Several years ago, the federal government made a number of changes affecting Canada’s bankruptcy laws. One of those changes was to implement the Wage Earner Protection Program (WEPP), which came into force in 2008.
The purpose of WEPP is to pay up to a maximum of $3,400 to eligible workers, whose bankrupt employer has failed to pay them wages, vacation pay, severance pay and/or termination pay. (The program does not cover nonwage benefits such as dental insurance.) The legislation defines wages quite broadly to include a number of different things including salaries, commissions, vacation pay, disbursements of a travelling salesperson, production bonuses and shift premiums. For a worker to be eligible for the WEPP benefit, the following criteria must be met.
Officers, directors, employees who have a controlling interest in the business, managers whose responsibilities included making binding financial decisions and those who were not dealing at arm’s length with any of these persons are generally not eligible to receive payments under this program.
However, workers who are related to the employer may qualify for benefits if it is determined that they were treated in the same manner as other employees. Workers of a bankrupt employer who find themselves in the position of having wages, vacation pay, termination or severance pay owning to them can apply to Service Canada for benefits. Before they apply they must file a proof of claim with the trustee or receiver. The trustee or receiver will provide workers with the necessary proof of claim. It is important that workers act quickly as WEPP applications must be submitted to Service Canada within 56 days of the later of:
While the above may seem relatively cut and dry, a recent Ontario Superior Court of Justice was asked to clarify which employees were eligible to receive WEPP benefits.
The employer, Northern Sawmills, ran into financial difficulty and in the summer of 2007 and it began to wind down its operations. Layoffs began. Pursuant to the parties’ collective bargaining agreement, employees had 24 months of recall rights after which their employment would be deemed to have been terminated if they had not been recalled. In the fall of 2008, Northern Sawmills permanently ceased operations. Neither the employer nor its employees wished the cessation of operations to be the end of the company or for the lapsing of recall rights. As a result, beginning in the fall of 2008 and continuing for some time, there were regular discussions about restarting operations. These discussions produced an oral agreement between the union and the employer that the recall rights would be extended until the signing of a new collective agreement.
The union’s hope came to an end in 2010 and it filed a grievance on behalf of its members in order to collect severance and termination pay for them. On July 6, 2010, Northern Sawmills and the union entered into a Memorandum of Settlement wherein the employees and their recall rights were terminated. Northern Sawmills was eventually forced into receivership and on January 4, 2011, and a receiver was appointed.
It was the position of the union that all 232 members were entitled to WEPP benefits. The receiver, however, took the position that only the 54 employees laid off after July 4, 2008 were entitled to WEPP benefits.
The court ruled that all the employees were entitled to WEPP benefits. The basis of that opinion was the finding that the Memorandum of Settlement confirmed the parties’ agreement that the employees had recall rights that were being extended so that Northern Sawmills’ obligation to pay severance and termination payments would be deferred. The court further concluded that the employees had recall rights up to July 6, 2010, the date that the layoffs became a termination.
July 6, 2010, was within the six month period which ended on the date (January 4, 2011) that the receiver was appointed, which meant that all the employees met the eligibility criteria for the benefits provided by WEPP.
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