Q. 1 Why is there a need for a Wage Earner Protection Program?
- An estimated 10,000 to 15,000 workers annually have unpaid wage claims, when employers go bankrupt.
- The current bankruptcy system does not provide adequate protection.
- There aren’t enough assets to pay wage claims – workers’ wages and vacation pay get paid only after unpaid suppliers of goods have repossessed their goods, certain Crown claims, the claims of secured creditors (i.e. the banks), funeral expenses of deceased debtors, and the legal and administrative costs of the bankruptcy.
- Most workers (79%) get no payment of their wage claims and only 13 cents on the dollar is recovered, in total.
- And workers receive payment for their wage claims only after lengthy delays due to the bankruptcy process.
- So workers are left in a situation in which they suddenly have no income – they did not receive pay for their work, and they have lost their jobs.
- This program will address this unfairness by providing guaranteed payment within a reasonable time period (six to eight weeks after application). Workers will receive the amount they would have received from their employer if there had been no bankruptcy.
Q. 2 What will the WEPP provide and how will it work?
- The Wage Earner Protection Program (WEPP) will protect up to $3,000 of workers’ unpaid wage and vacation pay due to a bankruptcy or receivership under the Bankruptcy and Insolvency Act.
- It is estimated that 97% of all unpaid wage claims would be satisfied in full, within the $3,000 cap.
- Payment will no longer depend on the assets available in the employer’s estate.
- The WEPP will provide prompt payment of unpaid wages — so that, in that period of financial crisis workers will get the pay they would otherwise have received.
- Government, instead of workers, will assume the risk of receiving only partial payment of owed wages after the lengthy period needed to distribute the assets from the bankruptcy.
- In making a wage claim under the WEPP, workers will be required to sign over their claim against the employer to the government so that the government can recover its costs — as fully as possible — as a creditor to the employer.
Q. 3 What is the WEPP likely to cost?
- The cost of the Wage Earner Protection Program is estimated to be around $30 million per year, and will be funded from general revenues.
- In a year of a dramatic increase in bankruptcies, the cost of the program could reach $50 million.
- The Government expects to recover up to half of what it pays from the WEPP as a creditor to the employer.
Q. 4 How does the WEPP target the most vulnerable workers?
- The majority of bankruptcies occur in sectors that employ large numbers of workers who are low paid, part-time or in a temporary contract, and who do not have the protection of a union.
- Over 60% of bankruptcies occur in the retail, food and accommodation, personal services and small manufacturing sectors.
- Seventy percent of bankruptcies occur among businesses with fewer than 10 employees — which also tend to offer “precarious” conditions of employment.
- The cap of $3,000 ensures that “basic” levels of earnings are covered. The $3,000 cap means that the amount eligible under the WEPP would be equivalent to one month average industrial wage for full-time workers, or four weeks’ maximum insurable earnings under EI.
- The $3,000 cap is sufficient to cover virtually all wage claims due to bankruptcy.
- The current average claim is about $1,500.
- 97% of current wage claims are under $3,000.
Q. 5 What is super priority, and how is it connected to the Wage Earner Protection Program (WEPP)?
- The Wage Earner Protection Program (WEPP) and the limited super priority are meant to work together, but they do not provide cumulative benefits.
- When a worker applies for payment from the WEPP, he or she will sign over the claim against the bankrupt employer’s estate up to the amount of payment that he or she receives from the WEPP.
- The government will then take the place of the worker and make a claim against the bankrupt employer’s estate to recoup the payment made from the WEPP as fully as possible, when assets are distributed through bankruptcy process.
- Any individual who does not qualify for payment from the WEPP will be able to pursue his or her wage claim directly through the bankruptcy process by making claims under the limited super priority and the existing preferred creditor status.
- Under the new “limited super priority”, an unpaid worker will receive first priority, up to a $2,000 limit, over the “current” assets of the bankrupt employer — which includes cash on hand, accounts receivable and inventory.
- Furthermore, the unpaid worker will also be able to make claims for any amounts under the $2,000 cap that were not paid out through current assets through the existing preferred creditor status.
- This means that there will be more assets available to satisfy unpaid wage claims than under the current system.
- With the new limited super priority, combined with the existing preferred creditor status, it is estimated that up to 50 cents on the dollar will be realized for unpaid wage claims in the bankruptcy process (as opposed to 13 cents on the dollar in total, which is recovered under the present system).
- The new limited super priority will ensure that:
- the WEPP is cost recoverable to the fullest extent possible;
- any worker who is not eligible for the WEPP will be able to recover their unpaid wages more fully; and
- there is a better balance by placing higher priority on payment of workers’ wages without disrupting lending markets or reducing access to credit for new and small businesses.
Q. 6 Why should taxpayers pay for the WEPP?
- In bankruptcies, everyone takes a loss because there are not enough assets to go around. Workers are the most vulnerable parties when their employers go bankrupt — they can’t afford to lose their pay, and they will not have other earnings (like EI benefits or a new job) for some time.
- It is the role of government to protect vulnerable people who experience severe losses through no fault of their own, and to provide protection for those who are in a time of great need.
Q. 7 Do other industrialized countries provide wage protection programs for their citizens?
- Yes.
- Among G7 countries, the UK, Italy, Japan, France and Germany all provide government programs to protect workers whose employers go bankrupt.
- Only Canada and the US do not provide such a program.
Q. 8 Will the WEPP cover severance and termination pay?
- No.
- Levels of termination and severance pay vary by jurisdiction. Thus, covering termination and severance pay could lead to inter-provincial inequalities in pay-out levels.
- Workers can claim severance and termination through the bankruptcy process and using director liability provisions in labour and corporate laws (where such laws provide).