Wage priority in receivership arises under BIA s. 81.4. Certain unpaid wage claims for services rendered during the six months before the receivership are secured, up to $2,000 less qualifying payments, against current assets in the receiver’s possession or control, subject to statutory ranking rules and exclusions.
What Wage Claims Are Secured Under BIA s. 81.4?
Section 81.4 of the Bankruptcy and Insolvency Act protects certain unpaid employee claims when an employer becomes subject to a receivership.
The security applies to wages, salaries, commissions, and compensation owed to a clerk, servant, travelling salesperson, labourer, or worker for services rendered during the six months before the first day on which there was a receiver in relation to the employer.
The security is limited to $2,000 per qualifying claimant, less any amount already paid for those services by a receiver or trustee. It attaches to the employer’s current assets that are in the receiver’s possession or under the receiver’s control.
For purposes of s. 81.4, “compensation” includes vacation pay but does not include termination pay or severance pay.
A separate protection exists for qualifying disbursements of a travelling salesperson. Under s. 81.4(3), those claims may be secured up to $1,000, again subject to the statutory conditions.
Where Does the Wage Security Rank?
BIA s. 81.4(4) gives the wage security significant priority.
It ranks above every other claim, right, charge, or security against the relevant current assets, regardless of when that competing interest arose, except for rights under BIA ss. 81.1 and 81.2.
The provision can therefore directly affect recoveries that might otherwise have gone to secured creditors from current assets.
Section 81.4 also contains important limitations:
- officers and directors are not entitled to the wage security;
- non-arm’s-length claimants are subject to an additional statutory test;
- the employee must prove the claim by delivering the prescribed proof of claim to the receiver; and
- the security is limited to the statutory amount and the current assets covered by the provision.
If the receiver takes possession of or disposes of current assets covered by the security, s. 81.4(5) can make the receiver liable for the protected claim to the extent of the amount realized from those assets.
Is the BIA Wage Priority the Same as WEPP?
No. The BIA wage security and the federal Wage Earner Protection Program are related but distinct protections.
Section 81.4 creates a priority security against specified receivership assets. WEPP is a separate federal program that may provide eligible employees with payment where an employer becomes subject to a qualifying insolvency proceeding.
The scope is not identical. For example, termination pay and severance pay are excluded from “compensation” for purposes of the s. 81.4 security but may qualify under WEPP where the program’s eligibility requirements are met.
The distinction between receivership and bankruptcy can also affect how employee and creditor priorities are analyzed. See Is Receivership the Same as Bankruptcy in Ontario?.
How ME Law Approaches Wage-Priority Disputes in Receivership
ME Law approaches wage-priority issues by identifying the assets subject to the claimed security, the period in which the wages were earned, the claimant’s status, amounts already paid, and the competing creditor interests. We also review the receiver’s records, proof of claim, security documents, and the statutory priority framework before assessing the effect on distributions.
Where employee claims interact with secured-creditor recoveries, asset realization, or other insolvency priorities, our Receivership, Insolvency and Bankruptcy Litigation practice addresses those disputes within the broader receivership proceeding.
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