A recent court decision has provided clarity on the application of the Wage Earner Protection Program Act ("WEPPA") to former employees of companies undergoing restructuring under the Companies' Creditors Arrangement Act ("CCAA"). The central issue was whether WEPPA applies to employees who were terminated as a result of a reverse vesting order ("RVO").
Background
The Juste Pour Rire (Just For Laughs) group of companies (the "JPR Group") was a major player in the province of Québec in the production of comedy festivals and media content. On March 5, 2024, six JPR Group entities filed a Notice of Intention under the Bankruptcy and Insolvency Act, which proceedings were later converted to CCAA proceedings for the entire group.
Following a short sales and investment solicitation process, in May 2024, a substantial asset sale was finalized where three entities sold their assets to a purchaser, ComediHa! 24 Inc. (ComediHa), and ceased their operations. One of these, Former Gestion Inc., terminated all its employees before the transaction. In addition, twelve other entities (the "RVO Entities") transferred shares and certain liabilities to a newly incorporated entity, ResidualCo, under a reverse vesting order. Five of these RVO Entities terminated their employees, with the remaining employment liabilities transferred to ResidualCo.
Approximately 100 employees were terminated prior to the transaction, with 45 employed by Former Gestion Inc. and 55 by the RVO Entities. While all salary and vacation pay had been provided, these employees were not paid the indemnity for prior notice of termination (the indemnité de préavis).
The JPR Group applied to the Court for an order approving the sale and for a declaration that their former employees were covered by WEPPA. The JPR Group then raised concerns that Employment and Social Development Canada ("ESDC"), which administers WEPPA, may refuse to pay outstanding wages to the former employees of the RVO Entities.
Seeking to ensure equitable treatment of all former employees, the JPR Group requested that the Court exercise its discretion under Section 11 of the CCAA to declare that, for the purposes of the WEPPA, all former JPR employees were employed by the Former Gestion Inc. at the time of their termination. The JPR Group also sought a declaration that, at the time of the termination of the former employees of the JPR Group, their respective employer was a former employer meeting the criteria set out in section 3.2 of the WEPP Regulations.
The Attorney General of Canada, representing ESDC, opposed the application, arguing that the request for retroactive relief was unwarranted, that the court could not interfere with the Minister's authority to determine eligibility under WEPPA, and that since the RVO Entities had not wound down their operations, the WEPPA did not apply to their former employees.
Decision
The court held that WEPPA applies to the former employees of the RVO Entities and therefore did not consider necessary to rule on the request to have Former Gestion Inc. retroactively declared the employer of the employees.
In doing so, the Court confirmed that WEPPA is designed to provide timely compensation to employees who lose their jobs due to insolvency or restructuring. Therefore, the statute should be construed broadly to effectuate its purpose.
The court reasoned that Section 3.2 of the WEPP Regulations does not require that an employer be in the process of liquidating its business in order for its former employees to be eligible for WEPPA. The provision is permissive and allows terminated employees to seek back wages, regardless of whether some individuals may still be involved in winding down the employer's operations. The Court emphasized that WEPPA's protective intent should not be undermined by the specifics of how an employer's assets and liabilities are transferred. The critical factor is whether employees are terminated due to insolvency or restructuring:
The Court agreed with JPR Group that the relevant time for determining whether the WEPPA applied was the moment at which all an insolvent entity's employees are terminated due to an insolvency event. The Court held that it would be contrary to the objective of the WEPPA to deny compensation to a terminated employee simply because the transaction occurred via a reverse vesting order, as opposed to a traditional vesting order.
Conclusion
This ruling reinforces the remedial purpose of WEPPA and ensures that former employees affected by insolvency or restructuring will not be denied compensation simply because their employeer's liabilities were transferred to another entity pursuant to a reverse vesting order.. The decision is significant for both employees and employers navigating the complexities of corporate restructuring.
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