Penalties, Violations, and Offences with Employment Insurance (8:VIII)

A. Imposing Penalties

Sections 38 and 40 of the EI Act allow the Commission to impose a penalty of up to three times the weekly rate of benefit on a claimant who knowingly makes a false or misleading representation to the Commission in relation to his or her claim for benefits. The claimant must actually know that the statement is false or misleading, and the onus of proving this is on the Commission.

The court applies a subjective knowledge test to decide whether the claimant intended to make false statements to the commission. Following the leading case, Canada v Gates (1995), 125 D.L.R. (4th) 348, the Court in David Moretto v AG Canada, [1998] F.C.J. No. 438, confirmed that even if a claimant’s statement is found to be false, no penalty should be levied unless the finder of fact is satisfied that the claimant “subjectively knew” the statement was false. It is not enough to say that he or she should have known, or should have asked someone, or that a reasonable person would have known.

B. Types of Penalties

Types of penalties include warning letters, penalties, monetary penalties, prosecutions, and violations (discussed below). Most often, the Commission chooses to issue a monetary penalty (a fine). For relatively minor cases, they may just issue a warning letter.

Alternatively, a claimant could be prosecuted criminally (summarily). Section 135(3) of the EI Act sets the minimum fine at $200 for fraud relating to a person’s employment and Record of Employment. The maximum fine is $5,000 and where appropriate, twice the amount of benefits falsely obtained, or the fine plus imprisonment for a term of up to six months (s 135(3)). In practice, criminal court cases are very rare, even when a claimant asks to be prosecuted. This is because the courts require proof beyond a reasonable doubt, while for penalties the Commission only requires proof on a balance of probabilities. Also, the Commission need only write a decision letter to the claimant to impose a very large penalty, which is much simpler than proceeding with a court case.

1. Appealing a Decision to Impose a Penalty

If the Commission imposes a penalty under s 38 (or s 39 in the case of employers), a client should be advised to appeal in all but the clearest of circumstances. Regardless of what the Commission says, it has the burden of proving that the claimant knew that the statement was false or misleading at the time it was made. If the claimant has a reasonable explanation (e.g. confusion regarding the intent of the question), the appeal should be allowed.

NOTE: The Commission cannot impose a penalty under ss 38 or 39 if 36 months have elapsed since the act or omission. For a case that discusses when time limits start to run see Attorney General of Canada v Kos, 2005 FCA 319. The key issue here was whether file notes by an insurance officer constituted a “decision” that triggered the time limit. The court ruled that it did not, in part because the notes were not communicated to the claimant.

2. Appealing the Amount of a Penalty

The SST has jurisdiction over the amount of the penalty assigned. While the amount of the penalty can also be appealed, a penalty cannot be reduced simply because the SST considers it a bit too high. However, they can reduce a penalty if the decision is unreasonable, e.g. where Commission has erred by ignoring relevant circumstances such as the claimant's ability to pay, or health problems, or where it took irrelevant circumstances into account. It is not necessary to prove that the Commission was unfair, just that it was not made aware ofall the relevant circumstances.

C. The Violation System

Section 7.1 of the EI Act outlines the increased qualifying requirements for claimants who are found to have committed fraud after June 30, 1996. These requirements increase depending on how the violation is classified (minor, serious, or very serious). If the Commission chooses to simply issue a warning letter (possibly accompanied by a fine), then as per s 7.1(5), no such classification is made.

1. Increased Number of Hours Required to Qualify

Section 7.1(1) provides that an insured claimant (other than a new or re-entrant) must have a greater number of hours to qualify if that person has accumulated one or more violations in the 260 weeks before making their claim. This adds a significant barrier for receiving benefits. The increased hours required to qualify after a violation are outlined in the s 7.1(1) Table, on the following page:

Section 7.1(1) Table

Regional Rate Of Unemployment	Violation Severity
	Minor	Serious	Very Serious	Subsequent
6.0% and under	875	1050	1225	1400
over 6.0% to 7.0%	831	998	1164	1330
over 7.0% to 8.0%	788	945	103	1260
over 8.0% to 9.0%	744	893	1041	1190
over 9.0% to 10.0%	700	840	980	1120
over 10.0% to 11.0%	656	788	919	1050
over 11.0% to 12.0%	613	735	858	980
over 12.0% to 13.0%	569	683	796	910
over 13.0%	525	630	735	840

NOTE: Violations should always be appealed.

2. Issuing Violations

Pursuant to s 7.1(4), the Commission may issue a violation notice for:

a) one or more penalties imposed under ss 38, 39, 41.1 or 65.1 as a result of acts or omissions mentioned in ss 38, 39 or 65.1;
b) a finding of guilt for an offence under ss 135 or 136; or
c) a finding of guilt of one or more offences under the Criminal Code as a result of acts or omissions relating to the application of the EI Act.

3. Classifying Violations

If a violation is found to have occurred, as determined by the above criteria, it must be classified for purposes of the s 7.1(1) Table, and also for new and re-entrants. The EI Act classifies violations in the following manner under s 7.1(5)(a):

a) Minor violation: if the value of the violation is less than $1,000;
b) Serious violation: if the value of the violation is less than $5,000 (but more than $1,000), it is a serious violation;
c) Very serious violation: if the value of the violation is over $5,000, it is a very serious violation.

Under s 7.1(6), the value of a violation for purposes of classification is the amount of overpayment of benefits resulting from acts on which the violation is based. If the claimant is disqualified or disentitled, the value is the total amount of benefits he or she would have collected, divided by two.