Vol. 142, No. 23 — June 7, 2008

Wage Earner Protection Program Regulations

Statutory authority

Wage Earner Protection Program Act

Sponsoring department

Department of Human Resources and Skills Development

Issue

The Wage Earner Protection Program (WEPP) will assist workers who are owed wages and vacation pay by an employer who has declared bankruptcy or is subject to receivership. These proposed Regulations provide certain administrative details essential to the operation of the WEPP.

Objective

The objective of this proposed regulatory action is to set the parameters for specific administrative functions that must be performed to meet the purposes of the WEPP.

Description

The proposed Wage Earner Protection Program Regulations (the proposed Regulations) are administrative regulations required to set parameters for the operation of the Wage Earner Protection Program Act (the WEPP Act).

On June 3, 2005, Bill C-55, An Act to establish the Wage Earner Protection Program Act, to amend the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act and to make consequential amendments to other Acts was introduced in the House of Commons. The purposes of Bill C-55 included facilitating the restructuring of viable but financially troubled companies, better protecting workers’ claims for wages and pensions, making the system fairer, reducing abuse and improving the administration of the insolvency system. Bill C-55 received Royal Assent on November 25, 2005, and became Chapter 47 of the Statutes of Canada, 2005 (Chapter 47).

Subsequently, it was determined that certain corrective amendments were needed to Chapter 47 (including the WEPP Act) prior to it coming into force. Those amendments were introduced in the House of Commons as part of Bill C-12, which received Royal Assent on December 14, 2007, and became Chapter 36 of the Statutes of Canada, 2007 (Chapter 36).

The WEPP Act is designed to protect the wages of workers whose employers declare bankruptcy or are subject to receivership. The WEPP will pay unpaid wages and earned vacation pay to workers up to the equivalent of four weeks’ maximum insurable earnings under the Employment Insurance Act (currently about $3,000). Total WEPP payments will vary from year to year depending on the number of bankruptcies that occur in the year and the number of eligible workers who apply for benefits relating to those bankruptcies.

It has been estimated that approximately 97% of the workers who are eligible for WEPP payments will receive the entire amounts that they are owed in wages and vacation pay. The current average wage claim is about $1,500. The very few eligible workers who receive less than their claimed amounts will still be entitled to pursue the remainder through the bankruptcy process.

Most of the features of the WEPP are based on statutory provisions, that is, provisions contained in the WEPP Act. As with all statutes, those statutory provisions have been determined by Parliament, and so, are not the subject matter of this Regulatory Impact Analysis Statement (RIAS). This RIAS describes the proposed content of the Regulations, prepared under the authority of the WEPP Act.

As authorized in section 41 of the WEPP Act, the proposed Regulations provide the following administrative details for the operation of the WEPP:

(a) Amounts to be included as “wages” for the purpose of calculating benefits;

(b) Interpretation of the term “termination of employment”;

(c) Definitions of the terms “controlling interest” and “managerial position”;

(d) Amounts that may be paid to eligible individuals under the WEPP;

(e) Allocation of WEPP payments to the different components of wages;

(f) The manner of making an application for WEPP benefits, and the period during which an application is to be made;

(g) The manner of applying for a review of a Ministerial determination concerning the eligibility of an applicant to receive WEPP benefits, the period during which such a review may be requested, and the manner in which and the period during which an appeal may be made to an adjudicator concerning the outcome of the aforementioned review;

(h) The classes of individuals to whom a bankruptcy trustee or a receiver is not required to provide information about the existence of the WEPP, about the conditions under which WEPP payments may be made, or about individuals and the amounts of wages owing to those individuals;

(i) The information that is to be communicated to individuals and to the Minister by trustees and receivers about those individuals and the amounts of wages owing to them, and the period during which and the manner in which that information is to be communicated;

(j) The period during which, and the manner in which

(i) information about the existence of the WEPP and the conditions under which WEPP payments may be made is to be provided to individuals by trustees and receivers, and

(ii) information in the possession of payroll contractors, or information accessible to other persons, about individuals and the amounts of wages owing to those individuals is to be provided to trustees and receivers; and

(k) The fees and expenses that the Minister may pay to a trustee or a receiver for duties performed under the WEPP Act, and the circumstances in which such fees may be paid.

Several of the items listed above deserve some elaboration. For example, with regard to item (c), section 4 of the proposed Regulations explains that an individual is considered to have had a “controlling interest” in the business of their former employer if the individual owned

(a) more than 40% of the voting shares in the company;

(b) a block of voting shares that is large enough such that no one shareholder or coalition of shareholders can block a motion; or

(c) enough shares in the business to control the business’s policy.

This interpretation may be key to determining the eligibility of an applicant for a WEPP payment, since any individual who has had a controlling interest in the insolvent business during the period in which wages were earned is not eligible to receive a WEPP payment in respect of those wages.

Similarly, an individual who has occupied a managerial position in the business of their former employer is not eligible for a WEPP payment if the responsibilities of the individual included making binding:

(a) financial decisions affecting the business of the former employer; and

(b) decisions with respect to the payment or the non-payment of wages by the former employer.

Regarding item (f) above, the manner and timing of an application may also be of critical importance in establishing a worker’s eligibility. Section 10 of the proposed Regulations stipulates that an application must be made in writing in the form provided by the Minister, and that it must normally be made (pursuant to section 9) within 45 days of the later of the following dates:

(a) the date of the bankruptcy or receivership of the applicant’s former employer;

(b) the date on which that applicant’s employment terminates in accordance with section 3 (which defines what is meant by a termination of employment); or

(c) the date on which the trustee or receiver terminates the applicant’s employment.

Item (i) refers to the body of information that must be communicated by trustees and receivers to individuals and to the Minister about those individuals and the amounts owed to them, and item (j)(i) which prescribes the manner and period in which that information must be provided. This information may be crucial to determining the total sum to which the individuals may be entitled under the WEPP, and so must be provided promptly. In order for that to happen, certain information about individuals and the amounts of wages owing to them must be provided to a trustee or receiver by those who have access to this information, or a payroll service provider (as listed in item (j)(ii)).

Finally, in addition to establishing the WEPP Act, Chapter 47 as amended by Chapter 36 also included amendments to the Bankruptcy and Insolvency Act (BIA) which establishes a “limited super-priority” for unpaid wage claims up to $2,000, which grants those claims a priority charge—ahead of secured creditors—over the current assets of the bankrupt employer’s estate (cash, accounts receivable and inventory). This will aid the Government when it assumes the rights of a wage earner as a creditor in the bankruptcy process, to recover a WEPP payment.

Regulatory and non-regulatory options considered

The proposed Regulations are essential to the operation of the WEPP Act. Indeed, regulations are anticipated by the Act, not only in section 41 which authorizes them, but also in sections 5, 6, 8, 11, 14, and 21. It is in response to those requirements, and to those requirements only, that the proposed Regulations have been drafted. No instrument other than the proposed Regulations could meet those requirements to establish the essential administrative details of the WEPP.

It should be noted, however, that, in conjunction with the proposed Regulations, other instruments may be used to set out some of the secondary details of the WEPP. Those other instruments may include ministerial guidelines, other guidelines, policy statements, etc. In all such cases, the policy instrument would be developed in consultation with all directly affected parties, and would be made available to those parties and to all other interested parties.

Benefits and costs

As mentioned above, the key operational provisions of the WEPP are statutory provisions, that is, they are contained in the WEPP Act rather than in the proposed Regulations. It is those statutory provisions that result in the measurable costs and benefits of the Program, e.g. the annual cost of about $35 million to the Government, and the economic benefits to society that result from maintaining the health and well-being of the workers protected by the Program.

However, since the proposed Regulations are an essential component of the WEPP, the costs and benefits of the Program (and, hence, of the proposed Regulations) are outlined in the following table.

¹ Includes: payments to workers; administrative expenses; and payments to insolvency professionals.

² To be recovered by the Government of Canada through the bankruptcy process, having assumed the rights of the workers as creditors after the latter have received their respective WEPP payments.

The only substantial benefits to be gained from the WEPP are the payments of wages and earned vacation pay to be received by eligible workers formerly employed by insolvent employers, upon application to the Government. Those benefits are significant not only in monetary terms, but also in that the workers will receive them in a timely fashion. That is in sharp contrast to the current situation in which workers typically wait through the bankruptcy process for as much as three years, only to receive a small fraction of the money that they are owed.

All of the costs of the WEPP will be borne by the Government. Drawing from the Consolidated Revenue Fund, Service Canada will make payments to eligible applicants and will also cover administration costs and make payments, as necessary, to insolvency professionals who perform essential services. Each worker who is eligible for a WEPP payment will be required to sign over to the Government all of his or her rights as a creditor. The Government will then proceed to recover the maximum available to it through the bankruptcy process; it is estimated that, in the long term, the Government will be able to recover approximately one-half of the sums paid out in WEPP payments.

The WEPP will have negligible impacts. Specifically, there will be no significant impact on

• health or safety;
• the environment;
• the economy;
• the industrial sector;
• employment;
• competitiveness;
• domestic or international trade; or
• public security.

Regarding international co-operation, the proposed Regulations (and the Act) apply only to workers legally entitled to work in Canada. The WEPP is similar to the wage earner protection schemes of other countries. Until now, Canada was one of the few member countries of the Organization for Economic Co-operation and Development lacking such a program.

Rationale

As mentioned above, the proposed Regulations are required by the WEPP Act and are essential to its operation. The proposed Regulations will establish the specific administrative procedural details of the WEPP, as authorized by, and anticipated in, the Act. No other option would accomplish that purpose.

Consultation

Bill C-55, mentioned above, was prepared in 2005 following extensive public consultations on Canada’s insolvency laws, which were conducted by Industry Canada in 2001/2002 and by the Standing Senate Committee on Banking, Trade, and Commerce in 2003.

After Bill C-55 was introduced in the House of Commons, interested parties had an opportunity to express their views on the content of the Bill, including the proposed establishment of the Wage Earner Protection Program Act. Among the stakeholders that chose to make their opinions known were the Canadian Association of Insolvency and Restructuring Professionals, the Insolvency Institute of Canada, the Canadian Bar Association, and several labour unions.

The proposed Regulations have been drafted by Justice Canada using drafting instructions prepared by the Labour Program of Human Resources and Social Development Canada. Discussion papers based on preliminary versions of those drafting instructions were the subject of confidential consultations with the Office of the Superintendent of Bankruptcy and with the Canadian Association of Insolvency and Restructuring Professionals. In each case, the consulted parties were invited to express any concerns about the proposed content of the Regulations.

Concerns were voiced regarding a number of proposed provisions, including: the deadlines for performance of certain duties by insolvency professionals and the circumstances under which insolvency professionals should be reimbursed for performing WEPP-related duties. The current draft of the proposed Regulations reflects careful consideration of those expressed concerns. In particular, certain deadlines have been adjusted to allow sufficient time for the performance of the related duties.

Implementation, enforcement, and service standards

The Wage Earner Protection Program (WEPP) will be administered by the Labour Program of Human Resources and Social Development Canada and delivered through Service Canada. The WEPP will be subject to program evaluation and a statutory five-year review. The review is required by section 42 of the WEPP Act.

Regarding enforcement of the proposed Regulations, failure to observe the requirements will result, in most cases, in committing an offence under the WEPP Act. Sections 38 and 39 of the Act list nine categories of offences, ranging from the making of false or misleading entries in documents supporting application for WEPP benefits, to delaying or obstructing a person in the exercise of their powers or the performance of their duties under the Act. Conviction of any of those offences could then result in a fine or imprisonment, or both.

Regarding compliance with the proposed Regulations, the Labour Program will be in a position to monitor the compliance of applicants for WEPP payments, as well as that of trustees and receivers who are required to submit information to the Minister within specified time limits. Labour Program will also be able to obtain from trustees and receivers data on the compliance of payroll contractors and other third parties who must provide information as required by the proposed Regulations.

Sylvie Heartfield
Chief of Policy
Strategic Policy, Analysis and Workplace Information Directorate
Labour Branch
Human Resources and Social Development Canada
165 Hôtel-de-Ville Street
Place du Portage, Phase II, 9th Floor
Gatineau, Quebec
K1A 0J2
Telephone: 819-953-0238
Fax: 819-997-3667
Email: sylvie.heartfield@hrsdc-rhdsc.gc.ca