Bankrupt Employer ≠ Helpless Employee

June 9th, 2015 by

It has long been recognized by the courts that there is a power imbalance between employers and employees. Given the nature of the employer-employee relationship, one may be able to see why an employee may feel as though they are at the mercy of their employer. Luckily, there are statutory safeguards to place employees on an even playing field with their employer.

An employee will often rely on a employer to be paid for the work they perform, as well as any benefits to which they were entitled under the employment contract. After working for an employer for an extended period time, it is not unusual for an employee to become heavily dependent on the steady stream of income and benefits from their employer.

It would be understandable then that an employee, who showed up to work one day to find that their employer has gone bankrupt, would panic, and feel vulnerable and distraught. Such a scenario may evoke memories of the recent news that Target would be bowing out of the Canadian marketplace. Target, however, has not gone bankrupt in Canada – it has filed for creditor protection under the Companies’ Creditors Arrangement Act (CCAA), which is perhaps a topic for another blog. That being said, their current situation in Canada acts as a good starting point to discuss what employees can do in the case that their employer goes bankrupt. This was also recently discussed in another article in The Lawyers Weekly which you can find here.

Employees of a bankrupt employer are not entirely without the means to try to recover unpaid wages or termination and severance pay. One of the means an employee can use is the Wage Earner Protection Program (“WEPP”). According to Service Canada, the WEPP “compensates eligible workers for unpaid wages, vacation, severance and termination pay they are owed when their employer declares bankruptcy or becomes subject to a receivership under the Bankruptcy and Insolvency Act.”

WEPP is therefore an extremely valuable resource for an employee faced with a bankrupt employer. Employees’ claims for unpaid wages, termination pay etc., are equivalent to that of unsecured creditors. In other words, employees would be closer to the end of the line of creditors hoping to get whatever assets (liquidated or not) the company had remaining. This could mean that by the time it was the employees’ turn to collect on their unpaid wages or termination pay etc., the company may not have anything left to give. WEPP, however, is not paid out of the assets of the bankrupt company, but rather directly from Service Canada. This gives employees some certainty that, if they meet all the necessary criteria set out by WEPP, they will be able to recover some of the money their bankrupt employer owes them. If found to be eligible for WEPP, it appears that an individual can receive a maximum payment equaling up to four weeks of insurable Employment Insurance earning which in 2015 is $3,807.68.

Another place employees can look to for help when their employer is felled by bankruptcy is the Employment Standards Act, 2000 (“ESA”). Under section 81 of the ESA, directors of an employer can be liable for wages in a few instances, one of which is if, “the employer is insolvent, the employee has caused a claim for unpaid wages to be filed with the receiver appointed by a court with respect to the employer or with the employer’s trustee in bankruptcy and the claim has not been paid.” (s.81(1)(a)) This acts as a remedy for employees to seek compensation from directors in the case that after bankruptcy they have been unsuccessful in recovering unpaid wages. It is important to note that this remedy only applies to wages, and not termination or severance pay.

In short, while a bankrupt employer may mean the end of your employment, you are not entirely helpless and if you choose to avail yourself of some of the avenues explained above, you have a chance of recovering at least some of what you are owed.

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