Submission by the Canadian Labour Congress. to the

Transcription

1 Submission by the to the Minister of Labour and Minister of the Status of Women on the Five-Year Review of the Wage Earner Protection Program Act August 2014

2 Five-Year Review of the Wage Earner Protection Program Act Executive Summary August 2014 The (CLC) is the voice on national policy issues for 3.3 million workers in Canada. The CLC brings together Canada s national and international unions along with the provincial and territorial Federations of Labour and 130 district Labour Councils, whose members work in virtually all sectors of the Canadian economy, in all occupations, and in all parts of Canada. A leading priority of the CLC is fairness for unrepresented workers. In the CLC s opinion, the Wage Earner Protection Program (WEPP) has delivered, and continues to deliver, important value to vulnerable workers. The expansion of the program since its inception is evidence of the continued and growing need for the program. We believe that the program is fulfilling an important role, but is too limited to meet the full scope of the need. The CLC therefore recommends that the cap on WEPP payments for wages and benefits owed should be doubled, and that the WEPP should be extended to address situations where no formal bankruptcy is declared. We recommend that the WEPP coverage period be extended from six months to two years after cease of operations prior to bankruptcy, commencement of Companies Creditors Arrangement Act (CCAA) proceedings, or the filing of a Division I proposal under the Bankruptcy and Insolvency Act (BIA). We also recommend that WEPP protection be extended to workers employed in Canada by firms that enter bankruptcy proceedings outside of Canada. Finally, we recommend several improvements to the delivery of the WEPP program (summarized at the end of this submission), and recommend that a workers representative should be included in the Joint Liaison Committee responsible for the WEPP. August

3 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 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 31 st, The exclusion of the period after March 31 st, 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. 1 It is worth noting that while employed, low-wage, precarious workers are already at higher risk of wage theft and employment standards 1 Industry Canada, Questions and Answers on the Wage Earner Protection Program, (accessed July 21 st, 2014). August

4 violations, including unpaid wages, overtime violations, and minimum wage violations. 2 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 2 Workers Action Centre, Unpaid Wages, Unprotected Workers: A Survey of Employment Standards Violations, May August

5 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. Adequacy of WEPP Payments In our view, the maximum WEPP payment, equal to four weeks of maximum insurable earnings under the Employment Insurance Act ($3,738 in 2014), is too low. The evidence shows that a low and declining August

6 proportion of monies owed to workers is being paid under the WEPP (table 1). When the annual average of payout percentages are compared, the program shows a decline from over 80% in to 64% in This is partly due to the fact that Budget 2009 extended the WEPP to cover severance and termination pay, but did not raise the maximum WEPP payment. However, these figures are misleading, skewed by a disproportionate number of workers owed relatively-small amounts, which are fully paid out under the WEPP. For employees owed larger amounts, especially in larger workplaces, the average WEPP payment as a share of the average amount owed is lower (table 2). This results from the cap on payments, which penalizes typically older, longer-service workers who are disproportionately victimized by wage theft. When average WEPP payments as a percentage of monies owed are examined for the entire period, even controlling for workplace size, the percentage of monies owed that is paid out under the WEPP is as low as 24%, and no higher than 55% (table 2). Compounding these low levels, the maximum WEPP payment is currently indexed to inflation. We are concerned that as the average industrial wage and salary increases faster than inflation over the coming decades, as it is projected to do, there is further potential for the value of the WEPP maximum payment to erode. In our view, the low and declining level of WEPP coverage as a share of monies owed represents a strong argument for increasing the amounts allowed under the WEPP. According to the Public Accounts of Canada, annual WEPP payments in the last three fiscal years have averaged $30 million dollars. We recommend doubling the cap on amounts recoverable under the WEPP, which would be sufficient to cover approximately 97% of the average amounts owed per worker. While the definition of eligible wages has been extended to include termination and severance pay owed, accrued pension benefits are August

7 unprotected and all-too-often unrecoverable from insolvent employers. The BIA establishes a priority charge for unremitted employee pension contributions and employer s normal cost contributions to the pension plan, without limit in amount. However, neither accrued pension benefits nor employers special payments to extinguish a solvency deficiency are given priority in bankruptcy proceedings. In our view, this provides additional support for the argument that the WEPP maximum payment is too low, and that the cap on recoverable monies should be lifted. The CLC is also concerned with the findings that one-quarter of WEPP recipients are at risk of EI overpayment, and that one-third of WEPP recipients who received EI benefits reported having to repay a portion of the EI benefits they received. The finding that there was no direct evidence that WEPP had a negative impact on EI benefits such as lower benefits or having to pay back part of their EI benefits as a result of their participation in WEPP simply results from the fact that higher incomeearners with longer work histories qualify for higher EI benefits, have higher amounts owing from their employer, and are eligible for higher WEPP payments. 3 We find it ironic that just 11% of the $72.2 million paid out through the WEPP was recovered from bankruptcy estates, while the rate of recovery of overpayments from WEPP recipients was over 60%. We believe that this high rate of repayment of EI benefits is punitive, given that the potential number and monetary size of overpayments represents a very small percentage of overall [EI benefit] overpayment activity. We strongly agree with the evaluation that recovery of EI overpayments should not be the focus of the WEPP. 3 ESDC, Strategic Policy and Research Branch, Evaluation of the Wage Earner Protection Program: Final Report, March 2014, p August

8 Table 1 Source: ESDC, Strategic Policy and Research Branch, Evaluation of the Wage Earner Protection Program: Final Report, March Table 2 Source: ESDC, Strategic Policy and Research Branch, Evaluation of the Wage Earner Protection Program: Final Report, March Program Delivery The CLC is concerned by the evaluation s findings that trustees and receivers reported that Service Canada staff appeared to have a lack of knowledge or training with respect to the WEPP, leading to problems with August

9 response times and efficiency of service. We encourage the government to take these concerns seriously, and provide adequate staffing and training of front-line workers to ensure timely and efficient processing of WEPP applications. We urge the government to work with the bargaining agent for Service Canada employees to monitor staffing levels and training with respect to the program. Nearly half of survey respondents reported that getting access to required information about the WEPP from Service Canada was difficult, and over 70% ranked the quality of the information as poor or moderate in quality. A majority of trustees and receivers surveyed found the Trustee/Receiver Information Form either too lengthy, complicated, cumbersome, or unclear. Workers with unpaid wages face the same constraints. The CLC therefore recommends that Service Canada work with unions and affected workers to improve the accessibility of WEPP program information. The timeliness of processing WEPP applications should be improved. Trustees and receivers are required to provide information to the Minister and to potential WEPP applicants within 45 days of bankruptcy or receivership, a window that was extended from 35 days in We are therefore concerned by the evaluation s report that only a majority of records created by Service Canada would have been created within the 45-day deadline established by the WEPP regulations. Compounding this delay, 1 in 4 applications approved for payment were not paid out within the program s 42-day target, and by the third year of the program, 1 in 7 were waiting more than 2 months for payment. Workers advocates report the perception that the WEPP process is quite prolonged, a view that may be reflected in the relatively high levels of dissatisfaction with the quality of service received under the WEPP compared to other programs. The CLC recommends that the government commit the resources necessary to reducing the duration between bankruptcy/receivership and payment to WEPP applicants. August

10 Currently, affected workers have few realistic options if they disagree with the unpaid wage amounts assessed by the trustee or receiver. A legal challenge to the trustee s assessment can be a difficult, expensive, drawn-out process imposing significant burdens and costs on the individual worker, the union, the bankrupt estate, and the courts. The CLC recommends that the government develop a process to support expedited resolution of these disputes by an independent adjudicator. The evaluation makes mention of the fact that a very low number of appeals occur in the wake of rejected applications, accounting for just 0.2% of all cases. However, no explanation is given for this low percentage. We would be interested in learning whether cost, paperwork, and the 3-month average wait time for review and appeal are dissuading unsuccessful applicants from appealing the rejection of their applications. This is a particular concern, since applicants who are rejected initially but later approved represent a significant percentage (16.1%) of total applicants. Summary of Recommendations 1. ESDC should undertake an interim assessment of the impact of the 2011 changes to supplement the findings of the summative evaluation. 2. The WEPP should be extended to address situations where no formal bankruptcy is declared. 3. WEPP s coverage for monies owed should be extended 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. 4. Workers representatives should be included in the Joint Liaison Committee responsible for the WEPP. 5. The Federal Government should extend WEPP protection to workers employed in Canada by firms that enter bankruptcy proceedings outside of Canada. August

11 6. ESDC should gather information on the ability of foreign nationals working in Canada on temporary work permits to access the WEPP and include this information in the monitoring and assessment of the program. 7. The cap on WEPP payments for wages and benefits owed should be doubled. 8. Service Canada should work with unions and affected workers to improve the accessibility of WEPP program information. 9. ESDC should commit the resources necessary to reducing the duration between bankruptcy/receivership and payment to WEPP applicants. 10. The government should develop an expedited adjudication process to resolve cases where an affected worker disputes a trustee or receiver s assessment of amounts owed. This document is respectfully submitted on behalf of the Canadian Labour Congress: Hassan Yussuff President CR:lgf/cope225 August