D. Payment of Employee Claims

• Author: Roderick J. Wood
• Profession: Faculty of Law. University of Alberta
• Pages: 268-269

Page 268

The 2005/2007 amendments to the BIA have significantly enhanced the treatment of employee claims in a bankruptcy of the employer. Prior to the amendments, the employees were given the status of a preferred creditor in respect of their unpaid wages. A creditor who had been given a security interest in the assets of the employer was afforded a higher-ranking claim. This often meant that the employees recovered little or nothing in the bankruptcy.¹⁶⁴Although employment standards legislation in some provinces gave claims of employees priority over a prior secured creditor, these provincial statutes were rendered inoperative in a bankruptcy.¹⁶⁵This was recognized as a problem in Canada for many years, but the federal government was unable to arrive at a politically acceptable solution to it. A proposal for a simple superpriority for the claims of secured creditors and another for an insurance scheme funded out of payroll deductions were both withdrawn after receiving a hostile reception from parties negatively affected by the proposals.¹⁶⁶

Ultimately, a hybrid of these two approaches was chosen. The insurance portion of the scheme is implemented in the Wage Earner Protection Program Act.¹⁶⁷ The WEPPA provides a program for payment to individuals in respect of wages that are owed to them by employers who are bankrupt or in receivership. The claim is limited to a maximum of $3,000 or an amount that is four times the maximum weekly insurable

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earnings under the Employment Insurance Act, whichever is greater.¹⁶⁸

The funding of the program is from the general revenues of the federal government. However, the federal Crown becomes subrogated to any right that the employee has against the employer or against a director and can sue in either the name of the federal Crown or the name of the individual on payment of the amount to the employee.¹⁶⁹An unpaid employee is given a secured charge on the current assets of the employer to the maximum of $2,000.¹⁷⁰This charge has priority over the claim of a secured creditor. As a result, the burden of the program is shared partly by the secured creditor and partly by the federal government.

The program covers claims for wages, which includes salaries, commissions, compensation for services rendered, and vacation pay but not severance or termination pay.¹⁷¹The wages that are owed must have been earned during the six months before the date of the bankruptcy.¹⁷²An individual is ineligible to...