IN THE MATTER of the EMPLOYMENT INSURANCE ACT
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IN THE MATTER of a claim by
PAUL H. LAVOIE
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IN THE MATTER of an appeal to an Umpire by the Canada
Employment Insurance Commission from a decision by
the Board of Referees given on May 26, 1998,
at Fredericton, N.-B.
DECISION
J.A. FORGET, Umpire
The Commission appeals the unanimous decision of the Board of Referees who found that the sum received by the claimant pursuant to a settlement with his former employer was not subject to allocation pursuant to sections 57 and 58 of the Regulations.
Mr. Lavoie filed a claim for benefits on October 7, 1994. He had worked as an economic development officer for the City of Fredericton from July 21, 1993 to October 5, 1994 when he was dismissed. He indicated that he was contesting his dismissal. The Commission established the claim effective October 9.
On September 26, 1997, the Court of Queen's Bench of New Brunswick issued a Consent Order whereby the City of Fredericton was to pay Mr. Lavoie the sum of $50,000.00, representing exemplary damages for breach of contract, interest, costs and disbursements. The agreement also indicated that the sum was not compensation for loss of employment or income within the meaning of the Income Tax Act.
Initially no information was provided as to the costs and interest involved in the settlement and the Commission allocated the fall amount pursuant to sections 57 and 58 of the Regulations. However, the claimant subsequently informed the Commission that he had incurred $15,840.15 in legal fees and this amount was deducted from the lump sum, leaving a balance of $34,159.86 for allocation. It was determined this amount constituted earnings pursuant to subsection 57(2) of the Regulations and it was allocated pursuant to subsection 58(9) of the Regulations from October 9, 1994 to June 3, 1995. This decision resulted in an overpayment of $11,201.00.
The claimant disagreed with the decision to allocate. He indicated that he agreed to settle the action at the suggestion of Justice Guy Richard to avoid further stress and embarrassment as well as to ensure any press coverage would not impact negatively on his current employer. He stated that had he not been made to feel confident by Justice Richard and his counsel that the award was for exemplary damages and therefore not subject to the repayment provision contained in the Income Tax Act, he would not have agreed to settle out of Court. He included in his letter of appeal a list of hardships and cost caused by his termination.
Before the Board of Referees Mr. Lavoie and his counsel argued that the Consent Order issued by Mr. Justice Guy Richard of the Court of Queen's Bench of New Brunswick clearly states that the sum of $50,000.00 represents exemplary damages for breach of contract, interest, costs and disbursements and that the parties have agreed that this sum is not compensation for loss of employment or income within the meaning of the Income Tax Act. After hearing oral representations and reviewing the documentary evidence on file, the Board found as follows:
The board is prepared to accept the judgment of Mister Justice Richard and is in agreement consequently there seems to be little choice but to allow the appeal.
The Commission submits that the Board of Referees erred in law and made an erroneous finding of fact when it decided that the settlement monies received by the claimant were not compensation for loss of employment or income and were therefore not earnings pursuant to sections 57 and 58 of the Regulations.
The Commission submits that the case law has confirmed that damages paid to an ex-employee who has been wrongfully dismissed are, in principle, income arising out of employment (Diane Tétreault, A-527-85 and Harry Major, A-667-88). It is the Commission's contention that the jurisprudence supports the argument that the onus is on the claimant to supply supporting evidence of his allegations and that, although he included in his letter of appeal a list of hardships and cost caused by his termination, there is no indication that these circumstances were taken into consideration in the settlement.
The Commission contends that the claimant's application to the Court was for compensation solely related to his dismissal; that he applied to the Court to have the employer's decision to dismiss him quashed and to be compensated for the employer's breach of duty of fairness for failing to advise him of the reason for his dismissal as well as failing to provide him with an opportunity to be heard prior to actually making the decision to dismiss him. It is the Commission's view that although the claimant surrendered his original request to have the dismissal quashed, it does not alter the fact that the monies paid were compensation arising out of employment.
When dealing with allocation of earnings, the question is whether the monies arose from employment.
Paragraph 57(2)(a) of the Regulations provide as follows:
57(2) Subject to this section, the earnings to be taken into account for the purpose of determining whether an interruption of earnings has occurred and the amount to be deducted from benefits payable under subsection 15(1) or (2), 17(4), 18(5), or 20(3) of the Act and for the purposes of sections 37 and 38 of the Act are
(a) the entire income of a claimant arising out of any employment;
Subsections 28(9), (9.1) and (10) of the Regulations provide as follows:
58(9) Subject to subsections (9.1) and (10), all earnings paid or payable to a claimant by reason of a lay-off or separation from an employment shall, regardless of the nature of the earnings or the period in respect of which the earnings are purported to be paid or payable, be allocated to a number of weeks that begins with the week of the lay-off or separation from employment in such a manner that the total earnings of the claimant from that employment are, in each consecutive week except the last, equal to the claimant's normal weekly earnings from that employment.
(9.1) Subject to subsection (10) where earnings are paid or payable to a claimant by reason of a lay-off or separation from employment subsequent to an allocation under subsection (9) in respect of that lay-off or separation, the earnings that were allocated shall be added to the subsequent earnings and, regardless of the nature of the subsequent earnings or the period in respect of which they are purported to be paid or payable, a revised allocation shall be made in accordance with subsection (9) on the basis of that total.
(10) Where earnings are paid or payable in respect of an employment pursuant to a labour arbitration award or the judgment of a tribunal, or as a settlement of an issue that might otherwise be determined by a labour arbitration award or the judgment of a tribunal, and the earnings are awarded to specific weeks after a finding or admission of discipline, the earnings shall be allocated to a number of consecutive weeks, beginning with the first week for which the earnings are awarded, in such a manner that the total earnings of the claimant from that employment are, in each week except the last week, equal to the claimant's normal weekly earnings from that employment.
In CUB 44266 (Stephen McConnell), Umpire Houston stated as follows:
It is clear from the case law that the Commission is in no way bound by agreements made between an employee and his employer. That is to say, the Commission is entitled to look at the circumstances surrounding the payment of money to an employee on separation and determine, according to the Act, whether the payment was in fact "earnings" as defined by the Act, regardless of what the parties claim the payment was for. The Board is right that the presumption that money paid is "earnings" is rebuttable, but the case law indicates that the threshold is very high.
The object of the inclusiveness of the definition of "earnings" is to prevent employers and employees from supplementing separation payments with UI benefits, and to prevent former employees from receiving income from two sources. The Board made a finding that the claimant had succeeded in rebutting the presumption that the settlement was lost wages.
Counsel for the Commission would have me go behind the wording of the consent order signed by the presiding judge and the solicitors for both parties and determine accordingly that the order does not mean what it specifically states namely that monies paid are not exemplary damages and is compensation for loss of employment or income.
I cannot agree with this submission. I must give full faith and credit to the order as signed and consented to. This order speaks for itself and is not equivocal in any way, shape or form. Since Mr. Justice Richard states the order is made as exemplary damages, I cannot at any time start to second guess what the learned trial judge ordered.
I can well appreciate that the Commission feels that the monies paid to the claimant should be allocated because it is income derived from employment (or dismissal) but the documentary evidence is to the contrary.
I am satisfied that this claimant has succeeded in rebutting the presumption that the settlement is "earnings". As Marceau J.A. stated in A.G. Canada v. Harnett (A-34-91):
.. For example, settlements paid to address injury to one's health or reputation, or indeed, to address one's legal fees, would not be allocated as earnings.
Exemplary damages (also sometimes called punitive damages) are usually awarded by a Court to sanction a party's high-handed and oppressive conduct because of the negative effects such conduct has had on the other party. The award is conduct driven and not employment related.
For all of the above reasons, I do not find that the Board of Referees committed any error of law or fact and, accordingly, the Commission's appeal must be dismissed.
J.A. FORGET
UMPIRE
OTTAWA, Ontario
September 10, 1999