D. Employee Charges

Author:Roderick J. Wood
Profession:Faculty of Law. University of Alberta

Page 135

The 2005/2007 amendments to the BIA introduced sweeping changes that affect the status of the claims of employees in a bankruptcy of the employer. Under the prior law, an employee was afforded the status only of a preferred claimant. This was of limited use, since in many cases the assets of the employer were subject to a security interest that covered all of the debtor’s assets. This effectively gave the secured creditor priority over all preferred creditors. Although employment standards statutes in several provinces gave the employees priority over a prior secured creditor, these were rendered inoperative in a bankruptcy.86An employee also encountered difficulties in recovering unpaid pension contributions and pension liabilities of the employer. Pension legislation often creates a deemed trust in favour of the employees, but this, too, was ineffective in bankruptcy. As a result, the employee was considered to be an ordinary creditor in respect of these claims and was entitled only to share pro rata with the other ordinary creditors. The BIA has now been amended so as to provide a new charge that secures unpaid wages of employees and a new charge that secures unpaid pension contributions.

Page 136

1) The Wage-Earner Charge

Employees will usually not need to resort to the wage-earner charge because they are permitted to make a direct claim for compensation with the wage-earner protection program.87This is an insurance scheme funded out of general revenues that provides payment to individuals in respect of wages that are owed to them by employers who are bankrupt or in receivership. Once a payment is made to an unpaid employee, the federal government becomes subrogated to any right that the employee has against the bankrupt or insolvent employer, and against any director or officer in the case of a bankrupt or insolvent employer.88For this reason, it is likely that the federal Crown rather than the individual employees will be asserting the claim in the bankruptcy of the employer.89

The claim is made by delivering the prescribed form to the trustee.90The BIA gives an employee a statutory secured charge to the extent of $2,000 less any amount paid to the employee by the trustee.91It secures wages, salary, commissions, or compensation that was earned during the period that begins six months before the date of the initial bankruptcy event and ends on the date of the bankruptcy.92This includes vacation pay but not termination or severance pay.93Disbursements to a maximum of $1,000, less any amount paid by the trustee, owing to a travelling salesperson are also secured by a statutory secured charge.94A director or officer of a bankrupt corporation is not entitled to claim the charge.95A person who is not acting at arm’s length with the bankrupt is also not entitled to claim the charge unless the trustee is of the opinion that the parties would have entered into a substantially similar transaction if they had not been...

To continue reading