Circular No. 3R2
May 22, 2008
Appendix B of Circular No. 3R2 contains the contact information for regional coordinators of Service Canada's Employment Insurance Branch. This contact information has been updated by Service Canada. Accordingly, please find below the updated Appendix B, which replaces the one issued on March 7, 2008.
March 7, 2008
For your information, you will find below a revised Circular No. 3R2 entitled "Employment Insurance."
Please note that this Circular revises and replaces Circular No. 3 issued on March 28, 2000, on the same topic. This Circular needed to be revised because the Employment Insurance Branch of Human Resources and Skills Development Canada (HRSDC) is now part of Service Canada (SC). Consequently, all references to HRSDC needed to be changed to SC. Also, Appendix B, which is the list of contacts at SC, needed to be updated.
Attached to this Circular and made a part hereof is SC's Employment Insurance Branch official document which provides guidelines for trustees dealing with overpayments of Employment Insurance benefits and the procedure to be followed for forwarding payments.
Circular No. 3R2
(Supersedes Circular No. 3 issued on March 28, 2000, on the same topic)
1. The purpose of this Circular is to provide trustees with the document prepared by Service Canada (SC), Employment Insurance Branch, entitled: "Subsection 46(1) of the Employment Insurance Act and its effects on a trustee acting pursuant to the Bankruptcy and Insolvency Act."
2. The document provides guidelines respecting the procedure to be followed by SC and trustees in determining whether overpayments of Employment Insurance benefits are owed to SC when individuals produce claims for unpaid salary to a trustee and, where applicable, the procedure to be followed for forwarding that payment to SC.
3. In the context of this Circular, for an overpayment of Employment Insurance benefits to exist, the following conditions must be met:
- a trustee or receiver has been appointed to administer the estate;
- there has to be a work stoppage;
- Employment Insurance benefits are claimed from SC by the ex-employee;
- the benefits owed to the ex-employee (e.g., severance pay, vacation pay, salary arrears, etc.) have to be claimed by the ex-employee in the employer's insolvent estate; and
- the trustee declares a dividend regarding this type of claim.
- Consequently, the amount of Employment Insurance benefits overpayment which SC could claim depends on the amount of the declared dividend. Therefore, SC informs us that this amount should not, in any circumstances, be greater than the amount of the dividend payable by the trustee.
4. In addition, we wish to inform practitioners that, pursuant to section 147 of the Bankruptcy and Insolvency Act, the Superintendent's levy applies before a payment is made to SC. Furthermore, the amount that must be reported by the trustee to SC in accordance with subsection 5.1(3) is the amount of the dividend after deduction of the Superintendent's levy.
5. Where it has been determined that an "overpayment" is payable to SC, the trustee should communicate by letter with the individuals who have filed claims to inform them of the possibilities that amounts may be deducted from their claim. Examples of letters, appropriate for such circumstances, are attached to this circular for use by trustees at their discretion.
6. For any questions related to the interpretation or the application of this circular, please contact the Regulatory Affairs and Compliance Section of the Office of the Superintendent of Bankruptcy by email.
Superintendent of Bankruptcy
Employment Insurance Act - 46(1)
Subsection 46(1) of the Employment Insurance Act and its effects on a Trustee acting pursuant to the Bankruptcy and Insolvency Act
Former employees of bankrupt employers quite often file claims for Employment Insurance (EI) benefits. If a settlement is subsequently made for unpaid wages, severance pay or other monies owed to the employee at the time of termination of employment, these earnings may be allocated, for EI purposes, to the period of time before or after termination. This action may result in the creation of an overpayment of EI benefits.
The Employment Insurance Act, effective 30 June 1996, clarified provisions with respect to the liability of trustees in bankruptcy. Pursuant to subsection 46(1) of the EI Act (Appendix A) an employer, a trustee in bankruptcy or any other person who becomes liable to pay earnings to a claimant for a period and has reason to believe that benefits have been paid to the claimant for that period, shall ascertain whether an amount would be repayable if the earnings were paid to the claimant. If so they shall deduct the amount from the earnings payable to the claimant and remit it to the Receiver General as repayment of an overpayment of benefits.
For the purposes of this document, the term "Trustee" is used as a generic expression, to include any person acting as trustee or receiver, as these are defined pursuant to the Bankruptcy and Insolvency Act, and who may have an obligation pursuant to subsection 46(1) of the EI Act.
The purpose of this document is to establish guidelines for the application of subsection 46(1) of the EI Act and provide information concerning communications between Service Canada (SC) and trustees. It has been prepared for use of trustees and SC employees.
3. DETERMINATION OF EARNINGS
The Commission, with the approval of the Governor in Council, has the authority to make regulations that specify and clarify what constitutes earnings. Section 35 of the EI Regulations (Appendix A) has been made under that authority. It defines what monies are or are not earnings for benefit purposes.
Generally, earnings are the entire income arising out of any employment, including amounts payable to a claimant in respect of wages, accumulated sick leave credits, vacation pay, wages in lieu of notice, severance pay, bonuses, pecuniary benefits and all other advantages, pecuniary or non-pecuniary, that are related to, attached to or arising out of employment.
Earnings are taken into account to determine the amount to be deducted from benefits, to determine an interruption of earnings and the amount of benefits to be repaid to the Commission under certain circumstances by the claimant, the employer or the trustee in bankruptcy.
Amounts payable as dividends concerning unpaid wages claims pursuant to paragraph 136(1)(d) and subsection 136(3) of the Bankruptcy and Insolvency Act (Appendix A) inter alia, are considered as earnings arising out of employment under subsection 35(2) of the regulation.
- Supply to the SC Regional Coordinator (Appendix B) a list (if possible on diskette), preferably by Province, on former employees to whom payments are to be made and specifying, to the extent that such information is available:
- the name of the company involved;
- the name, the full address/Province and Social Insurance Number (SIN) of the individual;
- the total amount of gross earnings to be paid as dividends by the trustee, the nature of the payment and the breakdown of such payment (unpaid wages, bonuses, accumulated sick leave credits, vacation pay, statutory holiday, severance pay , pension, employee's pension contribution, etc.);
- salary earned during last week worked;
- the last day worked.
5.2 Service Canada:
To facilitate contact and continuing communication with a trustee, the initial point of contact will be the Regional Office which covers the territory where the trustee is located.
5.2.1 Regional Coordinator:
- acknowledges receipt of the list supplied by the trustee;
- utilizes the Social Insurance Number to determine the existence of a benefit claim at the time of or after the bankruptcy;
- quickly identifies those with no claims and then shares this list immediately with the trustee;
- initiates discussions with the trustee to allow the determination of an acceptable time frame for completion of the process and also the frequency and method of communication of information;
- ensures that SC reviews and assesses each file to determine if an overpayment is to be created by the payment of earnings by the trustee;
- ensures that SC enters proper information to create the bankruptcy overpayment to allow recovery through the trustee;
- ensures that SC notifies the claimant of the earnings decision rendered based on the information received by the trustee and advises the claimant that the trustee will deduct from any dividend payment the amount of overpayment which is payable to the Receiver General;
- provides the trustee with a list giving solely the amount of overpayment arising from a dividend.
- shall deduct the amount of overpayment from the overall dividend for each individual and remit via the Regional Coordinator a cheque to the Receiver General, preferably a cheque for each province, if there is more than one concerned;
- attach to the cheque the list indicating the claimants, including SINs for which a repayment applies.
5.4 Regional Coordinator:
- will ensure that monies received from the trustee cover all overpayments to be recouped, or if that is not the case, will perform the appropriate reconciliation in cooperation with the trustee. The monies will have to be deducted from the claimant's dividend as repayment of an overpayment of benefits, according to Subsection 46(1) of the EI Act.
- will also transfer the amount of monies owing, i.e., the list and the cheque received from the trustee, to Regional Financial Services, for deposit.
Director, Benefit Entitlement
Relevant Legislation: EI Act and Regulations
Return of benefits by employer or other person
46.(1) If under a labour arbitration award or court judgment, or for any other reason, an employer, a trustee in bankruptcy or any other person becomes liable to pay earnings, including damages for wrongful dismissal or proceeds realized from the property of a bankrupt, to a claimant for a period and has reason to believe that benefits have been paid to the claimant for that period, the employer or other person shall ascertain whether an amount would be repayable under section 45 if the earnings were paid to the claimant and if so shall deduct the amount from the earnings payable to the claimant and remit it to the Receiver General as repayment of an overpayment of benefits.
Determination of Earnings for Benefit Purposes
35. (1) The definitions in this subsection apply in this section.
(a) any employment, whether insurable, not insurable or excluded employment, under any express or implied contract of service or other contract of employment,
(i) whether or not services are or will be provided by a claimant to any other person, and
(ii) whether or not income received by the claimant is from a person other than the person to whom services are or will be provided;
(b) any self-employment, whether on the claimant's own account or in partnership or co-adventure; and
(c) the tenure of an office as defined in subsection 2(1) of the Canada Pension Plan.
"income" means any pecuniary or non-pecuniary income that is or will be received by a claimant from an employer or any other person, including a trustee in bankruptcy.
"pension" means a retirement pension
(a) arising out of employment or out of service in any armed forces or in a police force;
(b) under the Canada Pension Plan; or
(c) under a provincial pension plan.
(2) Subject to the other provisions of 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 section 19 or subsection 21(3) or 22(5) of the Act, and to be taken into account for the purposes of sections 45 and 46 of the Act, are the entire income of a claimant arising out of any employment, including
(a) amounts payable to a claimant in respect of wages, benefits or other remuneration from the proceeds realized from the property of a bankrupt employer;
(b) workers' compensation payments received or to be received by a claimant, other than a lump sum or pension paid in full and final settlement of a claim made for workers' compensation payments;
(c) payments a claimant has received or, on application, is entitled to receive under
(i) a group wage-loss indemnity plan,
(ii) a paid sick, maternity or adoption leave plan,
(iii) a leave plan providing payment in respect of the care of a child or children referred to in subsection 23(1) of the Act, or
(iv) a leave plan providing payment in respect of the care or support of a family member referred to in subsection 23.1(2) of the Act;
(d) notwithstanding paragraph (7)(b) but subject to subsection (3), the payments a claimant has received or, on application, is entitled to receive from a motor vehicle accident insurance plan provided under a provincial law in respect of the actual or presumed loss of income from employment due to injury, if the benefits paid or payable under the Act are not taken into account in determining the amount that the claimant receives or is entitled to receive from the plan;
(e) the moneys paid or payable to a claimant on a periodic basis or in a lump sum on account of or in lieu of a pension; and
(f) where the benefits paid or payable under the Act are not taken into account in determining the amount that a claimant receives or is entitled to receive pursuant to a provincial law in respect of an actual or presumed loss of income from employment, the indemnity payments the claimant has received or, on application, is entitled to receive pursuant to that provincial law by reason of the fact that the claimant has ceased to work for the reason that continuation of work entailed physical dangers for
(i) the claimant,
(ii) the claimant's unborn child, or
(iii) the child the claimant is breast-feeding.
(3) Where, subsequent to the week in which an injury referred to in paragraph (2)(d) occurs, a claimant has accumulated the number of hours of insurable employment required by section 7 or 7.1 of the Act, the payments referred to in that paragraph shall not be taken into account as earnings.
(4) Notwithstanding subsection (2), the payments a claimant has received or, on application, is entitled to receive under a group sickness or disability wage-loss indemnity plan or a workers' compensation plan, or as an indemnity described in paragraph (2)(f), are not earnings to be taken into account for the purpose of subsection 14(2).
(5) Notwithstanding subsection (2), the moneys referred to in paragraph (2)(e) are not earnings to be taken into account for the purposes of section 14.
(6) Notwithstanding subsection (2), the earnings referred to in subsection 36(9) and allowances that would not be deducted from benefits by virtue of subsection 16(1) are not earnings to be taken into account for the purposes of section 14.
(7) That portion of the income of a claimant that is derived from any of the following sources does not constitute earnings for the purposes referred to in subsection (2):
(a) disability pension or a lump sum or pension paid in full and final settlement of a claim made for workers' compensation payments;
(b) payments under a sickness or disability wage-loss indemnity plan that is not a group plan;
(c) relief grants in cash or in kind;
(d) retroactive increases in wages or salary;
(e) the moneys referred to in paragraph (2)(e), if the number of hours of insurable employment required by section 7 or 7.1 of the Act for the establishment of the benefit period of the claimant was accumulated after the date on which those moneys became payable and during the period in respect of which the claimant received those moneys; and
(f) employment income excluded as income pursuant to subsection 6(16) of the Income Tax Act.
(8) For the purposes of paragraphs (2)(c) and (7)(b), a sickness or disability wage-loss indemnity plan is not a group plan if it is a plan that
(a) is not related to a group of persons who are all employed by the same employer;
(b) is not financed in whole or in part by an employer;
(c) is voluntarily purchased by the person participating in the plan;
(d) is completely portable;
(e) provides constant benefits while permitting deductions for income from other sources, where applicable; and
(f) has rates of premium that do not depend on the experience of a group referred to in paragraph (a).
(9) For the purposes of subsection (8), "portable," in respect of a plan referred to in that subsection, means that the benefits to which an employee covered by the plan is entitled and the rate of premium that the employee is required to pay while employed by an employer will remain equivalent if the employee becomes employed by any other employer within the same occupation.
(10) For the purposes of subsection (2), "income" includes
(a) in the case of a claimant who is not self-employed, that amount of the claimant's income remaining after deducting
(i) expenses incurred by the claimant for the direct purpose of earning that income, and
(ii) the value of any consideration supplied by the claimant; and
(b) in the case of a claimant who is self-employed in farming, 15 per cent of the claimant's gross income from
(i) farming transactions, and
(ii) any farming subsidies the claimant receives under any federal or provincial program;
(c) in the case of a claimant who is self-employed in employment other than farming, the amount of the gross income from that employment remaining after deducting the operating expenses, other than capital expenditures, incurred therein; and
(d) in the case of any claimant, the value of board, living quarters and other benefits received by the claimant from or on behalf of the claimant's employer in respect of the claimant's employment.
(11) Subject to subsection (12), the value of the benefits referred to in paragraph (10)(d) shall be the amount fixed by agreement between the claimant and the claimant's employer and shall be an amount that is reasonable in the circumstances.
(12) Where the claimant and the employer do not agree on the value of the benefits referred to in paragraph (10)(d), or where the value fixed for those benefits by agreement between the claimant and the claimant's employer is not reasonable in the circumstances, the value shall be determined by the Commission based on the monetary value of the benefits.
(13) The value of living quarters referred to in paragraph (10)(d) includes the value of any heat, light, telephone or other benefits included with the living quarters.
(14) Where the value of living quarters is determined by the Commission, it shall be computed on the rental value of similar living quarters in the same vicinity or district.
(15) Where the remuneration of a claimant is not pecuniary or is only partly pecuniary and all or part of the non-pecuniary remuneration consists of any consideration other than living quarters and board furnished by the employer, the value of that consideration shall be included in determining the claimant's income.
(16) For the purposes of this section, living quarters means rooms or any other living accommodation.
Bankruptcy and Insolvency Act
Scheme of Distribution
136. (1)d) wages, salaries, commissions or compensation of any clerk, servant, travelling salesman, labourer or workman for services rendered during the six months immediately preceding the bankruptcy to the extent of two thousand dollars in each case, together with, in the case of a travelling salesman, disbursements properly incurred by that salesman in and about the bankrupt's business, to the extent of an additional one thousand dollars in each case, during the same period, and for the purposes of this paragraph commissions payable when goods are shipped, delivered or paid for, if shipped, delivered or paid for within the six-month period, shall be deemed to have been earned therein;
136. (3) "Balance of claim" A creditor whose rights are restricted by this section is entitled to rank as an unsecured creditor for any balance of claim due him
List of contacts
|List of names||Tel #|
Alberta / British Columbia / Northwest Territories / Nunavut / Yukon
Newfoundland and Labrador
Prince Edward Island
TO ALL EMPLOYEES OF: ___________________ c/o ___________
Re: In the MATTER of the BANKRUPTCY of ______ c/o___________
On ________, the bankruptcy inspectors authorized the payment of an interim dividend to the preferred (or ordinary) creditors. However, the bankruptcy trustee must verify whether Employment Insurance benefits in the name of former employees of the bankrupt should be reimbursed to the Receiver General for Canada.
In order to do this, we have recently contacted the Employment Insurance Regional Office to determine whether there are benefits to be repaid by the employees, and if so, in what amount.
We will communicate with the employees again once we have obtained the requested information from the Employment Insurance Regional Office. This normally takes about 45 days.
TO ALL EMPLOYEES OF: ___________________ c/o___________
Re: In the MATTER of the BANKRUPTCY of ______ c/o___________
Pursuant to our letter of __________________ concerning the payment of a dividend to preferred creditors, we wish to confirm that we have been informed by the Employment Insurance Regional Office as to the amount to be reimbursed to the Receiver General for Canada.
You will therefore find attached a cheque representing the dividend owing to you, with deductions having been made for Employment Insurance to be reimbursed to the Receiver General for Canada and the levy payable to the Superintendent of Bankruptcy.
Important notice: The XHTML version of this Circular is not the official version. In the event of an inconsistency between the XHTML and PDF versions of this Circular, the PDF version prevails. Users are required to exercise due diligence with respect to the XHTML version.