On July 7, 2008, the Wage Earner Protection Program Act (the "WEPPA") was proclaimed into force, along with complementary amendments to the Bankruptcy and Insolvency Act (the "BIA") and other related statutes. The new program protects a limited amount of the unpaid wages of employees when an employer becomes bankrupt or is placed into receivership, and the amendments to the BIA provide for the priority of some un-remitted pension contributions.
The Wage Earner Protection Program (the "WEPP") The WEPP provides compensation for unpaid wages to employees who lose employment due to the bankruptcy or receivership of their employer. The wages, which include salary, commission, and vacation pay, must have been earned in the 6 months preceding the bankruptcy or receivership, and the amount is capped at approximately $3,000. Termination and severance pay are not covered under the WEPP. Officers and directors, employees who made binding financial decisions for the employer, and related parties, are not eligible for payment under the WEPP.
These monies are paid by the federal government from the Consolidated Revenue Fund. To the extent of the payment made to an eligible employee, the government is subrogated to the rights that the employee had in respect of unpaid wages against the employer. An employee has a super-priority claim, limited to $2,000, against the current assets of the employer and, in the case of a bankruptcy, a preferred claim against the employer's remaining assets.
BIA Amendments
The BIA amendments relating to pensions provide that unpaid pension plan contributions are granted a super-priority charge over all of the assets of the employer where the employer is bankrupt or in receivership proceedings. This super-priority charge covers:
- pension contribution amounts deducted from an
employee's pay;
- amounts required from the employer under a defined
contribution provision; and
- "normal cost" amounts (the amounts required to
be paid in a given year to fund benefits) required to be paid
by the employer to the pension fund. This does not include
special payments, including those required to fund a solvency
deficiency, for example.
In terms of the ranking of the super-priority charge, it ranks above every other claim, right, charge or security against the employer's assets except for:
- rights of unpaid suppliers;
- rights of farmers, fishermen and aquaculturists;
- in bankruptcy, employee source deductions (income tax,
CPP, EI) which were deemed to be held in trust by an
employer; and
- the super-priority now provided for unpaid wages in a
bankruptcy or receivership (as described above).
Other BIA amendments specify that contributions made to a registered retirement savings plan (RRSP), registered retirement income fund (RRIF) or a deferred profit sharing plan (DPSP) are not seizable in a personal bankruptcy, unless made in the 12-month period prior to the bankruptcy.
The Pension Group at Borden Ladner Gervais LLP would be pleased to discuss this decision with you, and any other pension issues you may have.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.