Federal-Provincial agreements to amend the Constitution were required before the establishment of the Unemployment Insurance Program in 1941

Following the Stock Market Crash of October 1929 and during the Great Depression of the 1930s, poverty reached unprecedented proportions in Canada. For instance, the unemployment rate, which stood at 2.9% in 1929, was almost 27% in 1933. The Government of Canada was pressured to intervene, in particular to alleviate the plight of the unemployed.

In 1935, given the magnitude of the social and economic repercussions of the Depression, Parliament voted a series of measures known as the New Deal of Prime Minister Bennett.  One of these measures was the Employment and Social Insurance Act which was to provide for direct aid to certain categories of unemployed workers.  Modelled on the program in place in Great Britain, it was to be a compulsory unemployment insurance system involving contributions from employees, employers and the State. In establishing a program aimed at helping the unemployed, Parliament relied on its constitutional power "to make Laws for the Peace, Order and good Government of Canada" (Constitution Act, 1867, section  91).

People eating dinner in 1929

Soup Kitchen, Montreal 1931
Library and Archives Canada - PA168131

But the Employment and Social Insurance Act, along with most of the laws of Prime Minister Bennett's New Deal, was short-lived. Just months after it was passed, newly elected Prime Minister MacKenzie King argued that the unemployment insurance law was unconstitutional.  His Government referred the Act to the courts for an advisory opinion. Both the Supreme Court of Canada and the British Judicial Committee of the Privy Council (which was Canada's final court of appeal until 1949) held that the Act was beyond Parliament's power to legislate1 : requiring contributions by employers and employees was unconstitutional because it was an intrusion into provincial jurisdiction over  "property and civil rights" (Constitution Act, 1867, section  92 [13]).

It was in this context of social and economic crisis, and increasing financial pressures on the governments, that the Government of Canada established the Royal Commission on Dominion-Provincial Relations in 1937 (the Rowell-Sirois Commission). The Commission was tasked to examine "the economic and financial basis of Confederation and the distribution of legislative powers in the light of the economic and social development of the last 70 years2" . In its Report, submitted in May 1940, it recommended, among other things, that the Government of Canada assume responsibility for unemployment insurance.

The provinces, which were not in a position to finance provincial unemployment programs, agreed to give Parliament power relating to unemployment insurance.

  • On June 10, 1940, following agreements with all the provinces, the Canadian Constitution was amended by the addition of unemployment insurance (item 2A) to the list of powers of Parliament enumerated in section 91 of the Constitution Act, 1867.
  • The Unemployment Insurance Act, 1940, which was fast-tracked through both Houses of Parliament, received Royal Assent on August 7, 1940.  It came into effect on July 1, 1941.  This law covered only certain categories of industrial and manufacturing jobs.

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