Regulations Amending the Wage Earner Protection Program Regulations: SOR/2021-196

Canada Gazette, Part II, Volume 155, Number 18

Registration
SOR/2021-196 August 12, 2021

WAGE EARNER PROTECTION PROGRAM ACT

P.C. 2021-866 August 11, 2021

Her Excellency the Governor General in Council, on the recommendation of the Minister of Labour, pursuant to section 41 footnote a of the Wage Earner Protection Program Act footnote b, makes the annexed Regulations Amending the Wage Earner Protection Program Regulations.

Regulations Amending the Wage Earner Protection Program Regulations

Amendments

1 The Wage Earner Protection Program Regulations footnote 1 are amended by adding the following after section 3:

Foreign Proceedings

3.1 For the purposes of subsection 5(2) of the Act, a court may determine whether the foreign proceeding is in respect of a former employer that has terminated all of its employees in Canada other than any retained to wind down its business operations.

Proceedings Under Bankruptcy and Insolvency Act or Companies' Creditors Arrangement Act

3.2 For the purposes of subsection 5(5) of the Act, a court may determine whether the former employer is the former employer all of whose employees in Canada have been terminated other than any retained to wind down its business operations.

2 Section 6 of the Regulations is replaced by the following:

6 Any amount that an individual has received in respect of eligible wages or in respect of the termination of employment that is paid by the former employer or from any other source, excluding any amounts received through other federal or provincial programs, after the date of the bankruptcy or receivership, or the day on which a court determines that the former employer meets the criteria set out in section 3.1 or 3.2, as the case may be, is the amount for the purposes of subsection 7(1.1) of the Act.

3 Section 9 of the Regulations is replaced by the following:

9 (1) An application for payment shall be made within 56 days after the latest of the following days:

  • (a) the date of the bankruptcy or receivership of the applicant's former employer,
  • (b) the day on which the applicant's employment ends for any of the reasons referred to in section 3, and
  • (c) the day on which a court determines that the former employer meets the criteria set out in section 3.1 or 3.2, as the case may be.

(2) The application may be submitted after the expiry of the 56-day period if circumstances beyond the control of the applicant prevented them from submitting the application during that period.

4 Section 11 of the Regulations is replaced by the following:

11 (1) An applicant shall request a review under section 11 or 32.1 of the Act in writing within 30 days after the day on which the applicant is informed under subsection 10(1) or 32(1) of the Act, as the case may be, of the Minister's determination.

(2) The request may be submitted after the expiry of the 30-day period if circumstances beyond the control of the applicant prevented them from submitting the request during that period.

5 The heading before section 13 and sections 13 and 14 of the Regulations are repealed.

6 Paragraph 15(1)(a) of the Regulations is replaced by the following:

  • (a) the date of bankruptcy or receivership, or the day on which a court determines that the former employer meets the criteria set out in section 3.1 or 3.2, as the case may be;

7 Paragraph 16(1)(a) of the Regulations is replaced by the following:

  • (a) the date of bankruptcy or receivership, or the day on which a court determines that the former employer meets the criteria set out in section 3.1 or 3.2, as the case may be;

8 Sections 18 to 20 of the Regulations are replaced by the following:

18 (1) For the purposes of section 22.1 of the Act, the Minister shall, on application by the trustee, pay the fees and expenses if

  • (a) the trustee has submitted a claim in the form approved by the Minister;
  • (b) the claim indicates a deficit; and
  • (c) the amount of any third-party deposits and guarantees in respect of the fees and expenses is less than the deficit.

(2) The amount payable is equal to the lesser of

  • (a) the amount by which the deficit exceeds the amount of any third-party deposits and guarantees; and
  • (b) the amount determined by the formula
A + B
where
A
is the amount obtained by adding $1,000, as adjusted, to
  • (i) $150, as adjusted, for each of the first 10 claims, and
  • (ii) $100, as adjusted, for each additional claim; and
B
is, the total of the fees and expenses to a maximum of $6,000, as adjusted, not including applicable sales taxes, incurred
  • (i) for taking possession of the property, making an inventory and securing and insuring the property,
  • (ii) for mail-outs to creditors to advise them of the meeting of creditors and the discharge hearing of the trustee,
  • (iii) for publishing a newspaper notice of the bankruptcy,
  • (iv) for the official receiver and the registrar, and
  • (v) for all of the other items that may be allowed by the court on the taxation of the statement of receipts and disbursements, to a maximum of $1,000, as adjusted.

(3) Despite subsection (2), the amount determined for B in paragraph (2)(b) is equal to 0 if the amount determined in accordance with the following formula is more than $10,000, as adjusted:

X – Y
where
X
is equal to the total value of the former employer's assets; and
Y
is the total value of the claims that have priority over the fees and expenses of the trustee.

(4) The Minister may request that the trustee provide a copy of the final statement of receipts and disbursements.

19 (1) The amounts, as indicated in subsections 18(2) and (3), that are to be adjusted are to be done so on January 1 of each year in accordance with the percentage increase to the consumer price index for the year ending on September 30 of the previous year.

(2) The consumer price index is the annual average all-items consumer price index for Canada (not seasonally adjusted) published by Statistics Canada.

(3) The adjusted amounts are to be rounded

  • (a) in the case of those set out in the description of A in paragraph 18(2)(b), to the nearest dollar;
  • (b) subject to paragraph (c), in the case of those set out in the description of B in paragraph 18(2)(b) and in subsection 18(3), to the nearest $500 increment; and
  • (c) in the case of those set out in subparagraph (v) of the description of B in paragraph 18(2)(b), to the nearest $100 increment.

(4) If, as a result of rounding, an amount set out in the description of B in subsection (2) remains the same as it was for the previous year, the unrounded adjusted amount is to be used for the purposes of the adjustment for the following year.

20 The notice referred to in subsections 36(1.1) and (1.2) of the Act is to be provided to the Minister within 30 days after the day on which the individual becomes aware of the action, proceeding, decision or order, as the case may be, and include

  • (a) the name, address, telephone number and social insurance number of the individual;
  • (b) in the case of a notice referred to in subsection 36(1.1),
    • (i) the date the action or proceeding was commenced,
    • (ii) the nature of the action or proceeding,
    • (iii) the name of the person who commenced the action or proceeding and their contact information; and
  • (c) in the case of a notice referred to in subsection 36(1.2), the date the decision or order was made and, if a payment has been received as a result of the decision or order,
    • (i) the amount of the payment broken down by the components of wages to which it relates and by recipient,
    • (ii) the contact information of the recipients,
    • (iii) the time period for which the payment relates, and
    • (iv) the source of the payment.

Transitional Provision

9 The Wage Earner Protection Program Regulations, as they read immediately before the day on which these Regulations come into force, continue to apply where the date of the bankruptcy or the first day on which there was a receiver in relation to the former employer occurs before the day on which these Regulations come into force.

Coming into Force

10 These Regulations come into force on the day on which section 626 of the Budget Implementation Act, 2018, No. 2, chapter 27 of the Statutes of Canada 2018, comes into force, but if they are registered after that day, they come into force on the day on which they are registered.

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Executive summary

Issues

On December 18, 2018, the Budget Implementation Act, 2018, No. 2 introduced amendments to the Wage Earner Protection Program Act (WEPP Act) to broaden program eligibility for individuals. Budget 2021 committed to simplifying Wage Earner Protection Program (WEPP) payments. Some of these amendments require amendments to the Wage Earner Protection Program Regulations (WEPP Regulations) before they can come into force.

Description

The amendments will broaden the WEPP access by

  • enabling earlier WEPP payments when an employer engages in liquidating restructuring proceedings;
  • extending coverage to individuals if their employer enters formal insolvency proceedings in another country;
  • eliminating the 6.82% WEPP offset (a mandatory 6.82% deduction from all WEPP payments); and
  • updating the payment of trustee fees and expenses for low asset insolvencies so that more individuals can access the WEPP.

As well, the amendments address concerns identified by the Standing Joint Committee for the Scrutiny of Regulations (SJCSR).

Rationale

  • Allowing earlier WEPP payments when an employer engages in a liquidating restructuring will reduce delays that some individuals experience in accessing the WEPP.
  • Extending WEPP coverage to include foreign proceedings will help ensure that employees working in Canada for companies that are subject to an insolvency proceeding in another country are not unfairly excluded from the WEPP.
  • Repealing the 6.82% WEPP offset will simplify payments, and ensure that Canadian workers are paid more of what they are owed when they need it most.
  • Updating and improving the scheme for the payment of trustees' fees and expenses will encourage more trustees to accept the administration of low asset bankruptcies, and improve WEPP access for individuals employed by small businesses that become insolvent.

Over the 10-year period following coming into force, the amendments are expected to result in present value benefits of $71.2 million, present value costs of $63.8 million and a net present value of $7.4 million.

Issues

The Wage Earner Protection Program (WEPP) is a Government of Canada program that provides financial support for individuals' owed eligible wages after they have lost their job and their employer has entered into bankruptcy or become subject to a receivership. This regulatory initiative will help improve access to the WEPP by addressing several issues:

  1. Sometimes, there are delays in accessing the WEPP when an employer engages in a “liquidating restructuring proceeding” before filing for bankruptcy or receivership. For example, Sears Canada began liquidating restructuring proceedings under the Companies' Creditors Arrangement Act (CCAA) in June 2017, closed remaining Canadian stores in January 2018, but did not become subject to receivership until January 2019. It was only when that receivership occurred that former employees became eligible for the WEPP, even though many lost their jobs months earlier.
  2. Canadian workers affected by foreign insolvency proceedings are not eligible for the WEPP. However, any worker who is legally working in Canada can be eligible for the WEPP if their employer is bankrupt or subject to a receivership in Canada. This represents a coverage gap for Canadian workers when their employer enters receivership in a foreign jurisdiction. For example, in October 2018, the parent company of ServiCom filed for bankruptcy protection in the United States and all operations at the Sydney, Nova Scotia, call centre ceased. More than 500 employees were laid off, many of whom were owed wages. As ServiCom did not file for Canadian bankruptcy or receivership, the former employees could not access the WEPP. In April 2019, the Nova Scotia government took the step of requesting the court to force ServiCom into Canadian bankruptcy. While this ensured a triggering of the WEPP for impacted workers, it was complicated and time consuming.
  3. Currently, all payments through the WEPP are subject to a 6.82% offset that represents the deductions at source a worker would normally see on their paycheck. This deduction was intended to mimic the Canada Pension Plan (CPP) and Employment Insurance (EI) contribution amounts that would normally be source deducted, had their paycheck been issued by their employer. The initial intent of this deduction was to ensure that recipients would not receive a WEPP payment greater than what they would have received from their employer. In addition to being a source of confusion for WEPP recipients, this offset unintentionally penalizes many WEPP recipients, such as those who have already paid their maximum yearly contributions towards EI or CPP. It also prevents WEPP recipients from being reimbursed for the full amount of eligible wages owed, as the offset applies to all WEPP payments. The residual amount of money left owing then creates administrative burdens for trustees and receivers.
  4. For employees to be eligible for the WEPP, an insolvency professional must agree to administer the insolvent estate of the former employer. However, when there are very few or no assets remaining in an estate, trustees are reluctant to assume the financial risks of taking on its administration for a bankruptcy proceeding. When no trustee agrees to administer an insolvent estate, impacted workers cannot access the WEPP.

Background

Through the WEPP, individuals whose employer is bankrupt or subject to a receivership can claim unpaid eligible wages (basic wages, disbursements, vacation pay, termination and severance pay) up to a maximum amount equivalent to seven weeks of EI's maximum yearly insurable earnings under the Employment Insurance Act ($7,579 for 2021).

The WEPP addresses a major gap that existed in Canada's bankruptcy and insolvency system before the program was launched in 2008. Before the WEPP, Canada lacked an effective way to ensure payment of unpaid wages when employers became insolvent. As a result, many individuals remained unpaid for work they had performed before their former employer's bankruptcy or receivership.

To be eligible for a WEPP payment, an individual must meet three conditions:

  • They were employed in Canada and their employment had been terminated;
  • Their former employer must be bankrupt or subject to a receivership in Canada; and
  • The individual must be owed eligible wages by their former employer.

When the WEPP was launched, amendments made to the Bankruptcy and Insolvency Act (BIA) elevated the ranking of unpaid wages and vacation pay to enjoy a limited “super-priority” status. This super-priority status means that claims for unpaid wages and vacation pay rank ahead of secured creditors in a bankruptcy process, up to a maximum of $2,000 per wage claim. The purpose of the limited super-priority is twofold:

  • (1) It allows the Crown to recover up to $2,000 per WEPP claim from insolvent employer estates during the bankruptcy process. This helps reduce overall net program costs; and
  • (2) It deters employers from avoiding paying workers amounts owed. This deterrence is due to the possibility that the Crown can ensure payment if it decides to purse the super-priority elements of a wage claim when the bankruptcy process later unfolds.

Since its creation, the WEPP has paid $461 million in eligible wages to nearly 158 000 Canadians (as at March 31, 2021). In a typical year, about 12 000 people benefit from the WEPP, and over the life of the program, have received an average WEPP payment of about $2,920 per recipient. The Crown has recovered almost $60 million from bankrupt employer estates, of which almost $50 million was for the super-priority wage claims (as at March 31, 2021).

In Budget 2018: Equality and Growth for a Strong Middle Class, it was announced that the Government of Canada would introduce legislative amendments to the Wage Earner Protection Program Act (WEPP Act). These changes sought to increase the maximum WEPP payment, and make the WEPP eligibility more equitable by broadening eligibility. These legislative amendments received royal assent on December 13, 2018, and

  • increased the maximum payment from the equivalent of four weeks, to the equivalent of seven weeks of employment insurance yearly maximum insurable earnings under the Employment Insurance Act; footnote 2
  • ensured that individuals retained by a trustee or receiver to help wind down business operations remain eligible to receive termination and severance pay under the WEPP;
  • granted WEPP recipients the right to request reviews and appeals regarding overpayment decisions; and
  • strengthened the Government of Canada's ability to recover monies from estates or properties of bankrupt employers, and from third parties, such as directors.

However, other WEPP Act amendments require changes to the Wage Earner Protection Program Regulations (WEPP Regulations) before they can take effect. Specifically, the existing WEPP Regulations require amending to set the eligibility criteria for earlier WEPP payments in situations where an employer engages in liquidating restructuring proceedings, to extend WEPP coverage for workers when the employer is subject to insolvency proceedings in another country, and to repeal the application of the 6.82% offset applied to all WEPP payments, as recently announced in Budget 2021: A Recovery Plan for Jobs, Growth, and Resilience.

Description

The Regulations Amending the Wage Earner Protection Program Regulations will allow the remaining amendments to the WEPP Act to come into force. These regulatory amendments will broaden WEPP coverage, repeal the 6.82% offset applied to all WEPP payments, create improved incentives for bankruptcy professionals to undertake low-asset proceedings, and address various concerns raised by the SJCSR.

1. Allowing earlier WEPP payments when an employer engages in liquidating restructuring proceedings

Currently, an individual only becomes eligible for the WEPP when the individual's employer enters bankruptcy or becomes subject to receivership. Changes to the WEPP Act would allow a court to determine that an individual may be eligible for earlier WEPP payments when the individual's former employer is subjected to a proceeding under the CCAA or a proposal under the BIA, if a trustee is appointed in respect of the former employer, and particular criteria set out in regulation are met. The WEPP Regulations will establish the criteria that the former employer is to have terminated all of its employees, except for employees that have been retained to wind down its business operations.

2. Extending WEPP coverage to individuals if their employer is subject to insolvency proceedings in another country

Changes to the WEPP Act allow a court to determine that individuals employed by an employer subject to an insolvency proceeding in another country may be eligible for the WEPP if there is a trustee appointed in respect of the former employer, and particular criteria set out in regulation are met. The WEPP Regulations will establish the criteria that the former employer subjected to the foreign proceeding is to have terminated all of its employees in Canada, except for employees that have been retained to wind down its business operations.

3. Removing the mandatory reduction of 6.82% applied to all WEPP payments.

The WEPP Regulations are amended to repeal the 6.82% WEPP offset.

4. Updating the payment scheme for trustees' fees and expenses when very few assets remain in an insolvent estate

For employees to be eligible for the WEPP, a trustee or receiver must oversee the insolvent estate of the former employer. Insolvency professionals have a number of specific duties under the WEPP Act that allow for the operation of the program. Specifically, they are responsible for identifying current and past employees, determining wages owed, providing information about the WEPP to potential claimants, and submitting specific information via a Trustee Information Form (TIF) to Service Canada for each WEPP claimant to enable the processing of the WEPP claim.

Under the WEPP Act, proceeds from the estate must be used to pay for this work, when there are enough assets to do so. When there are not enough assets remaining in an estate, insolvency professionals have been reluctant to assume the financial risks associated with accepting estate administration, as they have no certainty of payment for their services.

In situations where there are insufficient assets, the WEPP Regulations set out the eligibility criteria and formula for reimbursing insolvency professionals' fees and expenses. This payment scheme is to encourage trustees to accept the administration of low- or no-asset bankruptcies so that terminated employees can access the WEPP.

Changes to the WEPP Regulations will amend the payment scheme for trustees by simplifying eligibility requirements, streamlining payment calculations, increasing maximum payment amounts, and introducing indexing. The intent is to encourage more trustees to accept the administration of low asset bankruptcies, and improve WEPP access for individuals employed by small businesses that become insolvent.

Eligibility

To be eligible for payment of fees and expenses, the Regulations will require a trustee to

  • submit a copy of the Trustee Claim Form for the estate;
  • provide confirmation through the Trustee Claim Form that the estate is in deficit; and
  • confirm through the Trustee Claim Form that the value of third-party deposits and guarantees are less than the deficit. footnote 3
Calculation of payment

The amount for payment would be calculated as follows:

  • For WEPP specific duties: a $1,000 set-up fee, plus
    • $150 for each of the first 10 wage claims;
    • $100 for each additional claim; and
  • For broader estate administration: up to $6,000, plus applicable sales taxes, for the following fees and expenses, provided that total assets, net of higher-ranking claims, are less than $10,000:
    • for taking possession of the property, making inventory, and securing and insuring the property;
    • for mail-outs to creditors;
    • for the cost of publishing a newspaper notice of the bankruptcy;
    • of the official receiver and the registrar; and
    • for other items that may be allowed by the court, up to $1,000.

The total payable under this payment scheme will be capped at the amount by which the estate deficit exceeds the value of third-party deposits or guarantees.

Annual indexation

The amounts of payment for fees and expenses will be indexed annually using the consumer price index. Specifically, amounts would be rounded to the nearest dollar for the set-up fee and for each submission of a wage claim by the insolvency professional, and to the nearest $500 increment for the calculation and payment for broader estate administration.

5. Improve clarity of the WEPP Regulations and address concerns raised by the SJCSR

A number of regulatory amendments will clarify language, adjust terminology to improve English-French consistency, and include text to clarify that a late applicant, or one who misses the deadline to request a review, must also provide an explanation as to why they were unable to respect the deadline if they wish their WEPP application or request to be considered. In addition to the current 6.82% offset, WEPP payments are also offset by any eligible wages that an individual receives after the date of bankruptcy or the first day there was a receiver. The WEPP Regulations were amended to also apply to amounts received in respect of the termination of employment paid from any source, other than a federal or provincial government program. These changes will not result in additional costs as they seek to simplify wording, provide clarifications, and codify already existing practices.

6. Repeal sections of the WEPP Regulations pertaining to the administration of WEPP appeals

Sections 13 and 14 of the WEPP Regulations deal with timelines and the process for submission of appeals to an adjudicator appointed by the Minister. On July 29, 2019, amendments to the WEPP Act came into force to transfer all adjudicative functions related to the WEPP to the Canada Industrial Relations Board (CIRB). Under the amended WEPP Act, the Minister no longer has authority to make regulations regarding appeals, as this now falls under the responsibility of the CIRB.

Regulatory development

Consultation

Preliminary consultations with key stakeholders including insolvency professionals, organized labour, and representatives from the legal community, occurred in May and June 2019. Overall, there was general support for the objectives of the envisioned changes to the WEPP. Stakeholders

  • supported the concept of extending earlier WEPP payments to employees whose employment is terminated during a liquidating restructuring exercise that is expected to fail;
  • endorsed the idea of extending WEPP coverage to Canadian employees when their employer enters bankruptcy or receivership proceedings abroad; and
  • agreed that one approach to increasing the administration rates of low-asset insolvencies would be to improve the current payment scheme for trustee and receiver fees and expenses in situations where remaining estate assets are insufficient.

While there was general agreement on the purposes of envisioned changes, there were differing views on how to reach them.

  • On the issue of liquidating restructurings, some stakeholders argued that the primary factors to trigger the WEPP should be permanent job loss and wages owed by an insolvent employer who is restructuring, irrespective of whether this is tied to an actual or expected bankruptcy or receivership. This suggestion was not pursued because the objective of the WEPP is to cover eligible wages that are owed when an employer enters bankruptcy or becomes subject to a receivership. The WEPP is not designed to cover all forms of business restructurings.
  • On the issue of payment of fees and expenses of insolvency professionals, some argued that the Government of Canada should pay trustees and receivers for all work directly attributable to WEPP obligations, irrespective of whether there are adequate assets in an estate to do so. This suggestion was not pursued because the purpose of paying the fees and expenses of insolvency professionals is to encourage greater levels of estate administration for low-asset insolvencies so that individuals who are owed eligible wages can access the WEPP. Furthermore, section 22 of the WEPP Act requires that the fees and expenses of a trustee or receiver relating to WEPP duties must be paid from the estate or the property of the insolvent employer, when there are adequate assets to do so.
  • It was also argued that in situations where no trustee or receiver is willing to administer a low-asset insolvency, the Government of Canada should directly perform the service. This suggestion was not pursued because it fell outside the scope of this regulatory initiative and establishing Government of Canada insolvency professionals to administer insolvent estates is not attainable through changes to the WEPP Regulations. Furthermore, trustees and receivers are specialized in the area of insolvency and already operate across the county.

Prepublication

The proposed Regulations were prepublished in Part I of the Canada Gazette on November 28, 2020, for consultations which ended on January 15, 2021. In total, eight submissions were received from:

  • the Canadian Association of Insolvency and Restructuring Professionals;
  • the Insolvency Institute of Canada;
  • Ursel Phillips Fellows Hopkinson (counsel for Sears Canada employees);
  • Service Canada, Ontario Region;
  • the Canada Revenue Agency; and
  • three individual trustees.

These consultations identified various stakeholder concerns with the proposed WEPP Regulations, some of which have been addressed in the final Regulations.

Eligibility criteria for foreign proceedings and liquidations

The proposed Regulations would have only allowed the WEPP to be paid in foreign proceedings or liquidations in cases where the former employer has ceased its principal business operations and terminated all its employees, except for employees retained to wind down its business operations.

Stakeholder concerns

Stakeholders suggested that these requirements be eliminated or made more lenient. One stakeholder proposed replacing the “and” with “or” so that only one of the test criteria need apply. Stakeholders also noted that “principal business operations” was undefined. Finally, stakeholders suggested that that the proposed requirement that all employees need to be terminated (except those retained to wind down its business operations) may be too strict.

The proposed requirement that the employer has ceased principal business operations has been eliminated as the requirement was deemed redundant, and would have added unneeded complexity. It is unlikely an employer could terminate all employees yet maintain principal business operations.

The requirement that the employer has terminated all its employees, except those who have been retained to wind down business operations, will, however, be retained. This criterion is needed to ensure the WEPP targets employees whose insolvent employers are likely to become subject to a receivership or enter into bankruptcy. Keeping this criterion remains aligned with the target population for the WEPP which is to cover eligible wages owed to workers when the employer becomes subject to receivership or enters into bankruptcy under the BIA.

Trustee payment amounts for WEPP specific and broader estate administration work for low asset insolvencies

Stakeholder concerns

Stakeholders commented that the proposed payment formula represented a major improvement over the existing payment scheme. However, they argued that the proposed payment amounts remained too low to encourage trustees to accept the administration of low asset insolvencies. An approximate doubling of payment amounts was proposed. Stakeholders also noted that the payment amounts were presale tax. It was recommended that, to the extent a trustee must remit taxes (e.g. GST, HST, QST) on amounts received on account of fees and disbursements, that the payment scheme covers those amounts.

To better align with the fees commonly charged by trustees of small and medium sized insolvency firms, maximum payment amounts have been raised. This will help encourage uptake of more low-asset estates so workers can access the WEPP. The updated Regulations now allow payment of a $1,000 set-up fee (up from $720), plus $150 for each of the first 10 wage claims (up from $120), and $100 (up from $75) for each subsequent claim. The maximum payment to subsidize broader estate administration will also be raised from the previously proposed maximum of $5,000 to a new maximum of $6,000.

Updated Regulations will also clarify that payment amounts for fees and disbursements will reflect amounts after applicable sales taxes. This is consistent with how third-party deposits are used to cover the costs of administration, as they also cover sales taxes. The updated Regulations thus align to common industry practice. Finally, as payment of fees and expenses for receivers are funded through a secured creditor, the Regulations clarify that the payment scheme is to cover the fees and expenses of trustees.

Documentation for adjudication of trustee payment applications

Stakeholder concerns

Sections 18 and 19 of the current WEPP Regulations specify that a final Statement of Receipts and Disbursements (SRD) is required for the purpose of adjudicating and issuing a trustee payment. This has caused problems because a payment issued to a trustee by the Minister is considered a “receipt” for the purpose of the SRD, and that receipt must be accounted for before the Superintendent of Bankruptcy can deem the SRD final. This means that the trustee must record the trustee payment amount prior to actually receiving the payment. Due to this problem, stakeholders have recommended that the Regulations clarify that application for payment of fees and expenses be based on a document other than the final SRD.

The final Regulations have been revised to replace references to the final SRD with a requirement to instead submit a completed claim form approved by the Minister. As a matter of current practice, a “Trustee Claim Form” is already used by Service Canada due to the challenges using the final SRD, as described above. This “Trustee Claim Form” collects the information needed to adjudicate a trustee's eligibility, and to calculate payment. It will be updated to reflect the new trustee payment scheme set out in the WEPP Regulations.

While stakeholder input helped inform the final Regulations, some stakeholder suggestions were not pursued. These include:

Timeliness-equity concerns regarding WEPP payment for liquidations

Some stakeholders noted that employees terminated early on in a liquidation proceeding would often need to wait longer for the WEPP than those terminated nearer the date of the court determination.

This concern could not be addressed through the WEPP Regulations, as it is related to requirements set out in the WEPP Act.

In eligible liquidations, some employees will end up waiting longer than others to receive their WEPP payment. The WEPP Act does not provide the authority needed to address this particular timeliness issue through regulation.

The amended WEPP Regulations will allow the WEPP to be paid once the employer has terminated all of its employees, except for employees that have been retained to wind down its business operations. This is expected to accelerate WEPP payments for up to 10% of all WEPP recipients by about six months.

Trustee reluctance to administer foreign insolvencies

Some stakeholders noted that it would be unlikely for a trustee to accept administration of a foreign insolvency because of difficulties accessing estate assets to cover their fees and expenses. If no trustee accepts to administer the estate, impacted employees cannot access the WEPP. The WEPP Act does not provide the authority to address this concern through the Regulations.

Continuity of employment

Some stakeholders recommended including an additional condition to the WEPP eligibility test that would prevent the WEPP access for terminated employees who continue employment undisturbed when a new employer acquires the assets of the debtor undergoing a restructuring. It was argued if the employee is not affected by the restructuring proceeding, they should not have access to WEPP.

This concern was not pursued because the difference between a terminated and transferred employee is often a post-facto decision made by a court. Furthermore, if truly a successor employer, the employee would not typically be entitled to severance or termination pay, as there would be continuity of employment. The successor employer would also be responsible for any outstanding wages or vacation pay and any WEPP payments received by an employee would likely be considered overpayments, requiring repayment.

Use of third-party guarantees in low asset insolvencies

Stakeholders argue that a third-party guarantor should not be required to cover the fees and expenses of a trustee relating to the administration of the WEPP in a low asset insolvency. Under the existing WEPP Regulations, the simple existence of any guarantee disqualifies a trustee from receiving any payment by the Minister.

The proposal was not pursued. When there is a low asset insolvency, it would be very unusual for there to be a third-party guarantor. It is the very absence of a source of funds for the trustee — either through access to estate assets, or potential guarantor — which makes the trustee payment scheme needed to encourage the adoption of low asset estates which would typically go un-administered.

Amendments to the Regulations governing the trustee payment scheme will significantly increase the amounts a trustee can be paid by the WEPP and does not alter the status quo with respect to how third-party deposits and guarantees are currently used to support the administration of insolvent estates.

Modern treaty obligations and Indigenous engagement and consultation

An assessment of modern treaty implications did not identify any direct modern treaty implications or obligations that could result from the amendments to the WEPP Regulations.

Consultation activities about the WEPP were conducted as part of a five-year review of the WEPP Act in 2015, and additional consultations on amending the WEPP Regulations took place in spring 2019. Indigenous representatives were provided a copy of the WEPP discussion paper and were invited to submit recommendations. No input was received from Indigenous representatives.

Instrument choice

Broadening the WEPP eligibility for Canadians can only be accomplished by amending the WEPP Regulations that prescribe eligibility for the program, pursuant to section 41 of the WEPP Act. In the event WEPP Regulations are not amended, the status quo would continue with some Canadians continuing to experience exclusion from WEPP coverage.

Regulatory analysis

Benefits and costs

The Government of Canada will incur all incremental costs resulting from the amendments to the WEPP Regulations, which will be covered by the existing fiscal allocation for the WEPP. Total additional costs are estimated to be $63.8 million over the 10-year period (2022–2031) following the coming into force of the Regulations. Total additional benefits to the WEPP recipients are estimated to be $71.2 million over the same 10-year period. The net present value is estimated to be $7.4 million. Unless noted otherwise, all costs are expressed in present value (PV, 7% discount rate) for the 10-year period.

Earlier WEPP payments when an employer engages in liquidating restructuring proceedings to wind down business operations

For CCAA proceedings, businesses who owe creditors more than $5 million can restructure under its protection. As a result, these employers tend to be medium- to large-sized workplaces, and when they restructure, it can affect a large number of workers. The WEPP payment data from 2009 to 2018 indicates that

  • among CCAA restructurings that ended in a bankruptcy or receivership, almost one in four of those restructurings took at least one year before insolvency, with the average time being just short of eight months; and
  • while employers involved in CCAA proceedings that ended in a receivership or bankruptcy represented less than 1% of employers whose employees received a WEPP payment, these employers accounted for 8% of all individuals who received a WEPP payment.

To accelerate access to the WEPP for terminated workers who are owed eligible wages, the WEPP Regulations will allow for the WEPP to be triggered in certain situations prior to the employer filing for bankruptcy or entering into receivership.

Costs

Although the number of workers and amounts paid under the WEPP would not significantly change, an opportunity cost would be incurred by the Government of Canada due to earlier WEPP payment in eligible situations of liquidating proceedings. Specifically, this cost would reflect the opportunity cost of paying the WEPP earlier, at the expense of that amount being allocated to other potential public initiatives.

Based on the WEPP payment data regarding the CCAA proceedings, it is assumed that up to 10% of all WEPP recipients would, on average, receive their WEPP payment about six months earlier in eligible restructuring processes. Using the standardized 7% discount rate for public funds, the total opportunity cost to the Government of Canada would amount to $1.4 million over 10 years.

Benefits

From the perspective of the WEPP recipient, an earlier WEPP payment would represent potential savings on foregone interest payments, had the amount needed to be borrowed for six months from a lender. An annual rate of 7%, calculated and compounded monthly is assumed. This 7% rate represents a hypothetical interest rate under which an average Canadian could reasonably access credit. footnote 4 Based on this monthly rate, the benefits of earlier WEPP payments to eligible recipients would amount to $1.4 million over 10 years.

Removing the mandatory reduction of 6.82% applied to all WEPP payments

Costs

Repeal of the 6.82% WEPP offset would result in an incremental cost to the Government of Canada of $28.2 million in transfer payments to employees over a 10-year period. This amount is estimated based on an assumed average gross payment of $4,615, and the average annual number of approximately 13 000 WEPP claimants (over the 10-year period). footnote 5 Some of this amount would be recoverable as subrogated debt by the Crown through the bankruptcy process.

A share of gross WEPP payments are recoverable by the Crown. In the context of insolvencies, WEPP payments are comprised of two portions of money: super priority payments of up to $2,000, which include the wage and vacation component of a WEPP payment, and the severance and termination component, which are unsecured. The super priority and unsecured amounts are recovered at different success rates due to their differing ranking in a bankruptcy process.

Since the inception of the WEPP, data indicates that super priority payment amounts represent 27% of total WEPP payments. Unsecured payments account for the remaining 73%. Of the total super priority payments since inception, the average recovery rate is 43%. Of the total unsecured debt payments, the average recovery rate is 3%. Overall, the Crown, via the bankruptcy process, recovers about 14% of total WEPP payments. This represents an anticipated recoverable amount of $3.9 million over 10 years associated with the elimination of the WEPP offset.

The present value cost, net of wages, expected to be recovered through proceedings is $24.2 million.

Benefits

The removal of the WEPP offset is estimated to result in an increased WEPP payment of $315 per WEPP recipient (6.82% of the average gross payment of $4,615). Its removal will also ensure that WEPP recipients receive wage amounts that are consistent with amounts the trustee or receiver has determined they are owed. Its removal will also help simplify WEPP payments, and ensure that recipients are paid more of what they are owed by their insolvent employer. As the total benefit to WEPP recipients is a direct transfer from the Government of Canada, total anticipated benefits amount to $28.2 million over a 10-year period.

Updated payment scheme for trustees' and receivers' fees and expenses when remaining estate assets are extremely low

The current formula for eligibility and payment of fees and expenses has been widely criticized by the insolvency community as overly complicated and insufficient. Since 2008 to June 2021, the fees and expenses for only 67 insolvent estates where there were insufficient assets to pay the fees and expenses of the trustee have qualified for payment. This represents about 3 600 WEPP recipients over the 13-year period. Only $180,075 in total trustee fees and expenses have been paid to insolvency professionals since 2008.

To encourage greater take-up of low-asset insolvencies, an updated payment scheme will simplify eligibility and create improved financial incentives for trustees to take on the administration of low-asset insolvencies. This will open up access to the WEPP for individuals owed eligible wages.

Costs

Updating the payment scheme is estimated to cost the Government $1.3 million over a 10-year period. This estimate assumes that low-asset employer insolvencies will add 10% to the total number of estates that fall under the WEPP each year. This would represent an additional 54 employer estates annually. footnote 6 Each of these employer estates is assumed to require completion of 20 TIFs. footnote 7 Based on this, the average payment a trustee would receive per eligible estate under the updated scheme would be $3,500. By comparison, under the existing payment scheme, the maximum a trustee or receiver could claim for submission of 20 TIFs would be $1,265, assuming they also meet the more restrictive eligibility requirements for payment under the current scheme.

Incremental increase of payments to employees of the new low-asset insolvent firms newly eligible (including incremental recoverable payments)

Costs

The increased administration rates of low-asset insolvencies resulting from the updated payment scheme are estimated to enable access to the WEPP for an additional 1 072 employees each year. It is assumed that each WEPP recipient would be paid the average WEPP payment of $4,615, inclusive of the previous offset amount of 6.82%. An incremental increase in the volume of payments to WEPP recipients' year-over-year is not expected.

The estimated additional number of WEPP recipients would result in $34.7 million gross payments over the 10-year period. A portion of this gross payment would be recoverable from insolvent estates by the Crown through the bankruptcy process.

As the Crown recovers approximately 14% of the total value of WEPP payments issued, this represents an anticipated recoverable amount of $4.8 million over 10 years. Taking into account these recoveries, the total estimated net costs to the Government of Canada would be $29.9 million over the 10-year period.

Benefits

The estimated 1 072 additional WEPP recipients each year would result in a direct transfer of funds from the WEPP to the newly eligible recipients. Total estimated benefits from the WEPP to the new recipients are estimated to be $34.7 million over the 10-year period.

WEPP coverage extended to individuals if their employer enters formal insolvency proceedings in another country

The WEPP Act was amended to broaden coverage to include terminated employees whose employer has entered insolvency proceedings in a foreign jurisdiction. Amendments to the WEPP Act extend coverage to terminated employees when a foreign proceeding is recognized by a Canadian court, a trustee is appointed under the BIA in respect of the foreign proceeding, and a Canadian court deems that the foreign proceeding meets criteria prescribed by regulation. This amendment aims to clarify and simplify the WEPP access for Canadian workers when their employer's insolvency occurs in another country. Indirect and occasionally time-consuming ways have been used to trigger the WEPP in situations where a foreign employer becomes insolvent, but there is no Canadian bankruptcy or receivership event that takes place.

Costs

In addition to simplifying the process to access the WEPP, this change is anticipated to somewhat increase the number of WEPP recipients. It is estimated that an average of approximately 200 additional employees per year will become eligible for WEPP as a result. It is assumed that each WEPP recipient would be paid the average WEPP payment of $4,615, inclusive of the previous offset amount of 6.82%. This is estimated to result in total costs of $6.9 million over 10 years. As foreign insolvencies would represent a new form of coverage for the WEPP, the program will attempt to recover costs to the extent possible. However, the recovery rate will likely differ from amounts successfully recovered in Canada due to various challenges in doing so abroad, such as differing legal systems and how creditors are ranked elsewhere. For simplicity, the recovery rate is assumed to be zero for this particular form of insolvency.

Benefits

As this is a direct payment to these newly eligible employees, and therefore a direct transfer from the government of Canada to WEPP recipients, benefits are equal to costs, approximately $6.9 million over 10 years.

Communication and website costs to update information

Costs

There are anticipated minor costs associated with the development and dissemination of communication products, including the administration of website updates, communication procedures and program information. The Government of Canada will incur these costs in the first year of implementation with an estimated total of $21,727 following the introduction of the Regulations.

Cost-benefit statement
  • Number of years: 10
  • Base year for costing: 2022
  • Present value base year: 2021
  • Discount rate: 7%
Table 1: Monetized costs
Impacted Stakeholder Description of Costs Base Year table 1 note * Year 2026 table 1 note * Final Year: 2031 table 1 note * Total
(Present Value)
Annualized Value
Government Earlier payment to employees $194,394 $202,287 $212,606 $1,420,588 $202,260
New pay regime for trustees/receivers who administer low-asset insolvencies $187,600 $187,600 $187,600 $1,317,624 $187,601
Payments to new low-asset insolvent firm employees (net of recoveries) $4,259,690 $4,259,690 $4,259,690 $29,918,279 $4,259,705
Payments to newly eligible employees subject to foreign proceedings $941,496 $979,725 $1,029,700 $6,880,235 $979,594
Communication and website costs to update information $23,247 $0 $0 $21,727 $3,093
Offset removal (net of recoveries) $3,317,352 $3,452,050 $3,628,139 $24,242,442 $3,451,590
All stakeholders Total costs $8,923,780 $9,081,352 $9,317,735 $63,800,895 $9,083,844

Table 1 note(s)

Table 1 note *

Not discounted

Return to table 1 note * referrer

Table 2: Monetized benefits
Impacted Stakeholder Description of Benefit Base Year table 2 note * Year 2026 table 2 note * Final Year: 2031 table 2 note * Total
(Present Value)
Annualized Value
Employees Earlier payment to employees $194,394 $202,287 $212,606 $1,420,588 $202,260
Payments to new low-asset insolvent firm employees and incremental recoverable payments $4,946,984 $4,946,984 $4,946,984 $34,745,548 $4,947,002
Payments to newly eligible employees subject to foreign proceedings $941,496 $979,725 $1,029,700 $6,880,235 $979,594
Offset removal (direct transfer from government to recipient) $3,852,602 $4,009,033 $4,213,534 $28,153,923 $4,008,499
All stakeholders Total benefits $9,935,476 $10,138,029 $10,402,825 $71,200,294 $10,137,355

Table 2 note(s)

Table 2 note *

Not discounted

Return to table 2 note * referrer

Table 3: Summary of monetized costs and benefits
Impacts Base Year table 3 note * Year 2026 table 3 note * Final Year: 2031 table 3 note * Total
(Present Value)
Annualized Value
Total costs $8,923,780 $9,081,352 $9,317,735 $63,800,895 $9,083,844
Total benefits $9,935,476 $10,138,029 $10,402,825 $71,200,294 $10,137,355
NET IMPACT $1,011,697 $1,056,677 $1,085,089 $7,399,399 $1,053,512

Table 3 note(s)

Table 3 note *

Not discounted

Return to table 3 note * referrer

Quantified (non-$) and qualitative impacts

Positive impacts: WEPP recipients

  • Clarifying WEPP coverage to Canadian employees affected by insolvencies of their employer in a foreign country will clarify and simplify the WEPP access.
  • Potential small number of additional WEPP recipients due to simplified WEPP trigger.

Negative impact: Government of Canada

  • Clarifying WEPP coverage to individuals employed by foreign companies operating in Canada, if their employer enters bankruptcy or becomes subject to receivership in a foreign jurisdiction, may result in a small number of additional WEPP claims for processing.

Small business lens

Analysis under the small business lens concluded that the Regulations will not impact Canadian small businesses.

One-for-one rule

The one-for-one rule does not apply, as these regulatory changes will not impose administrative costs on businesses and will not result in new regulations.

Regulatory cooperation and alignment

These regulatory changes have no links to international agreements or obligations.

Strategic environmental assessment

In accordance with the Cabinet Directive on the Environmental Assessment of Policy, Plan and Program Proposals, a preliminary scan concluded that a strategic environmental assessment is not required.

Gender-based analysis plus

No gender-based analysis plus (GBA+) impacts have been identified. Information collected by the WEPP is limited to what is specifically required to administer the program. As a result, indicators are limited to program operations, such as the number of payments made, average amounts paid per claimant, and payment timeliness. Personal information, such as gender, age, disability, indigenous status, or socio-economic characteristics, are not collected. Information to assess the potential impact that changes to the WEPP could have on different groups is therefore not readily available.

Implementation, compliance and enforcement, and service standards

Implementation

Communications and outreach will be conducted as needed with the insolvency community to ensure they are aware of the changes to the WEPP Regulations. This will primarily be accomplished by working with the Canadian Association of Insolvency and Restructuring Professionals (CAIRP) through the existing WEPP Joint Liaison Committee, and on an ad hoc basis, as needed.

The Regulations come into force on November 20, 2021.

Partner institutions

A number of federal departments and private sector stakeholders are instrumental in the operation of the WEPP. These partner institutions were all consulted during the development of the WEPP Regulations:

  • Service Canada processes the WEPP applications, issues payments to eligible recipients, oversees the trustee and receiver payment scheme, and administers the review process.
  • The Office of the Superintendent of Bankruptcy (OSB) provides advice and guidance with respect to the application of the BIA and the CCAA, both of which are linked to the WEPP Act. The federal insolvency policy, which includes the BIA and CCAA, falls under the mandate of the Minister of Innovation, Science and Economic Development (ISED). Although the WEPP is under the responsibility of the Minister of Labour, it is an important element of Canada's broader insolvency framework.
  • The Canada Revenue Agency (CRA) administers the recovery of the WEPP overpayments and recovers dividends from insolvent estates. When payments are issued under the WEPP, the Government of Canada is subrogated to any rights the individual may have in respect of unpaid wages, up to the amount of WEPP payment.
  • The CAIRP represents close to 90% of Licensed Insolvency Trustees in Canada. Therefore, the CAIRP is the main stakeholder representative for the trustee and receiver community in Canada. The Labour Program works closely with the CAIRP to communicate WEPP-related information to the insolvency community, and address the WEPP administrative and operational issues with a view to improving the delivery of the program.

Performance measurement

The following will be used to assess the effectiveness of the WEPP following the coming into force of the amended WEPP Regulations:

  • Improved financial support to workers (i.e. a larger number of employees with insolvent employers can access the WEPP);
  • Total number of workers that receive support under the WEPP (baseline of 12 000 annual); and
  • Number of WEPP applicants under the new eligibility triggers (new baseline).

Service standards

Service standards to process WEPP claims will remain unchanged.

Contacts

Danijela Hong
Director
Labour Standards and Wage Earner Protection Program Telephone: 613‑854‑4083
Email: danijela.hong@labour-travail.gc.ca

Caroline Cantin
Manager
Wage Earner Protection Program Policy and Oversight
Email: caroline.cantin@labour-travail.gc.ca