A recent Federal Court of Appeal ruling highlights potential risks for parents accessing Employment Insurance (EI) parental benefits in Canada when their return-to-work plans change unexpectedly. The case underscores the importance of understanding how EI rules apply when parental leave periods are altered due to unforeseen circumstances.

The case involved a woman who applied in 2019 for EI maternity and parental benefits under the extended option, which provides benefits over 18 months at a reduced weekly rate compared to the standard 12-month option. At application, she indicated she intended to take the full 18 months of leave before returning to work. EI program rules allow parents to choose between “standard” parental benefits paid at 55 percent of their typical earnings over 35 weeks (or 40 weeks shared) and “extended” benefits paid at 33 percent over 61 weeks (or 69 weeks shared). Once selected, recipients cannot switch between the two options.

In October 2020, about one year into her leave, the woman returned to full-time employment after her husband lost his job. Although her employer submitted a record of employment indicating her return to work, she did not notify Service Canada and continued to receive EI parental benefits until March 2021. Service Canada later alleged that she had made a false statement by failing to report income from her employment and issued a demand for an $8,087 overpayment.

Service Canada initially sought to recover the overpayment beyond the standard 36-month reconsideration period for EI claims, invoking a provision that extends this deadline to 72 months if it believes a false or misleading statement was made. The woman contested the allegation, asserting she misunderstood the benefit arrangement, believing it was a lump sum dispersed over 18 months and did not realize she needed to report her return to work.

The case proceeded through the Social Security Tribunal, which ruled in favor of the woman, determining that her failure to report employment was an omission rather than an intentional falsehood. This meant Service Canada’s reconsideration period had expired. Subsequent appeals by Service Canada were unsuccessful, with the Federal Court of Appeal ultimately upholding the tribunal’s decision, allowing the woman to retain the EI benefits received while working full time.

The ruling serves as a reminder that parents should carefully evaluate their EI parental benefit options when planning leave. Financial advisors emphasize the need to balance non-financial considerations—such as desired time with a newborn and parental leave sharing arrangements—with employment and income factors, including potential employer top-up payments and tax implications.

Aravind Sithamparapillai, a financial planner in Hamilton, notes that parents with high income and job security may benefit from selecting extended benefits, which can spread taxable income over two years and reduce tax burden. Conversely, low-income parents without employer top-ups might better meet living expenses by opting for the standard, higher weekly payment option over 12 months.

Sithamparapillai also advises parents unsure about their return-to-work timing to consider the standard 12-month benefit plan, as early return can lead to reduced or forfeited EI benefits under the extended plan. While EI rules allow temporary returns to work followed by resumption of benefits within the claim period, provincial employment laws typically only protect one continuous parental leave period.

This case illustrates the complexities surrounding EI parental benefits and the critical importance of understanding program rules and reporting requirements to avoid unintended financial consequences.