherwise performed had they been at the job, and since severance pay usually does not apply to cases where the firing is done due to the individual’s acts, unemployment benefits, therefore, do not apply, and in cases where an individual may have already received some unemployment benefits including payments, several states actually require the individual to reimburse them, returning them their money.
Let’s take a closer look at how severance pay actually impacts unemployment benefits and what is supposed to happen in a case where such a conflict of interest arises.
- You are not eligible to receive unemployment benefits until the expiry of your severance package (this is usually a specific number of months).
- If you receive unemployment benefits and subsequently receive a severance package, you will need to reimburse the state for the benefits received during the period covered by your severance pay.
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