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Financial Services Law Analysis and Updates for the Canadian and Cross-Border Financial Community

Canada’s Wage Earner Protection Program Act Amended

Posted in Wage Earner Protection Program

The Wage Earner Protection Program (the “Program”) is a government-sponsored program in Canada that provides the higher of $3000 or an amount equal to four times an eligible employee’s maximum weekly insurable earnings under the Employment Insurance Act (Canada) to compensate such employees for unpaid wages where those employees are owed wages and lose their jobs as a result of their employer becoming bankrupt or becoming subject to a receivership.  On December 15, 2011 Bill C-13, the Keeping Canada’s Economy and Jobs Growing Act, amended the Wage Earner Protection Program Act  (Canada) (the “WEPPA”).  The amendments to the WEPPA took effect retroactively to June 5, 2011.  The amendments expand certain periods for which "eligible wages" can be recovered, as described further below.

Overview of the WEPPA

The WEPPA established the Program to pay a maximum of $3000, or the higher amount referred to above, to eligible employees of employers who are bankrupt or subject to a receivership.

Eligible Wages are defined in subsection 2(1) of the WEPPA. Before June 5, 2011, Eligible Wages were defined as:

(a) wages other than severance pay and termination pay that were earned during the six month period ending on the date of the bankruptcy or the first day on which there was a receiver in relation to the former employer;

and

(b) severance pay and termination pay that relate to employment that ended during the period referred to in paragraph (a).

Thus, prior to the amendments, the WEPPA permitted an employee to receive Eligible Wages from the Program when the employer failed to pay wages, severance pay and termination pay and the employer was subject to a bankruptcy or a receivership. The Eligible Wages were those earned in the six months preceding the bankruptcy or receivership of the employer. The Government could recover $2,000 of this contribution as a priority creditor under sections 81.3 and 81.4 the BIA.

The Amendments

Bill C-13 amends the definition of “Eligible Wages” so that it reads as follows:

(a) wages other than severance pay and termination pay that were earned during the longer of the following periods:

(i) the six-month period ending on the first day on which there was a receiver in relation to the former employer, and

(ii) the period beginning on the day that is six months before the day on which a proposal under Division I of Part III of the Bankruptcy and Insolvency Act (Canada) (the "BIA") is filed by or in respect of the employer or the day on which proceedings under the Companies’ Creditors Arrangement Act are commenced and ending on the date of the bankruptcy or the first day on which there was a receiver in relation to the former employer; and

(b) severance pay and termination pay that relate to employment that ended during the period referred to in paragraph (a).

The period of Eligible Wages has therefore been increased in certain situations. The amendments attempt to address the situation of serial proceedings, in other words, where an employer first files for protection under either the proposal provisions of the BIA or Companies’ Creditors Arrangement Act (Canada) (the “CCAA”)(both being reorganization provisions, similar in concept to Chapter 11 in the U.S.). Where those attempts to restructure are unsuccessful, they can lead to a receivership, or a bankruptcy.

The amendment increases the period included in Eligible Wages to include the period commencing six months prior to a filing for protection under the proposal provisions of the BIA or the CCAA, and thus also the period during those proceedings up to the date of the bankruptcy or receivership. This is potentially a much longer period of time than the previous language which only protected the six months prior to a receivership or bankruptcy.

Although the amendment lengthens the period of time defined as Eligible Wages, it does not increase the total claim that may be made by each employee under the Program.       

A Misstep

There appears to be a technical glitch in the drafting of the amendment.

Under the former definition of “Eligible Wages” in the WEPPA, Eligible Wages were earned in the six months immediately before either a bankruptcy or the appointment of a receiver. Thus, employees could recover from the Program where the employer was either placed into bankruptcy or receivership.

However, under the amendments there is no longer protection under the Program for unpaid wages accruing in the six months preceding a bankruptcy unless there is either a CCAA or BIA proposal filing preceding the bankruptcy. The effect of the change is that employees will no longer be eligible for the Program where the employer becomes bankrupt without either the employer first filing under the CCAA or the proposal provisions of the BIA.

This omission was likely inadvertent. It can be expected that the Federal Government will amend the legislation to rectify this.    

This entry was authored by Steven Golick and Patrick Riesterer.