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THE QUESTION

My employer of five years has just gone bankrupt and I’m now out of a job. We were given no notice. Am I entitled to severance pay from the company? What happens if I receive EI payments while I’m trying to fight for severance, and eventually receive it a few weeks or months later. Would that affect the amount of EI I’m getting?

THE FIRST ANSWER

Dina Mashayekhi, partner, Jewitt McLuckie & Associates LLP, Ottawa

Generally, when a company closes, employees are owed termination and severance pay. The amount of severance entitlement is based on various factors. However, when a bankruptcy is involved, terminated employees can only make a claim for severance pay as “unsecured creditors”. This means that an employee is entitled to their pay at the end of a business windup and sale of assets; but only if there are any funds left after the secured creditors are paid. Unfortunately, this puts former employees at the “end of the line” for monies owing.

As a backup, when a company goes into bankruptcy or receivership, an employee may apply through the federal Wage Earner Protection Program (WEPP), which compensates eligible workers for severance and termination pay, along with unpaid wages or vacation, but only up to a maximum cap.

Receiving severance pay or the WEPP does affect EI since the monies received are treated as “earnings” and you have a legal obligation to report them to EI. EI would then calculate the number of weeks or months that your severance covers, and then your benefits would begin once the months covered by the severance pay are deemed to be over.

You may find yourself in an overpayment situation if you begin receiving EI and later receive severance. Depending on your situation, you may need to repay EI the benefits you received prior to getting your severance, but you should be able to regain access to benefits after your severance period is over.

THE SECOND ANSWER

Amiri Dear, lawyer, Hummingbird Lawyers LLP, Toronto

If your employer has gone bankrupt, you can file a proof of claim against it for unpaid wages.

Additionally, “termination pay” under Ontario’s Employment Standards Act, 2000 (ESA) is calculated based on the number of years of employment, being one-week’s wages for each year worked for an employer up to eight years.

“Severance pay” under the provisions of Ontario’s ESA is distinct from termination pay, it is an additional payment to which an employee is entitled if s/he: (a) has worked for the employer for more than five years; and (b) the employer has a payroll of at least $2.5-million or has severed the employment of 50 or more employees in a six-month period because all or a part of its business has recently closed.

If terminated before the company went bankrupt, you have a claim for termination pay (since no notice was provided) and, if applicable, severance pay.

If fired after the company went bankrupt, you may be eligible for the Wage Earner Protection Program. WEPP is a federally run program which is limited to unpaid wages, vacation pay, termination pay and severance pay that you earned or were entitled to in the six months before the bankruptcy.

In relation to the EI, if your former employer provides you with a settlement after you have already started to receive EI benefits, you would need to repay some or all of the EI benefits received. However, it is important to note that only “earnings” need to be repaid. Therefore, if you receive settlement funds which are classified as “general damages,” these will not need to be repaid.

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