Navigating Severance and Unemployment Benefits

The loss of employment can be a stressful and difficult time for many people. In recognition of this, terminated employees are generally entitled to a severance package to help bridge the gap between jobs. Additionally, terminated employees may be entitled to unemployment benefits through the federal Employment Insurance (EI) program. This governmental program provides temporary financial assistance to employees who have lost their jobs through no fault of their own.

Given that severance and EI serve similar purposes, employees often have questions about how severance will impact EI, or vice versa. Below we outline our answers to some frequently asked questions.

(1) Will receipt of a severance package impact EI?

In short, yes. Employees are generally not entitled to "double-dip" and receive EI for the period which their severance package covers (the "severance pay period").

(2) Does it matter if the severance package is paid as a lump sum or salary continuance?

It does not matter whether the severance is paid out as a lump sum at the time of termination or is paid out as salary continuance in the period following termination. In either case, an employee is not entitled to EI for the severance pay period. For example, if an employee receives a lump sum severance payment at the time of termination equal to 2 months' wages, they may not be entitled to receive EI for the 2 months immediately following termination.

Employees must report the severance pay that they have received or know they will receive on their application for EI. If approved, EI payments will typically then commence following the end of the severance pay period.

(3) When should EI be applied for?

Employees are encouraged to apply for EI as soon as they stop working. This is the case even if the employee expects they may receive a severance package or are in the midst of negotiating a severance package with their employer. Negotiating severance does not impact the deadline for applying for EI, and failure to apply for EI within 4 weeks of termination may make it more difficult to get approved for benefits or result in a decreased entitlement to benefits.

(4) What happens if EI is received before payment of severance?

Often times there may be a delay between when an employee is terminated and when they receive their severance package. This can be due to a number of reasons, including if an employee is negotiating or suing for severance.

In this case, the employee may still receive EI while they are waiting to finalize and receive their severance package. However, when the employee does receive their severance package they must report it to Service Canada. Service Canada will typically then issue a notice of overpayment and the employee will have to repay the amount of EI they received during the severance pay period, interest free.

(5) Will receipt of EI or other government benefits reduce severance entitlements?

If an employee has to negotiate or sue for severance, the question often arises as to whether the employer can rely on the employee's receipt of EI or other government benefits to pay less severance.

Generally speaking, the answer is no. The Ontario courts have confirmed that an employee's receipt of EI benefits does not reduce their entitlement to damages for termination. Bearing in mind that any EI received during the severance pay period may be subject to repayment.

Early case law also suggests that receipt of one-off COVID-19 related benefits, such as CERB, may not reduce an employee's entitlement to damages for termination.

(6) Do all payments on termination trigger EI repayment?

On termination, employees may sometimes receive additional payments from their employers that are not directly related to loss of wages. Examples include payments for accrued but unpaid overtime or vacation pay, payments towards legal fees, or damages for emotional distress or human right violations.

Depending on how, and when, these payments are made, they may not trigger repayment of EI. Employees who are unsure about how the payments they receive from their employer may impact their EI entitlements are encouraged to seek advice from an employment lawyer.

(7) Are there any COVID-19 related changes to EI?

As a result of the ongoing impacts of the COVID-19 pandemic, the Canadian government has adopted a number of temporary measures to help make EI more accessible. Some of the temporary measures include:

  • Waiving the one-week notice period to receive benefits after termination
  • Adopting a minimum standardized unemployment rate of 13.1% across Canada
  • Reduction of number of qualifying hours to 120
  • Increased number of weeks and amount of benefits available

For more information on benefits available to employees during COVID-19, including EI, please see our blog post COVID-19 Support for Employees - February 2021.


It is important for employees to take the time to understand their entitlements and obligations on termination. Employees who are facing a loss of employment are encouraged to seek advice from an employment lawyer who can arm them with the information they need to navigate this tricky time. Lee Workplace Law would be happy to help.