Friday, October 17, 2014

Submission to the Minister of Labour and Minister of the Status of Women on the Five-Year Review of the Wage Earner Protection Program Act

  
Introduction

The CLC appreciates and welcomes the opportunity to provide input on the five-year review of the Wage Earner Protection Program. The Wage Earner Protection Program Act allows expedited payment of wages and benefits, up to an annual cap, owed to workers whose employer has entered bankruptcy or receivership proceedings. The CLC is proud of its role in the origins and initial development of the WEPP.

We welcome and agree with many of the findings contained in the final report of the summative evaluation of the WEPP, published in March 2014. In particular, we strongly agree with the assessment that there is an ongoing need for the type of benefits offered under the WEPP. Our primary reservation, with respect to the adequacy of the review, concerns its limitation to the period between the inception of WEPP and March 31st, 2011. The exclusion of the period after March 31st, 2011—following important changes to the WEPP—omits important details from the review. We therefore recommend that the department undertake an interim assessment of the impact of the 2011 changes to supplement the findings of the summative evaluation.

Wage Earner Protection Program Coverage

The Wage Earner Protection Program is particularly important to precarious, vulnerable workers. According to Industry Canada, most bankruptcies occur in sectors characterized by low-paid, precarious employment, without union protection. More than 60% of bankruptcies in a given year can occur in retail, accommodation and food services, personal services, and small manufacturing. As many as 7 in 10 bankruptcies may occur among business enterprises with fewer than 10 workers, where precarious employment tends to be concentrated.

It is worth noting that while employed, low-wage, precarious workers are already at higher risk of wage theft and employment standards violations, including unpaid wages, overtime violations, and minimum wage violations.

Even prior to the employer ceasing operations, employment standards enforcement and redress for wage theft is typically inadequate.
The finding of an 88% take-up rate for the WEPP among eligible workers appears high. However, trustees and receivers have a legal responsibility to inform potential applicants about the WEPP, leading to nearly complete coverage of workers losing wages and benefits due to a bankruptcy or prolonged restructuring. We question why the take-up rate is not closer to 100%.

Beyond the take-up rate for eligible workers, as the evaluation identifies, workers who are losing wages and benefits—but where no official bankruptcy or receivership was declared—are not protected by the WEPP. We are concerned that this occurs in a significant number of cases; employers have been known to shut operations and open new businesses, often under different names, avoiding formal bankruptcy proceedings altogether. Business consultants and advisers routinely weigh the merits of avoiding bankruptcy in the closure of a business, leaving workers unable to claim lost wages and benefits under the WEPP. No information was available in the evaluation regarding the number of workers affected when an employer ceases operations, but no formal bankruptcy or receivership results. We urge the government to track and provide information on this category of affected workers.  We also recommend that the government examine ways to extend the WEPP to apply in situations where no formal bankruptcy is declared.

We are alarmed at the finding that unscrupulous trustees may be advising small businesses to wait six months after ceasing operations before declaring bankruptcy, thereby avoiding having the Federal Government as a creditor. We welcomed the 2011 extension of the coverage period for six months prior to the beginning of restructuring under the Company Creditors’ Arrangements Act (CCAA) or Bankruptcy and Insolvency Act (BIA).  However, we believe that the reported gaming of the coverage period makes a case for extending coverage of the WEPP to two years after cease of operations prior to bankruptcy, commencement of CCAA proceedings, or the filing of a Division I proposal under the BIA. Furthermore, we urge the government to conduct an investigation into whether and how insolvent employers are being encouraged to undermine the spirit and intention of the WEPP Act. To assist with program monitoring, we recommend that a workers’ representative be included in the Joint Liaison Committee responsible for the WEPP.

We are also concerned about the fact that employers of Canadian workers may declare bankruptcy outside Canadian borders, invalidating workers from recouping lost wages and benefits. In 2013, Vertis Communications declared bankruptcy in the United States, leaving 100 workers in Canada with wages and benefits owed them. To protect workers against employers shopping between bankruptcy jurisdictions, we recommend that the Federal Government extend WEPP protection to workers employed in Canada by firms that enter bankruptcy proceedings outside of Canada.

Finally, there is no indication that the WEPP evaluation investigated the ability of foreign nationals working in Canada on temporary work permits to access the program. We recommend incorporating this element into the monitoring and assessment of the program to ensure that particularly vulnerable workers, those working temporarily in Canada, are able to recover monies owing them in the event of employer bankruptcy.

pdf file wage-earner-protection-act-en.pdf