Temporary Suspension of Employment Insurance Deductions and Overpayments and How that Affects Your Severance Pay
Effective March 30, 2025, the Carney Government instituted a number of temporary changes to how Employment Insurance in Canada works. The changes were designed to bring economic relief to workers whose jobs have been lost due to the ongoing trade war with the United States, although they apply to all workers in Canada.
One of the changes has to do with the allocation of earnings from separation from employment. Before these changes, if a terminated employee was paid a severance package, normally this payment would be allocated to a number of weeks or months and the employee would not be entitled to collect Employment Insurance until this time period was up. For instance, if an employee was paid 2 months of severance pay, then they would not be entitled to be paid Employment Insurance until that 2 months was up.
Under the changes, the 2 months severance would not be deducted and therefore would not postpone the employee receiving Employment Insurance benefits. Put another way, the employee gets paid the severance and Employment Insurance for that same period of time.
This change is temporary and currently applies between March 30, 2025 and October 10, 2026. This time period applies to when a claim is made or when an allocation starts.
The allocation wording is important because if an employee gets paid severance down the road after a law suit for wrongful dismissal, then normally the employee would have to report that payment to the government and would have to repay the government Employment Insurance paid over the period of time the severance pay was allocated to. So if the employee got paid 2 months notice after a law suit, then they would have to report that and pay back two months’ worth of Employment Insurance payments. The temporary changes suspend this and the employee would not have to pay back the overpayment.
Because the word allocation is used, this means this temporary change could apply even if the employee did not file an Employment Insurance claim by October 10, 2026, as long as the severance payment was allocated to a period of time before that. For example, if an employee was terminated on October 9, 2026 and got a severance payment of 2 months, but then did not apply for Employment Insurance until December 10, 2026, they would still be entitled to keep the full severance payment without deducting Employment Insurance because the amount would start to be allocated to the day after termination, being October 10, 2026.
The wording also means that as long as a claim is made or an allocation is made during that period of time, then the temporary measure would apply. So if an employee got one year of severance and made a claim on October 1, 2026, then they would be entitled to “keep” the entire year of severance and continue to receive Employment Insurance, it would not cut off on October 10, 2026.
Given theses temporary measures are in response to job instability from the trade war, if Canada has not achieved a resolution of this issue by October 10, 2026, then it is possible these benefits could be extended.
The temporary measures also include waiving the waiting period and extending the number of entitlement weeks for long time employees. The government’s information page on the issue is linked here: Temporary Employment Insurance measures to respond to major changes in economic conditions – Canada.ca
Why are these changes important? For employees, it may make pursuing a lawsuit for wrongful dismissal make more economic sense, if the employee does not have to pay back Employment Insurance benefits as an overpayment. For employers, the fact that a severance doesn’t have to deducted from Employment Insurance could be used as a negotiating tactic to get an employee to accept less severance than they may have otherwise and should be highlighted by the employer in termination negotiations.
If you have questions about these changes, do not hesitate to contact an experienced Employment lawyer like Robert Carter.