Employees could be substantially out of pocket if their employer goes bankrupt, says Toronto employment lawyer Bram Lecker.Under the Employment Standards Act, there are minimums set out for severance payments based on years of employment, he says, and most companies exceed those — especially with older employees with many years of service.
It’s a different story for those who find themselves out of work because their employer’s business has gone bankrupt or into receivership or trusteeship, says Lecker, principal of Lecker & Associates.
“Often their wage claims are at the very bottom of the hierarchy,” he tells AdvocateDaily.com.
Still, there are a few things employees can do to mitigate their losses.
Lecker says a company can suspend wages if they declare bankruptcy under the Bankruptcy and Insolvency Act, which leads to a court appointing a receiver or trustee to wind down the assets and then start paying out creditors, but that usually goes to secured creditors first.
Generally, he says, it’s the same when employees seek the protection of the Canadian Creditors Arrangement Act (CCAA), but in that case, there’s some hope they will restructure and come back as a viable business.
However, unpaid wages are still a question mark, Lecker adds.
“First, it depends on whether they are employed in a federally regulated industry, such as telecommunications, or if they work for the federal government or a federal agency,” he says, noting that’s only about 900,000 employees across Canada.
“If they’re in a union as a federal sector employee, they can file a grievance,” and become a creditor with slightly higher standing, Lecker says.
Secondly, they can apply under the federal Wage Earner Protection Program Act within 56 days, but the payout is limited to about four weeks’ wages, he says.
Employees outside of the federal sector also have a few options, Lecker says.
“Again, if they are part of a union, they can file a grievance,” he says. “Otherwise they should consult an employment lawyer.”
In fact, if the company’s employees band together, they can hire a lawyer collectively and reduce their costs substantially, Lecker suggests.
“Certainly, it is something we do here at Lecker & Associates,” he says.
One of the lesser-known strategies is to sue the directors of the company who can be held liable under the OntarioEmployment Standards Act (ESA), Lecker says.
“It has been done successfully,” he says. “They might not get everything, especially if they’ve been there for 21 years or so, for example, but it’s better than nothing.”
Another option is to have a hold put on the company bank account until the outstanding wages are paid, Lecker says.
“You definitely need a lawyer to do that, but it’s also worth trying,” he says.
The big question is what caused the financial difficulty, says Lecker.
If there was criminal activity — for example, a fraud in which the company was bled dry with intent — then it comes down to the hope that a forensic accounting investigation will trace and find the money and restore it, he says. But again, employees may not be able to return to work, and they may still not get what is due.
Pensions are another issue, and there are many examples of employees losing their pensions when a company tanks, says Lecker.
“There’s little the law can do,” he says. “The receiver or trustee gets paid before the employees do, and often there’s very little left.”
Ideally, it would take a change in the laws to enshrine protection for employees that would push them to the front of the queue for payout above other creditors, or the government could enact a requirement that a company must hold certain funds in trust for wage payouts in the event of a collapse, says Lecker.
“But, in the current commercial climate, I don’t see that happening,” he says.
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