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Digest of Benefit Entitlement Principles Chapter 18 - Section 4

18.4.0 Penalty

18.4.1 Definition

A penalty is an administrative fine, imposed when a claimant, employer or third party is responsible for an action listed under EIA 38(1) or EIA 39(1). A penalty is distinct from an actual or potential overpayment. The Commission may re-consider a claim for benefits and create an overpayment without a finding of misrepresentation. However, a penalty can only exist if a claimant attempted to obtain or actually was paid benefits as a result of misrepresentation. In other words, an overpayment is a straightforward process; a claimant is either entitled or not entitled to the benefits. A penalty differs: it is triggered by an assessment of the claimant's subjective knowledge, based on the facts on the file.

A penalty may be imposed on a claimant, an employer or an individual acting on their behalf in relation to a claim for benefit, when he or she has:

  • knowingly made false or misleading representations or statements to the Commission, or
  • completed a statement without declaring essential information

that affects the payment of regular or special benefits or fishing benefits. Penalty calculation is progressive; repeat offences, or repetitive misrepresentations, are subject to consequences of increasing severity Footnote 1 .

18.4.2 Limitations and restrictions on penalties

The legislation restricts a claimant penalty Footnote 2 to no more than 3 times the actual or maximum benefit rate for each false statement.

Based on the nature of the false statement, the legislation restricts an employer penalty to one of:

  • no more than 9 times the maximum benefit rate Footnote 3 , or
  • the greater of:
    • $12,000.00 or
    • the penalties imposed on the claimant(s) in respect of the misrepresentation Footnote 4

A monetary penalty is restricted to actions occurring within the 36 months preceding the date on which the claimant or the employer will receive the Notification of Debt Footnote 5 . A non-monetary penalty in the form of a warning letter may be imposed up to 72 months preceding receipt of the letter of notification Footnote 6 . The Commission may not issue a warning letter with respect to employer misrepresentation determined under EIA 39(4). The Commission is authorized to rescind or modify a penalty when circumstances warrant Footnote 7 .

18.4.3 Reconsideration, monetary penalty and warning letters: Timeframes

EIA 52(1) limits reconsideration to decisions made in the past 36 months. EIA 52(5) extends that timeframe to 72 months when the Commission is of the opinion there are false statements on the file. The 36 month time period for reconsideration must not be confused with the time limitation to impose a penalty under EIA 40(b). These are separate sections of the legislation. The fact that a monetary penalty cannot be imposed does not mean the file cannot be reconsidered.

Finally, EIA 41.1 says a warning letter is not subject to the 36 month limitation specified at section 40(b). A warning letter may be issued at any time within 72 months of the day on which the act occurred. These restrictions apply equally to claimants, employers and third parties.

18.4.4 Counting false statements

18.4.4.1 The Legal validation amount

EIA 38(2) limits the maximum penalty that can be assessed against a claimant Footnote 8 and EIA 39(2) Footnote 9 limits maximum penalties for employers based on the number of false statements present on the file. The Commission must observe the boundaries set by law. This boundary is called the legal validation amount. Whether a claimant or employer penalty and whether calculated under 38(2)(a), 38(2)(c) or 39(2), the Commission must count the number of misrepresentations. Once this number is fixed, the maximum penalty, or legal validation amount, for a claimant is either:

  • 3 times the benefit rate, or
  • where no claim was established, 3 times the maximum benefit rate in effect when the misrepresentation occurred

For an employer, the maximum penalty per false statement, or legal validation amount, is calculated at no more than 9 times the maximum benefit rate in effect when the penalty was assessed.

A finding of misrepresentation must always exist before the Commission can assess a penalty; therefore, the first step in adjudicating a penalty is to determine and count each incident of misrepresentation. This count is later used to test the penalty assessed against the legal validation amount.

18.4.4.2 Misrepresentation

A claimant, employer or a third party may be responsible for misrepresentation. Misrepresentation can occur anywhere on the claim file, including, but not limited to:

  • the application
  • written submissions
  • in-person or telephone interviews for which there is documentation
  • e-mails or faxes
  • claimant reports
  • sworn statements
  • accepting benefits knowing there is no entitlement, or
  • a Record of employment

Information may be submitted in either a hard copy or electronic format. It may be communicated orally to a representative of the Commission. Evidence may be direct or indirect.

18.4.4.3 Claimant reports

Misrepresentation often occurs when claimants fail to declare some or all of their earnings on a claimant report Footnote 10 . The claimant report can be submitted electronically or hard copy. One claimant report constitutes 1 count of false statement, even if the claimant provided more than 1 piece of inaccurate information on that report.

18.4.4.4 Claimant report: Separation from employment

The electronic claimant report systems (Internet Reporting Service and Telephone Reporting Service) ask about ongoing work when a claimant declares earnings. If a claimant reports earnings, the system asks if the claimant stopped working for an employer during the period of the report. If the claimant answers yes, a second question asks if the claimant stopped working for any reason other than lay-off. If a claimant provides false information in responding to these questions, a misrepresentation occurs.

However, if a claimant does not report earnings, the electronic system does not generate a question asking if the claimant stopped working. A scenario may arise that looks like this:

  • claimant leaves work on Friday, with the intention of continuing in the employment on the following Monday
  • claimant accurately declares earnings for all weeks on the claimant report and that there is no break in the employment
  • on Monday, the claimant loses the employment without working any more hours
  • when the claimant completes the report at the end of this 2 week period, the system will not ask if the claimant is still working because the claimant accurately reported no work and no earnings

In this situation, there is no false statement regarding the separation from employment, because the Commission, represented by the electronic reporting system, did not ask the question. The claimant is advised to report any loss of employment in the preamble to the claimant report. However, a failure to follow general advice or directions is not an act for which a penalty may be imposed under EIA 38(1).

18.4.4.5 Exception reporting (no cards)

Under EIR 26.1, a claimant may request exemption from completing claimant reports every 2 weeks when in receipt of benefits paid in respect of

  • maternity
  • parental
  • compassionate care
  • family caregiver
  • apprenticeship, or
  • work-sharing

This is called exception reporting or the no cards program. Claimants wishing to participate in the no cards program complete a single declaration to cover some or all of the weeks payable. The single declaration includes an agreement that the claimant is not working and will report any work, earnings or any other condition(s) that may affect entitlement. The Regulations Footnote 11 allows a no cards claimant to disclose information affecting entitlement to benefits as late as the end of the exempted period. Claimants wishing to know when the period of exemption reporting has ended, may consult MSCA. No penalty will be imposed on a no cards claimant if new information is submitted or discovered within 6 weeks of the last payment issued. The Commission will only document the corrections to file and establish an overpayment.

A penalty may be applicable if after the 6 weeks have elapsed, the Commission becomes aware of any information that was not reported which affects the amount of the warrant received by the claimant. In case where the claimant is exempted from reporting, the Commission may rely on EIA 38(1)(e) or 38(1)(f) in establishing misrepresentation.

EIA 38(1)(e) defines the act of being the payee of a special warrant, knowingly negotiated and to which the claimant was not entitled as an act to which a penalty applies. As such, in cases where the claimant is paid by a paper warrant (cheque), each warrant cashed can be counted as 1 count of misrepresentation.

However, unlike a paper warrant (cheque), a claimant who receives an electronic deposit cannot be said to have negotiated a warrant. As such, a different section of the Act applies to count misrepresentations. EIA 38(1)(f) states that a claimant knowingly failing to return the amount of or the excess portion of a special warrant as required by section 44, is an act to which a penalty applies. Therefore, in cases were the claimant has elected to receive EI payments electronically, each direct deposit payment the claimant receives and fails to return can be counted as 1 count of misrepresentation.

18.4.4.6 Cashing a warrant

Cashing a paper warrant (as opposed to receiving a direct deposit) means that a claimant has negotiated and accepted the payment of Employment Insurance benefits. Under EIA 38(1)(e), the Commission can count every paper warrant that a claimant has accepted and cashed as 1 count of misrepresentation, as long as the facts show that the claimant understood that he or she had no right to receive that payment.

As a result of the Federal Court of Appeal (FCA) decision A-1-09 - Canada v Tamber, EI payments made through direct deposit do not imply the negotiation of warrants. Therefore, to count a direct deposit as 1 count of misrepresentation, the Commission must instead impose a penalty under EIA 38(1)(f) on the basis that the claimant knowingly failed to return amounts paid to which there was no entitlement.

The 1 week waiting period cannot be included in this count. EIA 38(1)(e) and 38(1)(f) are specific in their application: a penalty may be imposed for negotiating a warrant or failing to return a direct deposit payment for benefits to which the claimant knew there was no entitlement. Otherwise, the technical count of misrepresentation can be assessed based on the number of 1or 2 week payments that processed through the computer pay system. Even if there is a single payment issued for multiple weeks, that single payment is an administrative convenience. The entitlement to those moneys is based on 1 or 2 week increments.

As an example:

  • a claimant renews a claim and declares that a loss of employment did not arise from quitting or dismissal. The claimant is paid based on that false information. If the adjudicator retroactively disqualifies the claim and determines the claimant made the misrepresentation knowing that an accurate statement would prevent payment of benefits, the adjudicator may also conclude that the claimant knew there was no entitlement to the subsequent benefits paid. Therefore, the adjudicator may impose a penalty for every 2 week declaration that resulted in a paper warrant or electronic deposit accepted and not returned after the false statement was knowingly made
  • Note: The Commission does not impose 2 penalties when a claimant both submits a claimant report and negotiates/accepts the payment for the same 2 week period. Although the act of submitting false information and the act of negotiating the payment are 2 separate acts, they are in respect of the same 2 week period.

18.4.4.7 Outside of Canada

Absence from Canada automatically disentitles a claimant from benefits Footnote 12 unless the absence and length of that absence meet the exceptions established in EIR 55 (1) Footnote 13 . Claimants who meet the conditions allowed by Regulation must show they remain available for work Footnote 14 , or otherwise available for work when in receipt of sickness benefits Footnote 15 , even though they are outside the country.

To impose a penalty on claimants who do not declare their absence from Canada , there must be a finding of a misrepresentation Footnote 16 . Case law says the Commission bears the responsibility to prove an allegation of misrepresentation, and that the legal test is that, on a balance of probabilities, a false statement was knowingly made.

When claimants complete their bi-weekly electronic reports, they are asked to acknowledge their responsibility to report any absence from Canada. The bi-weekly report asks claimants if they were outside Canada during the period of their report. Because of that question and the answer to that question, the Commission can conclude that the claimant misrepresented the absence. If a conclusion of misrepresentation rests solely on the absence from Canada, a penalty will not be imposed unless the claimant admits to understanding he or she was not entitled to benefits during this period.

Claimants who declare availability for work on their bi-weekly claimant report during their absence from Canada must prove they were available for work during that period Footnote 17 . The preamble to the claimant report draws a clear relationship between the ideas that being out of Canada means a claimant is not available. Claimants who maintain they remained available during an absence from Canada must prove this availability through an acceptable and credible written job search and evidence of their ability to work in the country in which work was sought, or of their ability to immediately return to Canada to accept an offer of employment.

Similarly, when a claimant is absent from Canada for a reason permitted under EIR 55(1), but was absent for longer than the definite periods allowed under EIR 55(1), availability must be carefully examined to determine if the claimant genuinely meets the requirements of the Act for all days of the absence.

Finally, a determination that the claimant incorrectly declared availability during an absence from Canada does not automatically conclude misrepresentation. If the claimant's explanation for the false statement is credible, it will not meet the condition of knowingly; therefore a penalty shall not be imposed. Strong fact-finding and sound documentation in the final decision must support a finding of misrepresentation. A declaration of availability for which the claimant can provide neither proof nor explanation will be considered a misrepresentation.

18.4.4.8 Records of Employment

A false ROE is a Record of Employment Footnote 18 that should never have been issued because neither insurable hours nor earnings objectively exist. Finding of false ROE exists, but is not limited to situations when:

  • the claimant never worked for that employer
  • the employment was not insurable
  • the ROE was issued in collusion with the employee, or
  • the ROE was stolen or purchased

The most important factor is that the ROE is issued in the absence of a genuine employer-employee relationship. To conclude misrepresentation the facts must show that 1, or both, of the parties was aware that the ROE should not have been issued.

It is important to examine the facts on a file carefully when adjudicating a false ROE. The claimant, or the employer, may have believed an employment was insurable and that the ROE was correctly issued. Any explanations must be examined for credibility and with consideration for the other facts on the file.

A Record of Employment containing false or misleading information is issued in respect of a legitimate employer-employee relationship. The employee did accumulate insurable hours and earnings, but the ROE contains false or misleading information about that employment. To find misrepresentation, the Commission must be able to reasonably conclude that information was knowingly altered or inaccurately recorded in a manner that provides some greater benefit to the claimant or the employer including, but not limited to:

  • a record of extra hours that allows the claimant to establish a claim for benefits
  • a record of extra hours that allows the claimant more weeks of benefits
  • a record of higher earnings that allows the claimant to secure a higher benefit rate
  • an inaccurate record of the reason for separation that prevents a disqualification
  • changes to the ROE by any party that include any of the above, or
  • the claimant fails to include information regarding a quit or dismissal upon application for benefit (initial or renewal) and knowingly fails to provide the ROE to the Commission

To conclude misrepresentation, the evidence must show that 1 or more of the parties involved was aware the information contained on the Record was false.

In either scenario involving an ROE, responsibility may lie with any or all of the claimant, the employer or a representative; and any or each of these parties may be subject to penalty in a determination of misrepresentation. For the purpose of establishing the legal validation amount, submission of either a False ROE or an ROE Containing False or Misleading Information constitutes 1 count of a misrepresentation.

18.4.4.9 Totalling the false statements

The general rule in counting false statements is: 1 document equals 1 false statement. One document may contain several incidents of misrepresentation, but Commission policy imposes a penalty only once per document. Therefore, regardless of the number of false statements on a document, the evidence need only conclude one of those statements is knowingly made to include that document in calculating the legal validation amount. Once identified, the number of false statements may be set aside until the penalty calculation is complete.

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