A-263-78
Attorney General of Canada (Appellant)
v.
Kenneth Walford (Respondent)
Court of Appeal, Pratte, Urie and Le Dain JJ.—
Vancouver, November 28 and December 5, 1978.
Judicial review — Unemployment insurance — Sum
received as out of court settlement of action for wrongful
dismissal — Umpire deciding sum not income within s. 172 of
the Regulations — Whether or not that sum "earnings" of the
claimant — Whether or not payment received in respect of
time falling within week of unemployment of claimant —
Unemployment Insurance Act, 1971, S.C. 1970-71-72, c. 48,
ss. 26(2), 58(q) — Unemployment Insurance Regulations,
SOR/71-324, ss. 172, 173 — Federal Court Act, R.S.C. 1970
(2nd Supp.), c. 10, s. 28.
This is a section 28 application to review and set aside an
Umpire's decision allowing an appeal from a decision of a
Board of Referees. The Umpire had held that a sum received
by respondent was not income within the meaning of section
172 of the Regulations. Respondent received the sum as a
result of an out of court settlement of his action against his
employer for wrongful dismissal.
Held, the application is allowed. Damages paid to an ex-
employee who has been wrongfully dismissed without notice are
"income ... arising out of ... [an] employment" within the
meaning of section 172(2)(a) of the Regulations if they are
paid as compensation for the loss of income suffered by the
employee as a result of his wrongful dismissal. As the respond
ent had to prove that he was not disentitled from receiving
benefit, he had to prove special circumstances concerning the
receipt of that sum. Otherwise, the Commission was entitled to
assume that the entire amount represented lost income. If the
respondent had established facts from which it could have been
reasonably inferred that he had been compensated for some
thing other than loss of wages, the Commission would have had
to evaluate, as fairly as it could in the circumstances, the part
of the sum to be attributed to the loss of wages. This is not the
case here, however, since the record does not disclose anything
suggesting that the damage suffered by the respondent, as a
result of his wrongful dismissal, was not limited to lost wages.
APPLICATION for judicial review.
COUNSEL:
Yvon Brisson for appellant.
J. G. Dives for respondent.
SOLICITORS:
Deputy Attorney General of Canada for
appellant.
McAlpine, Roberts & Poulus, Vancouver, for
respondent.
The following are the reasons for judgment
delivered orally in English by
PRATTE J.: This is a section 28 application to
review and set aside a decision of an Umpire under
the Unemployment Insurance Act, 1971, S.C.
1970-71-72, c. 48, allowing an appeal from a
decision of a Board of Referees. The Umpire held,
in effect, that a sum of $4,550 received by the
respondent while he was unemployed was not
"income" within the meaning of section 172 of the
Unemployment Insurance Regulations, SOR/71-
324, and that, as a consequence, the respondent
was entitled to benefits for the weeks to which,
under the Regulations, that sum was to be
allocated.
The respondent is an engineer who, on February
4, 1977, was summarily dismissed by the firm for
which he had been working since October 19,
1976. He considered that his employer should have
given him reasonable notice of its intention to
terminate his employment. He sued for wrongful
dismissal, claiming general damages in an unspeci
fied amount. That action was settled out of court
for an amount of $4,550 which the former employ
er paid to the respondent. That is the amount
which the Umpire held not to be income within the
meaning of section 172 of the Regulations.
Section 26(2) of the Act prescribes that, in
determining the benefits payable to an otherwise
qualified claimant, account should be taken of the
earnings which he may have received while unem
ployed. That provision reads in part as follows:
26. ...
(2) If a claimant has earnings in respect of any time that
falls in a week of unemployment ... the amount of such
earnings that is in excess of an amount equal to twenty-five per
cent of the claimant's weekly benefit rate shall be deducted
from the benefit payable to the claimant in that week.
The rule refers only to earnings received by a
claimant in respect of a time that falls within a
week of unemployment. In order to determine
whether it applies to a payment received by a
claimant, two questions must therefore be
answered:
(a) Was that payment "earnings" of the
claimant?
(b) Was that payment received in respect of a
time that fell within a week of unemployment of
the claimant?
Those two questions must be answered in the light
of sections 172 and 173 of the Unemployment
Insurance Regulations which were adopted pursu
ant to section 58(q) of the Act. That section
empowers the Commission, with the approval of
the Governor in Council, to make regulations
58. ...
(q) defining and determining earnings for benefit purposes,
determining the amount of such earnings, providing for the
allocation of such earnings to weeks and determining the
average weekly insurable earnings in the qualifying weeks of
claimants; [emphasis added).
Section 172 determines what is to be considered
"earnings" for benefit purposes; section 173 regu
lates the allocation of those earnings. The only
parts of those provisions which are relevant here
are the following:
172. (1) In this section,
(a) "income" means any pecuniary or non-pecuniary income
that is or will be received by a claimant from an employer or
any other person .. .
(2) Subject to this section, the earnings to be taken into
account for the purpose of determining ... the amount to be
deducted from benefits payable, under section 26 ... of the Act
... are
(a) the entire income of a claimant arising out of any
employment;
(b) temporary partial workmen's compensation payments
received or to be received by a claimant; and
(c) the amount of payments a claimant has received or, upon
application, is entitled to receive under a group sickness or
disability wage loss indemnity plan or a paid sick leave plan;
173. (1) The earnings of a claimant as determined under
section 172 shall be allocated to weeks in the manner described
in this section and for the purposes mentioned in subsection
172(2) shall be the earnings of the claimant for those weeks.
(3) Wages or salary payable to a claimant in respect of the
performance of services shall be allocated to the period in
which the services were performed.
(5) Retroactive payments of wages, moneys or other remu
neration in lieu of wages awarded to a dismissed employee,
whether he is reinstated or not, shall be allocated to such
number of weeks or portion thereof for which the retroactive
payments are awarded, beginning with the week' in which his
dismissal occurs, as will ensure that the claimant's earnings in
each of those weeks, except the last, are equal to the weekly
rate of his normal earnings from his employer or former
employer.
(9) Earnings paid or payable as ... wages in lieu of notice at
the time of a claimant's lay-off or separation from employment
or prior thereto in contemplation of such lay-off or separation
shall, subject to this section, be allocated to the period for
which those earnings are payable.
(16) Where the earnings described in subsection (9) ... are
paid after a claimant's lay-off or separation occurs and have
not been allocated pursuant to subsection (9) ... those earnings
shall be allocated to such number of consecutive weeks, begin
ning with the week in which those earnings are paid, as will
ensure that the claimant's earnings in each of those weeks,
except the last, are equal to the weekly rate of his normal
earnings from his employer or former employer.
The question to be resolved is whether the sum
of $4,550 received by the respondent was "earn-
ings" within the meaning of section 172 of the
Regulations. It is common ground that if this
question is to be answered in the affirmative, those
earnings have been received by the respondent in
respect of a time during which he was unemployed.
The sum received by the respondent was clearly
not earnings of the kinds described in paragraphs
(b) and (c) of subsection 172(2). The question
may therefore be stated more precisely: Was the
payment under consideration "earnings" by virtue
of paragraph (a) of subsection 172(2) as being
part of the income of the respondent arising out of
an employment?
The learned Umpire answered that question in
the negative in spite of the many previous decisions
of umpires holding that damages for wrongful
dismissal recovered from a former employer were
earnings within the meaning of section 172 of the
Regulations. The learned Umpire chose to ignore
those decisions for two reasons. First, he con
sidered himself bound by the judgment of this
Court in The Queen v. Atkins.' In that case,
decided under the Income Tax Act, a taxpayer had
been wrongfully dismissed without notice and had
received, pursuant to an agreement made after his
dismissal, moneys "in lieu of notice"; the Court
' 76 DTC 6258.
held that these moneys were not income within the
meaning of the Income Tax Act. As to the
Umpire's second reason, he expressed it as follows:
... damages awarded or obtained for wrongful dismissal from
employment are not necessarily limited to a sum computed as
so many days, weeks or months regular pay, the time calculated
being equivalent to a reasonable length of notice of discharge.
The sum so awarded or obtained, including damages other than
lost pay, and being in a lump sum, without division on its
several bases, cannot be broken down to cover the several
grounds of damage by an Umpire, and thus no sum can, in any
event, be deemed earnings within the meaning of the Regula
tions referred to.
In my respectful opinion, the decision of the
Umpire is ill-founded and should be set aside.
The judgment of this Court in The Queen v.
Atkins was rendered under the Income Tax Act. It
cannot, in my view, be invoked as an authority in
the interpretation of the Unemployment Insurance
Regulations unless it be clear that the word
"income" has the same meaning in both enact
ments.
The Unemployment Insurance Act, 1971 sets up
an insurance scheme under which the beneficiaries
are protected against the loss of income resulting
from unemployment. The purpose of the scheme is
obviously to compensate unemployed persons for a
loss; it is not to pay benefits to those who have not
suffered any loss. Now, in my view, the unem
ployed person who has been compensated by his
former employer for the loss of his wages cannot
be said to suffer any loss. A loss which has been
compensated no longer exists. The Act and Regu
lations must, therefore, in so far as possible, be
interpreted so as to prevent those who have not
suffered any loss of income from claiming benefits
under the Act.
The expression "income ... arising out of any
employment" in section 172(2)(a) must be inter
preted in the light of the other provisions of the
Regulations and, more particularly, of section 173.
A careful reading of that section shows, in my
view, that those words, in section 172, are not used
in their normal technical sense which, according to
the decision of this Court in Atkins, would exclude
damages paid in compensation for lost wages. Sub
section 173(5) provides for the allocation of pay
ments of moneys in lieu of wages awarded to a
dismissed employee for a time subsequent to his
dismissal. The moneys to which that subsection
refers are, in my view, damages; nevertheless, the
subsection provides for their allocation as "income
... arising out of any employment". The same
thing can be said of subsections 173(9) and
173(16) which provide for the allocation of "Earn-
ings paid ... as ... wages in lieu of notice" either
at the time of or after a claimant's separation from
employment. These provisions clearly refer to the
moneys paid "in lieu of notice" to an employee
who has been dismissed without notice. Those
moneys are damages and the fact that they may
have been liquidated before rather than after the
dismissal does not, in my view, alter their nature.
I am therefore of opinion that damages paid to
an ex-employee who has been wrongfully dis
missed without notice are "income ... arising out
of ... [an] employment" within the meaning of
section 172(2)(a) of the Regulations if they are
paid as a compensation for the loss of income
suffered by the employee as a result of his wrong
ful dismissal.
This, however, does not end the matter since the
learned Umpire also invoked, as a reason for his
decision, the possibility that the moneys received
by the respondent might have been paid as com
pensation not only for loss of income but for other
losses as well. According to the Umpire, the
impossibility of determining which part of the
$4,550 was to be attributed to the loss of wages
resulted in an impossibility of determining that the
sum in question was income.
That reasoning cannot, in my view, be accepted.
It ignores section 54(1) of the Act which provides,
in part, that
54. (1) No person is entitled to any benefit for a week of
unemployment ... until he ... proves that
(a) he meets the requirements entitling him to receive ben
efit; and
(b) no circumstances or conditions exist that have the effect
of disentitling or disqualifying him from receiving benefit.
The respondent received a sum of money which,
unless special circumstances existed, was paid to
him solely as a compensation for loss of income. (I
leave aside, for the moment, the fact that the sum
of $4,550 apparently included an amount for legal
costs.) As the respondent had to prove that he was
not disentitled from receiving benefit, he had to
prove that such special circumstances existed.
Otherwise the Commission was entitled to assume
that the entire amount represented lost income. If
the respondent had established facts from which it
could have been reasonably inferred that he had
been compensated for something other than loss of
wages, the Commission would have had to evalu
ate, as fairly as it could in the circumstances, the
part of the sum of $4,550 to be attributed to the
loss of wages. This is not the case here, however,
since the record does not disclose anything sug
gesting that the damage suffered by the respond
ent, as a result of his wrongful dismissal, was not
limited to lost wages.
As I have already indicated, the record seems to
show that part of the amount of $4,550 was paid
to enable the respondent to defray his legal costs,
the amount of which, however, the respondent has
always refused to divulge to the Commission. In
those circumstances, the Commission, unless it has
reasons to believe that no part of the amount
received by the respondent represented legal costs,
had the duty to estimate, as fairly as it could, the
amount of those costs and treat only the residue of
the $4,550 as income.
For those reasons, I would set aside the decision
of the Umpire and refer the matter back to him for
decision on the basis that
(a) damages paid to an ex-employee who has
been wrongfully dismissed without notice are
"income ... arising out of any employment"
within the meaning of section 172(2)(a) of the
Unemployment Insurance Regulations if they
are paid as a compensation for the loss of
income suffered by the employee as a result of
his wrongful dismissal; and
(b) under section 54(1) of the Unemployment
Insurance Act, 1971, the respondent is not en
titled to any benefit for a week of unemploy
ment unless he proves that no circumstances or
conditions exist that have the effect of disenti-
tling him from receiving benefit.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.