Employee Protection in Troubled Times

Neil Abbott

In all the sad financial news that has come out in the past six months, the one consistent has been the effect of the economic downturn on the auto industry. In Ontario, the auto industry employs approximately one in every eight people either directly or indirectly. Auto companies have been downsizing not only the factory floor, but the finance office as well. For non-captive auto finance companies, business has also been troublesome; repossessions are up, but loans are down.

While there has yet to have been a significant bankruptcy in the auto sector, we read daily about threats from the Big Three and their subsidiaries and even unrelated companies; that they will make an assignment into bankruptcy.

Since some of you reading this magazine may soon find yourself, unfortunately, out of work due to the bankruptcy of your employer, or you may be an employer considering your bankruptcy options and what your potential liabilities are to your employees, I though it would be important to draw your attention to the new changes to the Wage Earner Protection Program (WEPP).

WEPP is a federal government program that reimburses eligible Canadian workers for a portion of their unpaid wages and vacation pay when they lose their employment due to the bankruptcy or receivership of their employer. The recent budget that has yet to be signed into law, made important changes to WEPP.

By way of background, WEPP is administered jointly by the Labour Program and Service Canada and is a targeted program providing financial support to workers who lose their jobs and are owed wages because their employer goes bankrupt or becomes subject to receivership. WEPP came into effect on July 7, 2008.

WEPP makes reimbursement of lost wages up to the WEPP maximum of four weeks of insurable E.I. earnings or approximately $3,250 as of January 1, 2009.

Please note that while the program does not cover all lost income experienced by workers in bankruptcy or receivership, the current WEPP maximum cap is expected to satisfy a majority of unpaid wage claims in full. Claims above and beyond the WEPP maximum are unsecured claims in bankruptcy and will likely not be paid.

In changes proposed in the recent budget, WEPP will be expanded to include, in addition to unpaid wages and vacation pay, reimbursement of termination pay and severance pay only to eligible employees up to the same WEPP maximum of $3,250. Employees who are owed outstanding severance or termination pay would be able to claim these additional amounts under the program to the maximum. Expanding coverage of the program was intended to provide increased financial support to Canadian workers in theses economic times when workers are losing their earned wages through no fault of their own.

The new proposal will enable a greater number of Canadian workers to qualify for support in the WEPP and will allow for higher monetary claims up to the existing cap. The proposed changes to WEPP would apply to bankruptcy, receiverships initiated after January 7, 2009.

Note the inclusion of severance and termination pay will not change the present WEPP cap, which is still expected to satisfy the majority of unpaid wage claims. The cap is set by law at four weeks insurable EI earnings. However, with the addition of severance and termination pay, more individuals will access WEPP and claims under WEPP are expected to rise by some $25 million per year.

Note that the payments under WEPP are made by the government, not out of the bankrupt estate. A claim is not dependent upon the approval of the trustee or the over-ride of secured creditors.

To make a claim under WEPP, application must be made to Service Canada. The Service Canada web site is www.servicecanada.gc.ca.

Please note that WEPP only applies in case of insolvency or receivership of the company. If the company did not formally file under any statute that governs receivership or bankruptcy, then WEPP will not apply and the ordinary compensation scheme provided for under the Employment Standards Act for Ontario or relevant statute in other provinces shall be applicable. In addition, as noted above, employees who are owed funds above and beyond the WEPP maximum can still make a claim against the company in bankruptcy. WEPP does not apply to pensions. Registered, funded pensions may be afforded protection in to bankruptcy or under an equivalent statute.

Knowledge of the WEPP rules will alleviate some of the pain of losing your job through no fault of your own.