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More on the Closure of Progressive Moulded Products

We mentioned in an entry last week the closure of Progressive Moulded Products and the fact that the workers may not receive their entitlements under the Employment Standards Act because the employer had filed for bankruptcy.  There is a piece in the Toronto Star this morning discussing the case, and the columnist argues that non-union employers should be “compelled by law to post a bond large enough to cover the severance packages” of employees.  A central argument in the piece is that a union would have helped these people, and the author notes (as I had guessed) that there had been failed union organizing drives at the factory in the past.

What is “severance pay”?  Technically, it refers to a payment required by the Employment Standards Act that is distinct and in addition to “notice” pay.  It would probably have been payable here because at least one of the two conditions for severance pay entitlement is likely met:  

the severance occurred because of a permanent discontinuance of all or part of the employer’s business at an establishment and the employee is one of 50 or more employees who have their employment relationship severed within a six-month period as a result. (ESA, s. 64(1)(a))

The trouble is that the employer is bankrupt and whatever money it has left is now divided up amongst its creditors in an order of preference defined by the government, and employees are “preferred” creditors that fall several rungs down the pecking order.  As a result, employees rarely get their severance pay or notice pay (and often also lose wages, vacation pay, pension contributions too).  That often means they have to tap into government funds like unemployment insurance and welfare, which we all pay for through taxes.  So the cost of the terminations is passed from the employer to taxpayers in the case of bankruptcies leading to mass terminations.

A union can not stop a bankruptcy or change the order in which creditors are paid out, and unionized members often lose their entitlements too.  What unions can do, however, especially if they anticipate the closure, is bargain certain protections for the employees that could be obtained before the bankruptcy kicks in and unions will participate in and lobby for the employees in the bankruptcy proceedings.  Sometimes this leads to improvements for the employees, but not always.

The government can protect workers in this situation.  I noted the Federal Wage Earner Protections Program in the last entry.  In Ontario, the N.D.P. government of Bob Rae had a “Wage Protection Program” in which the government paid out outstanding employee entitlements up to a specified amount and did so quite quickly.  Then the state would try to get some of the money back from the bankrupt.  That system made good sense, but not to the Mike Harris government, who believed as a general matter that it was not the state’s job to protect workers.  The Conservative government terminated the plan in the late 1990s and it has not been reinstated.  

If you were the Minster of Labour for Ontario, would this story encourage you to consider reintroducing a scheme that insures employee entitlements in the case of bankruptcy?  What are the arguments for and against these schemes?


3 Responses to More on the Closure of Progressive Moulded Products

  1. Insider Reply

    July 15, 2008 at 6:43 am

    There are pieces of Progressive bankruptcy story not enhanced sufficiently in media reports.
    1) Workers knew nothing about company being in financial trouble until one week before being dismissed from work.
    2) During that one week when management did let everyone know about filing for bankruptcy protection the story ‘sold’ to its employees was that this is a restructuring process (just trying to reduce the interest rate on company’s loans from 10.8% to 7.5%) that will only make the company stronger.
    3) Company filed only for 6 days bankruptcy protection. This was a surprise to bankruptcy court judge who asked the lawyer ‘Did you mean until 30th of July?’.

    Given all this, Ministry of Labour for Ontario should at least try to make some significant steps toward preventing this kind of (mis)management behaviour from ever happening again.
    16 weeks of pay should be kept in trust for all employers with over 500 employees, so the Law provisions for Mass Termination can be enforced and so that the management could not plan on using that money for Bankruptcy Restructuring Bonuses instead (page 39 below)

  2. Azhar Choudhry Reply

    January 14, 2009 at 2:29 pm

    Mr Doorey

    I am an active salaried employee of GM Canada. Found your blog very interesting. I am strongly in favor of some kind of regulation which forces employers to subscribe to employee termination benefits trust and money held in a trust with interest income to employer.
    Can you tell me your thoughts on what are chances of GM employees (salaried and unionized) to get thier entitlement if GM goes bankrupt ?


  3. admin Reply

    January 14, 2009 at 5:49 pm

    Thank you Azhar. I’m not in a position to assess where salaried employees would stand in the pecking order of creditors were GM Canada to go bankrupt. There’s usually a decent chance that employees recover earned salary, but entitlements like severance pay, for example, are often not recovered by employees because those claims fall below secured creditors, like the banks, who take all the money left. If anyone out there knows more about this topic, or G.M. in particular, please feel free to add a comment.

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