When a company files for bankruptcy, employees are faced with
uncertainty on a number of issues. Everything from outstanding
wages to benefit entitlements are suddenly at risk. Further, when a
company becomes insolvent, employees are often laid off in
circumstances that fail to satisfy statutory or common law notice
period entitlements. However, under the Bankruptcy and
Insolvency Act ("BIA"), employees are often barred
from fully recovering what they are owed.
Under the BIA, secured claims get paid first, followed
by preferred claims, and finally unsecured claims
will be paid once secured and preferred claims have been satisfied.
Under this scheme, unpaid wages earned during the six months prior
to the date of the employer's bankruptcy are considered
secured claims up to a maximum of $2000 per employee.
These "wages" include vacation pay and commissions but
severance, where applicable, and termination pay, are expressly
excluded. If unpaid wages cannot be satisfied by the current assets
of the company, the employee can rely on a preferred claim
under the BIA. It is only within the final category, unsecured
claims, that employees can claim severance or termination pay
along with any unpaid wages in excess of $2000 and any unpaid wages
earned more than six months prior to the date of the bankruptcy. In
this category, employees must file a proof of their claim as an
unsecured category. Critically, the claim will only be satisfied
after all the secured and preferred claims are paid out.
Outside of this scheme, the Workers Earner Protection
Program ("WEPP") enables eligible employees to claim
severance or termination pay, in combination with any outstanding
unpaid wages earned during the six months prior to the bankruptcy,
up to the greater of $3000 or an amount equal to four times the
maximum weekly insurable earnings under the Employment
Insurance Act. The WEPP was established to pay employees of
employers who have entered bankruptcy or insolvency proceedings but
who are unable to pay certain outstanding wages. Importantly, an
employee cannot recover under the BIA and the WEPP if the same
amounts are covered. Further, once the employee has been paid under
the WEPP, the employee cannot claim the amount from the
Written with the assistance of Andrew Nichol, articling
Norton Rose Fulbright Canada LLP
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