Employment Insurance Monitoring and Assessment Report for the fiscal year beginning April 1, 2015 and ending March 31, 2016
Program historical overview
The Employment Insurance (EI) program is a pillar of Canada’s social safety net, providing income support to eligible workers who are unemployed or who are absent from work due to personal illness or family-related responsibilities. It has undergone numerous changes to its original design in 1940 in order to meet new objectives reflective of the times and the evolving needs of workers and employers in Canada’s labour market.
The Unemployment Insurance (UI) program: 1937-1942
In August 1937, the Government of Canada created the Royal Commission on Dominion-Provincial Relations (commonly known as the Rowell-Sirois Commission after the Commission’s first and second chairs) to respond, in part, to an earlier attempt to institute a system of unemployment insurance that was ruled unconstitutional by the Supreme Court of Canada in 1936 and the Judicial Committee of the Privy Council in 1937. Footnote 1 Following three years of investigative hearings to examine the structure of the constitutional division of powers and the capacity for revenue collection between different levels of government, the Commission reported back with a series of recommendations, including that jurisdiction over unemployment insurance and pensions should be transferred to the federal government. Footnote 2
Based on the Rowell-Sirois Commission’s recommendations, and with the consent of all provincial governments, the federal government proceeded to amend the Constitution Act 1867 to allow for federal involvement in the provision of a national unemployment insurance program. The 1940 Unemployment Insurance Act became law on August 7, 1940 and created the foundations of what are today the EI program and the Canada Employment Insurance Commission that oversees the program’s implementation. Footnote 3 Premium collection started July 1941 and benefits were payable as of January 1942.
The original design of the Unemployment Insurance (UI) program in Canada was to provide income support that would provide protection against loss of employment and earnings with premiums and benefits calculated to achieve a balance between the amount of premiums collected—contributed by the federal government, employers and employees—and benefits paid overall according to strict insurance principles. Initially, the UI program of the 1940s only provided coverage to specified types of employment within the private sector, with many professions—among them workers in agriculture, seasonal industries, health care, the public service, the armed forces and any person receiving compensation of $2,000 per year or more—excluded. Even with those exclusions, in its first year of operation the UI program covered roughly 159,000 employers and 2.5 million workers representing approximately 42% of Canada’s labour force.
The evolution of Unemployment Insurance: 1942 to 1971
As Canada entered a prolonged period of economic expansion following the Second World War, demands for a greater scope of coverage and access to UI benefits increased. Over the 1940s, coverage was extended to workers in some of the previously excluded industries. The Government of Canada introduced a number of changes in the early 1950s to adjust to changing labour market conditions—such as a precursor to seasonal benefits in the form of supplementary unemployment insurance benefits payable to workers normally unable to qualify—and undertook significant reforms of the program through the Unemployment Insurance Act, 1955 that, among other changes, moved UI to a weeks-based system from one previously based on days of work and provided a maximum entitlement of 36 weeks. Footnote 4 In 1955, the UI program covered approximately three-quarters of Canada’s 4.4 million employees.
The year 1956 saw the introduction of legislative amendments to create benefits for self-employed fishers, with coverage beginning in April 1957 and the first benefits made payable in April 1958. Footnote 5 The year 1958 also saw the revocation of the 1950 Married Women’s Regulation, a series of rules found to be discriminatory as they caused women who were married to meet additional eligibility requirements to be considered eligible for benefits.
During the 1960s, there was growing pressure—including from studies such as the 1962 Gill Report Footnote 6 and the 1968 Cousineau Report Footnote 7 —to expand the scope of industry coverage for job losses and incorporate additional program elements to support workers in cases such as medical emergencies or child birth. This culminated in 1970 with a white paper, Unemployment Insurance in the 1970s, Footnote 8 which called for universal coverage of all workers, enhanced benefit payments based on the earnings of workers and lower contribution rates for the Unemployment Insurance program. The 1970 White Paper also recommended the introduction of coverage for income losses resulting from sickness or pregnancy and that benefit payments be taxable. These recommendations would act as the basis of broad-based reforms introduced in the 1971 Unemployment Insurance Act.
Unemployment Insurance’s second phase: 1971 to 1996
The introduction of the 1971 Unemployment Insurance Act led to much broader coverage of workers and the introduction of several changes to expand the potential reasons to receive benefits beyond unemployment. Footnote 9 Among the changes introduced were:
- near universal coverage for full-time workers;
- expanded eligibility criteria;
- the introduction of sickness and maternity leave benefits;
- extended benefits for workers with longer periods of labour force attachment and in regions with high unemployment rates;
- a five-phase benefit period, providing extended benefits to those with greater labour force attachments and to those in high unemployment regions;
- a benefit rate of two-thirds (66.7%) of insurable earnings and up to three-quarters (75%) for low-income earners;
- benefits paid became taxable income; and
- a financing formula based on employers contributing premiums equal to 1.4 times the premiums of employees, with government contributions limited to extended benefits or benefits provided during periods of high unemployment.
Between 1971 and 1996, several changes were implemented to Unemployment Insurance that both increased the flexibility of the program and expanded the types of coverage provided to claimants. 1977 saw the introduction—on a pilot project basis—of the Variable Entrance Requirements, Footnote 10 which would eventually become a permanent fixture of the program’s structure. The number of EI economic regions in Canada was increased significantly in 1978 from 16 to 48, allowing the program to better adjust to divergent economic circumstances of labour markets across Canada. Footnote 11
In addition, this period was also characterized by a series of small regulatory and legislative changes to entrance requirements, disqualifications and benefit entitlement. For example, a coverage requirement based on a minimum of 20 hours of work in a week was added in 1979.
1984 saw the introduction of the current model for seasonal fishing benefits (where self-employed fishers could claim benefits for both summer and winter periods) and the implementation of fifteen weeks of adoption benefits. Footnote 12 The program was modified again in November 1990 with the introduction of a 10-week parental leave benefit that could be shared between spouses, which replaced special paternity (available in specific circumstances related to the death or disability of the mother) and adoption benefits implemented in earlier years, and became fully funded by employer and employee premiums, no longer drawing on general revenues to cover UI-related expenses. Footnote 13
The program’s eligibility criteria were again revised in 1993 to make those who quit without just cause, those who were fired for misconduct or those who refused to accept suitable employment while on claim ineligible for benefits. Footnote 14 In the following year, Budget 1994 set the income replacement rate (the share of insurable earnings that would be paid to claimants during their benefit period) at the present 55%. Footnote 15
Unemployment Insurance becomes Employment Insurance: 1996 to the present
Comprehensive reforms implemented in the Employment Insurance Act of 1996 established a new benefit structure and led to the program being renamed Employment Insurance (EI). Footnote 16 The program moved from a weeks-based to an hours-based eligibility system of first-dollar coverage with a premium structure where individuals pay premiums on all insurable earnings up to an annual maximum, adapting the system to better reflect emerging work patterns related to part-time work and multiple job holders. A new series of Labour Market Development Agreements were introduced to provide funding to Canada’s provinces to support active measures and programming that addresses local labour market training needs.
A number of other changes were also implemented through this new law, such as the introduction of the family supplement provision, a provision to refund employee premiums for workers earning less than $2,000 per year, new methodologies used to calculate average weekly benefit rates based on weekly earnings and the reduction in the maximum duration of regular benefits from 50 to 45 weeks in normal circumstances. While there have been ongoing changes to the program since 1996, these reforms are the foundation of the current EI program.
At the end of 2000, parental benefits were increased from 10 weeks to 35 weeks and the number of hours required to be eligible for EI special benefits was reduced from 700 hours to 600. Footnote 17 In 2004, EI compassionate care benefits were implemented providing for up to six weeks of benefits to allow workers to care for a family member with a serious medical condition who is at risk of death. Footnote 18 This was increased to 26 weeks as of 2016. Footnote 19
The EI program has also evolved to accommodate provincial programming with similar objectives to EI special benefits. On January 1, 2006, Quebec residents began to receive maternity and parental benefits through the Quebec Parental Insurance Plan while also continuing to have access to sickness and compassionate care benefits through the EI program. Regulatory amendments allowed for EI premiums to be reduced for Quebec residents, reflecting the savings to the EI fund resulting from other levels of government providing maternity and parental benefits. Footnote 20
More recently, the EI program has seen some notable reforms. Footnote 21 These include the elimination of the higher eligibility threshold for claimants with low labour market attachment (New Entrant and Re-entrant provisions), the reduction of the waiting period for EI benefits by one week and increased funding for employment benefits and support measures offered through Labour Market Development Agreements with provinces and territories. Footnote 22 While important changes to the program, these reforms are not reflected in this year’s report as they did not come into effect during the current reporting period.
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