In 2012 and at the beginning of 2013, the Employment Insurance (EI) program underwent a number of changes following the passage of the Budget 2012 implementation bills (C-38 and C-45), the passage of Bill C-44, which creates a new type of EI benefit for parents of critically ill children, and following various consequential amendments to the Employment Insurance Regulations.
This document describes those changes and, in each case, summarizes the rationale of the government - and in some instances, support for its position - as well as the main critiques of the opposition parties or other groups. When the rationales and critiques are found succinctly expressed in official texts, those texts are quoted in the appropriate sections.
1 Employment Insurance Financing
1.1 Description of the Change
EI benefits are financed by premiums paid by employees and employers based on the employees’ insurable earnings. Until recently, premium rates were set by the Canada Employment Insurance Financing Board (CEIFB). The rates were announced by 14 November each year and were to generate enough revenue to cover the benefits expected to be paid in the following year and to pay down the deficit accumulated in the EI Operating Account (the Account) since its creation on 1 January 2009.
The Account is a consolidated specified purposes account, meaning that the EI program’s credits and charges are recorded in it, and that its operations are part of the Public Accounts of Canada. As of 31 March 2012, the accumulated deficit of the Account stood at $7.9 billion.
Annual changes in the premium rate for employees were limited to $0.15 per $100 of insurable earnings. Without such a limit, the CEIFB could have recommended a significantly greater increase because of the deficits in the Account from 2009 to 2011. The Governor in Council could also, on the joint recommendation of the Minister of Finance and the Minister of Human Resources and Skills Development, establish a premium rate different from the one established by the CEIFB.
It was also expected that the Treasury would pay $2 billion into the Account in order to create a reserve.
Changes to these financing arrangements were made in 2012 by Bill C-45. The CEIFB has been temporarily suspended until the accumulated deficit in the Account is eliminated. Meanwhile, the Canada Employment Insurance Commission (CEIC), an existing agency under the umbrella of Human Resources and Skills Development Canada (HRSDC), will calculate the premium rate in the same way that the CEIFB once did. Changes in the rate will be limited to $0.05 per $100 of insurable earnings. The premium rate for following year will be announced no later than 14 September.
After that, the CEIFB will be reinstated, and it will select a rate each year that, according to its projections, should mean that the sum of program expenses for the next seven years will match the revenues for the same period. The section in the Employment Insurance Act providing for the possibility of depositing a $2-billion reserve into the Account has been repealed. The reserve is probably no longer considered necessary because of the longer period over which the premium rate is calculated.
These changes are the result of consultations on the program’s financing conducted by the Department of Finance and HRSDC. The goals of the consultations were to ensure more stable and predictable rates, to ensure that the program breaks even over time, and to avoid large surpluses or deficits, while maintaining a transparent rate-setting process.
The Mowat Centre, an independent think tank that held consultations on ways to improve the EI program, recommended that premium rates be fixed in order to establish balance for the period corresponding to an economic cycle rather than for one year. A TD Economics report also supported considering revenues and expenses over a longer term (seven to 10 years).
The main criticism of the change is that, although Budget 2012 stated that the premium rate would continue to be set by the CEIFB rather than the CEIC, “Bill C-45 eliminates this board and centralizes the rate setting responsibility in the hands of cabinet.”
2 Definitions of “Suitable Employment” and “Reasonable and Customary Efforts” to Obtain Suitable Employment
2.1 Description of the Change
Bill C-38 authorizes the CEIC to make regulations to define “suitable employment” and “reasonable and customary efforts” to obtain suitable employment, with the agreement of the Governor in Council. These definitions are used to determine if EI benefits must cease to be paid because the claimant declined a suitable open position or did not apply for such a position. The regulations establishing these definitions went into effect on 6 January 2013.
To be considered “reasonable and customary,” a claimant’s efforts to find a suitable job must be sustained and must include:
- assessing employment opportunities;
- preparing a résumé;
- registering for job search tools;
- attending job search workshops or job fairs;
- contacting prospective employers;
- submitting job applications;
- attending interviews; and
- undergoing evaluations of competencies.
“Suitable employment” must also meet certain criteria relating to the claimant:
- It must suit the claimant’s state of health.
- It must not have hours of work that are not compatible with the claimant’s family obligations.
- It must not be contrary to the claimant’s moral convictions or religious beliefs.
- It must not involve commuting time that normally exceeds one hour.
The type of employment deemed suitable and the proposed earnings must meet standards that are based on the claimant’s past use of the EI program:
- For a claimant who has used EI more frequently, meaning a claimant who has had at least three benefit periods and has been paid at least 60 weeks of regular benefits in the five years preceding a current EI claim, suitable employment means:
- for the first six weeks of the benefit period - any occupation similar to the previous one and earnings of at least 80% of the earnings in the previous job.
- after six weeks - any occupation for which the claimant has the necessary qualifications, including one in which the claimant could become qualified to work through on-the-job training, and earnings of at least 70% of the earnings in the previous job.
- On the other hand, for a claimant who has received regular EI benefits for less than 36 weeks in the previous five years and who has paid at least 30% of the maximum annual employee’s premium in seven of the 10 previous years, suitable employment means:
- for the first 18 weeks of the benefit period - the same occupation as the one in which the claimant worked previously (and not simply a similar occupation) and earnings equal to at least 90% of the earnings in the previous occupation;
- after 18 weeks - any occupation similar to the previous one and earnings of at least 80% of the earnings in the previous occupation.
- For a claimant to whom neither of the two first categories applies, suitable employment means:
- for the first six weeks of the benefit period - the same occupation as the one in which the claimant worked previously and earnings of at least 90% of the earnings in the previous occupation;
- between seven and 18 weeks - any occupation similar to the previous one and earnings of at least 80% of the earnings in the previous occupation;
- after 18 weeks - any occupation for which the claimant has the necessary qualifications, including one in which the claimant could become qualified to work through on-the-job training, and earnings of at least 70% of the earnings in the previous occupation.
For the government:
It is expected that EI regular claimants will increase their job search effort, which will result in them finding suitable employment and returning to work more quickly in regions where there are suitable employment opportunities. In turn, their time on claim will be shortened.
Enhanced compliance measures to ensure claimants are fulfilling their responsibility to seek suitable employment will require an annual investment of approximately $7.2 million per year for administrative costs, which includes the cost of processing appeals. It is expected that enhanced compliance measures will result in an estimated 8,000 claimants having their benefits temporarily discontinued until such time as they are able to demonstrate they are meeting their responsibilities under these regulations. These changes will yield program savings of approximately $12.5 million in EI benefits in 2012-2013 and $33 million in 2013-2014 and every year thereafter.
The Canadian Federation of Independent Business supported the change:
EI claimants must be encouraged to look for work because members in all sectors and all communities across the country have told us how bad the shortage of labour problem has become.
The opposition parties came out against the new definitions. For example:
To the NDP, the government’s intention is clear: force claimants to take a job as quickly as possible for less pay and under lesser working conditions, in addition to orchestrating a massive movement of Canadian workers to where the jobs are, regardless the region or the province. Pushed to the extreme, this verges on nothing less than forced labour and deportation, and the up-rooting of entire regions.
In addition to taking a pay cut, workers who are being forced to accept jobs that are not necessarily in their field will slowly lose their expertise, which will undermine the value of their qualifications and skills. These measures are counterproductive for society, and nobody wins. This reform will also cause seasonal and highly specialized employers to lose out. For them, it will be increasingly difficult to find workers who will be satisfied with jobs that do not provide work year-round. Alternative employers will end up with unmotivated employees who are difficult to retain.
The Canadian Labour Congress also came out against the change:
Forcing workers to take the first available job is not good labour market policy since periods of job search allow for a better fit between unemployed workers and job vacancies across the country.
3 Connecting Employment Insurance Claimants With Available Jobs
3.1 Description of the Change
The government announced that EI recipients would be able to take advantage of an improved Job Alert system, providing daily information about job postings. It stated that the links between this system and the Temporary Foreign Worker program would be strengthened, so that employers wishing to use the program could offer their available jobs to EI claimants.
According to the government:
With the enhanced system, claimants will be notified of new job postings daily, so that they can pursue opportunities as they arise. As the system continues to evolve, they will also receive additional information that can help them decide how and when to expand a job search. A claimant may also choose to receive information on related jobs or the job market in other regions.
The main criticism of the new Job Alert system is that people with no access at home to the Internet will have more difficulty getting access to the improvements:
The principle is sound, and I think it’s targeted at, probably, a large portion of EI recipients. But where it sort of falls short is in households that make under $30,000 a year. In 2010, 40% of those households had no access to the Internet.
The stronger link between the Temporary Foreign Worker program and EI also raised some fears in the industries that regularly employ temporary foreign workers:
Last year, more than 7,500 temporary foreign workers were employed on Quebec farms. There is a good reason for so many: the agricultural sector has been beset by a chronic labour shortage for several years, a shortage that our own unemployed cannot manage to fill. This reform will not change a thing. On the contrary, it is poorly tailored to the seasonal nature of agricultural production. Our companies have to plan their labour needs well before the harvest; this is one of the reasons why foreign workers have to be hired up to 16 weeks in advance. [Translation]
4 Calculating Benefits
4.1 Description of the Change
In October 2005, a pilot project referred to as the “best 14 weeks” of earnings was launched in 25 economic regions to test “whether making EI benefits more reflective of full-time work earnings for people with sporadic work patterns encourages claimants to accept all available work.” The pilot project specified that, in those regions, “EI benefit rates will be calculated based on the highest 14 weeks of insurable earnings over the last 52 weeks.”
As of 7 April 2013, the program will be extended to the whole of Canada and will no longer be a pilot project. Benefits will be calculated based on the 14 to 22 weeks (depending on the regional rate of unemployment) during which the previous year’s earnings were highest.
Because the normal method of calculating the rate of benefits was not automatically based on the number of weeks in which earnings were highest, and the period used was shorter (26 weeks rather than 52), the new benefits should, on average, be higher. Indeed, Budget 2012 sets the 2012-2013 cost at $138 million and the 2013-2014 cost at $249 million.
According to the government, this new approach could “reduce disincentives to accepting all available work prior to applying to the EI program.” In addition, compared to the pilot project, in which only the 14 best weeks were calculated, the new method of calculation considers from 14 to 22 weeks, depending on the regional rate of unemployment. The higher the rate of unemployment, the lower the number of weeks considered. This often raises the amount of the benefits.
Some organizations, such as the Mowat Centre, are opposed in principle to regional differences in the access to benefits, their level or their duration. In general, they are afraid that the EI program may become a way of supporting people who work only part of a year, a situation that would be made worse by this change.
5 Earnings Permitted While Receiving Benefits
5.1 Description of the Change
In the past, people who received regular, parental, fishing, or compassionate care benefits were also permitted to earn up to the higher of the following amounts: $50, or 25% of the weekly benefit. Earnings in excess of that amount were deducted dollar for dollar from the benefits.
As a pilot project, those amounts were increased to $75 and 40% of the weekly benefits in some regions between 11 December 2005 and 6 December 2008. The pilot project was then extended to 4 August 2012 and made available across Canada.
On 5 August 2012, the pilot project was changed and extended until 1 August 2015. All earnings (starting with the first dollar earned) reduce benefits by 50% of the value of the earnings. Earnings over 90% of weekly insurable earnings are deducted dollar for dollar from benefits. The new formula is more beneficial than the old one for some claimants, but less so for others.
For example, two people with insurable weekly earnings of $800 receive benefits of $440 (55% x $800, the base rate used to calculate benefits, multiplied by the insurable earnings). The old pilot project formula allowed them to earn up to $176 (40% of the $440 in benefits) without a reduction in benefits, whereas the new formula simply reduces the benefits by an amount equal to 50% of any earnings from work they do while they are receiving benefits.
- The first claimant finds a job paying $400 per week. Under the previous formula, the $440 in benefits would be reduced by $224 (the amount of the earnings minus the maximum allowable excess earnings: $400 - $176) to $216. Under the new formula, the benefits will be reduced by $200 (50% of the $400 earned) to $240. The new formula therefore leaves the claimant with $24 more per week than the old formula.
- The second claimant finds a job paying $300 per week. Under the previous formula, the $440 in benefits would be reduced by $124 (the amount of the earnings minus the maximum allowable excess earnings: $300 - $176) to $316. Under the new formula, the benefits will be reduced by $150 (50% of the $300 earned) to $290. The new formula therefore leaves the claimant with $26 less per week than the old formula.
Clearly, the old formula is beneficial for the second claimant and the new formula is beneficial for the first one. For this reason, claimants will be able to choose between the two. This choice cannot be changed during the benefit period when it is made, and it will not apply to benefits for the self-employed.
Those receiving maternity or sickness benefits are not affected. Any earnings they make while receiving benefits will continue to be deducted dollar for dollar from benefits, as was always the case.
The government explains its reasoning for this decision as follows:
EI claimants who stay active in and remain connected to the labour market find permanent employment faster than those who do not. The existing Working While on Claim pilot project reduces claimants’ EI benefits dollar-for-dollar once they have earned a certain amount, discouraging them from accepting additional work. Economic Action Plan 2012 proposes to invest $74 million over two years in a new, national EI pilot project that will ensure claimants are not discouraged from accepting work while receiving EI benefits.
When the new pilot project was announced, the opposition parties pointed out that, in some cases, claimants finding a part-time job with a low hourly wage would be disadvantaged by the new formula.
The government has since permitted claimants to choose either of the two formulae.
6 Dealing With Complaints
6.1 Description of the Change
Bill C-38 created a new Social Security Tribunal, which will begin operating on 1 April 2013. It will deal with all complaints about EI, the Canada Pension Plan (CPP) and the Old Age Security (OAS) Program.
The Tribunal will have two divisions: the General Division and the Appeal Division. The General Division will have two sections: the Income Security Section (for CPP and OAS) and the EI section.
In the past, contested decisions of the CEIC were first reviewed by a Board of Referees. In the case of an appeal, they could then be heard by an Umpire. The new tribunal will likewise have two levels of review for CEIC decisions.
The Social Security Tribunal Regulations that provide the basis for the Tribunal’s operation were published in the Canada Gazette on 22 December 2012.
The change was announced in Budget 2012 and appears in the budget document’s Annex 1 (Responsible Spending):
The Minister will introduce legislative amendments to eliminate administrative duplication in appeals and tribunal services by replacing the current administrative tribunal system for major federal social security programs with a single-window decision body. The new Social Security Tribunal will continue to provide a fair, credible and accessible appeals process for Canadians.
Some groups advocating for the unemployed were opposed to the change:
An effective and relatively simple system will now become an obstacle race. Not only will there be more hoops to jump through and more procedures to comply with, but there may also be ever-increasing delays. This is because of, among other things, the small number of members who will sit on the new tribunal and the ability of the tribunal’s General Division to refuse to hear an appeal that it considers has no reasonable chance of success - unheard of. Remember that this is one of Canada’s most complex pieces of legislation. [Translation]
7 Bill C-44
7.1 Description of the Change
Bill C-44, which received Royal Assent on 14 December 2012, established a new special benefit for parents of critically ill children. Like other special benefits (such as maternity or sickness), this benefit requires the parent to have accumulated 600 hours of insurable employment in the qualifying period (usually the previous year). The benefits may be paid for up to 35 weeks.
The bill also amended the Employment Insurance Act to allow claimants who fall ill or are injured while receiving parental benefits to access sickness benefits. This extends their parental leave by the same length of time for which they receive sickness benefits (up to a maximum of 15 weeks).
These changes will come into effect by order of the Governor in Council.
The Honourable Diane Finley, Minister of Human Resources and Skills Development, introduced Bill C-44 as follows:
To heal, seriously ill children not only need doctors day and night, but they also need the comfort that their parents can provide. This new benefit will help alleviate some of the financial hardships experienced by parents who have to miss work to spend time with their families.
Opposition parties supported the bill, but, when it was studied in committee, they introduced a number of amendments that were not accepted. These included adding dependent children over 18 years of age:
I think we should not set the limit at 18 years of age. I want to reiterate that all the witnesses we have heard on this matter have said that the limit should not be set at 18 years of age. Their family tragedy would have been just as terrible if their child had been 19, 20 or 21 years of age.
8 Persons Not Authorized to Remain in Canada and the Collection of Overpayments
8.1 Description of the Change
Changes to the Employment Insurance Regulations came into effect on 9 December 2012. They aim to:
- prevent the payment of special maternity, parental and compassionate care benefits to persons who can no longer reside in Canada and whose social insurance card is no longer valid;
- increase the write-off threshold amount from $20 to $100.
The government justifies these changes as follows:
Providing … benefits to claimants … who are not authorized to remain in Canada is inconsistent with the core principle of EI which is to provide temporary income support to facilitate transitions back into the Canadian labour market.
The cost of collecting overpayments resulting from periodic adjustments of EI claims is often greater than the amount to be collected.
One union, UFCW Canada, asked the Minister of Human Resources and Skills Development to remove the agricultural sector from the change, or at least to reconsider the effective date:
We are asking you to specifically exempt the agriculture sector from these announced changes due to the seasonal nature of the work, and the length of service of these incredible individuals who deserve some benefit from the EI program.
If you are unwilling to make an industry exception, I would then ask you [to] consider a change in activation date in fairness to the program itself. The date for activating the new regulation was December 9, 2012. This date did not provide us with much notice to prepare our staff at the Agriculture Workers Alliance offices, or the agriculture workers we represent (two days over the past weekend).
9 Hiring Credit for Small Business
9.1 Description of the Change
This temporary measure, announced in Budget 2011, was extended for 2012. It is aimed at employers who paid EI premiums of less than $10,000 in 2011. Increased premiums in 2012 (as a result of an increase in the premium rate, salary increases or the hiring of new employees) will be reimbursed up to a maximum of $1,000. The cost of the measure is expected to be $205 million in 2012.
Here is the government’s rationale in Budget 2012:
Small businesses are the engine of job creation in Canada, and are indispensable in their role as job creators. In recognition of the challenges faced by small businesses across the country, Budget 2011 announced a temporary Hiring Credit for Small Business of up to $1,000 per employer. This credit provided needed relief to small businesses by helping defray the costs of hiring new workers and allowing them to take advantage of emerging economic opportunities.
As the economy continues to recover amid continuing global economic uncertainty, Economic Action Plan 2012 proposes to extend the temporary Hiring Credit for Small Business for one year.
This measure gave rise to criticism. The amount of 2011 premiums that are considered is the gross amount (before the previous year’s credit). This may mean that employers may even see their premiums go up:
[The measure] contains flaws that actually punish small businesses. For example, it contains a hidden 7¢ EI premium hike. In addition, if a company is near the $10,000 limit, it can be penalized if it hires more workers or if it increases the wages of its workers.
10 Changes to the Employment Insurance (Fishing) Regulations
10.1 Description of the Change
Fishers actively looking for work are eligible for fishers’ benefits. Since 2010, self-employed workers (not including fishers) may, if they wish, choose to pay EI premiums in order to be eligible for special benefits. As fishers are often self-employed, changes to the Employment Insurance (Fishing) Regulations dealing with benefits provided to fishers were required in order to bring them into compliance with the new provisions in the Employment Insurance Act that deal with other self-employed workers.
The government’s explanation is as follows:
The amendments to the EI Fishing Regulations are required to ensure policy coherence with the EI Act. They are consequential to legislative provisions of the EI Act and are enabling in nature. In this context, the amendments harmonize the EI Fishing Regulations with the self-employed provisions in the EI Act.
There was therefore no critical reaction, as this is basically a technical measure and does not change EI policies.
The EI program is constantly evolving. On the one hand, there is a desire to provide insurance against the risk of unemployment for employees. On the other hand, there is a wish to control costs and prevent abuses, without significantly affecting individuals’ behaviour in the labour market.
The recent changes to the program seek that balance, but they have given rise to some criticism, as presented in this document.
Most of the changes are in effect, with the following exceptions:
- the calculation of benefits based on the 14 to 22 best weeks of earnings in the previous year, which will come into effect in April 2013;
- the new benefit for parents of a critically ill child, which will come into effect by order of the Governor in Council; and
- the new mechanism for setting premium rates, which will be based on estimates of program expenses and income for the seven years following the elimination of the accumulated deficit in the EI Operating Account, will not take effect until the deficit is eliminated, which could take several years.
† Library of Parliament Background Papers provide in-depth studies of policy issues. They feature historical background, current information and references, and many anticipate the emergence of the issues they examine. They are prepared by the Parliamentary Information and Research Service, which carries out research for and provides information and analysis to parliamentarians and Senate and House of Commons committees and parliamentary associations in an objective, impartial manner. [ Return to text ]