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Jul 16, 2019
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In late 2018, the federal government introduced changes to the Wage Earner Protection Program ("the WEPP").

WHAT IS THE WEPP?

The WEPP is a federal program through which Employment and Social Development Canada ("ESDC") compensates workers who have lost or will lose their jobs as a result of employer bankruptcy. The program pays outstanding wages that would otherwise be paid by the employer, subject to certain conditions and limits. The WEPP is meant to ensure that workers whose employers go bankrupt or become insolvent receive at least a portion of the wages owed to them.

If a worker's employer is bankrupt, subject to receivership, or the subject of proceedings under the Bankruptcy and Insolvency Act or the Companies Creditors' Arrangement Act, the worker can apply to the WEPP for payment of outstanding wages. Importantly, "outstanding wages" includes commissions, vacation pay, termination pay, and severance pay in addition to salary.

WEPP compensation is not available if the worker:

  1. was a corporate director or officer;
  2. had a controlling interest in the employer's business;
  3. was a manager; or
  4. had a non-arm's-length relationship with any of the above

It is important to note that terms such as "director", "manager", "controlling interest", and "arm's-length" have objective legal meanings. For example, not every worker who holds the title of "manager" is a manager under the law. Similarly, a "director" is a director of the corporation, not anyone who holds the title of "director." The fourth disqualifying criterion—having a non-arm's-length relationship with a person in one of the other three categories—can be waived by Service Canada under certain conditions.

WEPP compensation is capped in two ways. While all workers are entitled to full termination pay and, where applicable, severance pay, there is a six-month cap on other outstanding wages (including salary). This means that a worker can receive, at most, six months' outstanding wages, excluding termination pay and severance pay. For example, if a worker is entitled to four weeks' notice of termination under the Employment Standards Act, they can receive the four weeks plus up to six months' outstanding wages through the WEPP.

The Wage Earner Protection Program Act ("the WEPPA") sets out four potential periods for which a worker can receive WEPP compensation. The period used depends on the status of the employer's bankruptcy proceedings. However, the WEPPA specifies that, if there is more than period that could be used, the WEPP must use the longest period.

Notwithstanding the above, WEPP compensation is always capped at seven times the maximum weekly Employment Insurance (“EI”) payment. For 2019, the cap on WEPP compensation is $7,148.05, regardless of circumstances. However, for bankruptcies that occurred prior to February 27, 2018, the cap is four times the maximum weekly EI payment. This cap means that, for many workers, the WEPP will not fully cover the unpaid wages.

The WEPP is valuable because it allows workers to claim unpaid wages through a relatively simple administrative process, as opposed to waiting for the bankruptcy proceedings to end. In effect, the WEPP operates as a stopgap measure, ensuring that workers receive at least some of their outstanding wages, with the remainder coming, where applicable, once the bankruptcy process is concluded.

HOW HAS THE WEPP CHANGED?

The Budget Implementation Act, 2018, No 2 made a number of changes to the WEPP, including four key changes:

  1. As described above, the absolute cap on WEPP compensation has increased from four times the maximum weekly EI payment to seven times the maximum weekly EI payment.
  2. The definition of "eligible wages" (the unpaid wages for which one can be compensated by the WEPP) has been expanded, as described above. Previously, there were only two potential eligibility periods. Now, there are four. As a result, workers will be more likely to receive the maximum amount.
  3. Previously, workers could apply for WEPP compensation only if their employer was bankrupt or subject to receivership. Now, workers can also apply:
    • if their employer is the subject of bankruptcy or similar proceedings in Canada; or
    • if their employer is the subject bankruptcy proceedings in another country, and the foreign proceedings have been recognized by a Canadian court
  4. There is a new provision that applies only to the person appointed to distribute the bankrupt employer's assets (either a receiver or a trustee, depending on the legal process being followed). Now, before paying outstanding wages to a worker, the receiver or trustee must determine whether the worker has already received compensation through the WEPP. If the worker has already received compensation through the WEPP, the receiver or trustee must determine whether the worker has any outstanding debts to the federal government. If the worker does have outstanding debts to the federal government, the receiver or trustee must pay the outstanding wages to the federal government instead of to the worker.

OTHER CONSIDERATIONS

The WEPP is a federal program, but it is not limited to federally regulated industries and workplaces. All workers who meet the eligibility criteria described above can apply for WEPP compensation. Notably, workers are not required to choose between applying to WEPP and making a claim to the Ministry of Labour under Employment Standards Act. The key difference is that, while complaining to the Ministry is an option in all or most cases of unpaid wages, the WEPP is only available where the employer is the subject of bankruptcy proceedings.

The deadline to apply for WEPP compensation is 56 days after the latest of: 1) the date of bankruptcy, 2) the day on which the worker's employment ended, or 3) the day on which the worker was terminated by the receiver, after the date of bankruptcy. The original decision regarding eligibility is made by Service Canada. The decision can be appealed to the Minister of Employment and Social Development.

Finally, WEPP compensation can be combined with compensation received as a result of bankruptcy proceedings. When an employer files for bankruptcy, the workers are treated as creditors to whom the employer owes money. If the amount received by a worker is less than the WEPP maximum of $7,148.05, the employee can apply to WEPP for the remainder.

*Thanks to Robert Boissonneault, law student at the University of Ottawa Faculty of Law, for his work on this post.

 

 

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