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Plant Closing, Bankruptcies, and Workers’ Claims

There is a story in the Star today about another plant closing, this one at Progressive Moulded Products in Vaughan. The workers have set up a picket line and are blocking entry into the plant. Interestingly, these workers are non-union, and since this is an auto-parts company, I assume that the Canadian Auto Workers has tried and failed to organize the workers in the past (this is a guess on my part). However, the CAW is now providing assistance and advice to the workers. The Court has already made an order for the blockade to be removed–remember our earlier discussion involving GM, where we explained that picketers can protest, but in doing so, cannot physically obstruct entry into a premises. The workers appear to be defying the order, which could cause the police to start arresting people.

Besides being angry about losing their jobs, the workers are really pissed about the fact that they will probably lose their notice and severance pay entitlements under the Employment Standards Act. That is because the employer has filed for bankruptcy, and employees’ entitlements rank relatively low down the pecking order of creditors in our bankruptcy system. In most cases, there is little left for the workers once the secured creditors and higher ranking preferred creditors are paid out. A good summary of the rankings system and of the policy issues relating to where workers’ entitlements should fit into it is available in this report.

Unpaid wages have some protection. The Federal government introduced the Wage Earner Protection Program in 2007, a scheme which protects workers’ wages in the case of the bankruptcy of their employer, but only up to 4 weeks’ of maximum insurable earnings under the Employment Insurance Act, which is about $3000, and not including unpaid benefits such as severance or notice pay.

Unions have been lobbying for years for workers’ wages and other entitlements (liek vacation pay, severance pay) to placed at or near the top of the creditor pecking order. For example, see this submission by the USWA-Canada.

Where do you think workers entitlements should rank among creditors?


4 Responses to Plant Closing, Bankruptcies, and Workers’ Claims

  1. Ryan Reply

    July 8, 2008 at 6:38 pm

    They _should_ rank near the top, but obviously this is a case of chicken and egg. That is, the company couldn’t function without its workers, but its workers wouldn’t work without being paid, and in many cases they couldn’t be paid without secured credit… and the credit wouldn’t be granted if it wasn’t secured.

    My hope is that the executives of that company lost out on just as much, if not more, than its workers.

  2. Insider Reply

    July 15, 2008 at 6:17 am

    Ryan, you are right, this is a case of chicken and egg. As for weather executives lost or not, it would probably be interesting to check the Recapitalization Event Bonus Plan, effective April 15 2008, totaling $5,000,000-, as per page 39 of 98 @

  3. Randy Reply

    July 16, 2008 at 6:28 pm

    Absolutely they should rank right at the very top, before secured creditors. Employee liabilities need to be addressed first. These are the people that are losing their jobs, after all. The very least they can expect is severence and outstanding vacation entitlements

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