Bankruptcy should protect pensions, MP says

Private member’s bill would put employees at the top of the pile when it comes to getting pay, pensions

Pat Martin can’t talk about bankruptcy without getting a little hot under the collar. The NDP MP for Winnipeg Centre said his blood pressure rises when he discusses what happens to employees’ pensions and severance pay when a company goes belly-up.

And he’s trying to do something about it. Last November Martin introduced Bill C-281, a private member’s bill calling for changes to bankruptcy laws that would give employees first crack at a company’s assets.

Normally, private member’s bills don’t get very far in Ottawa. But because there is a minority federal government this time around, new rules were brought in that give them more legs than in previous majority governments. Each MP is allowed to introduce one private member’s bill that is automatically voted on and debated in the House of Commons.

As bankruptcy law stands now, a company’s taxes, lenders and suppliers are all paid before employees are paid wages, benefits, vacation pay, severance and termination pay. Pensions are also put at risk.

“If the company’s pension fund is not fully funded then retired workers could face cutbacks to their pensions,” said Martin. “These are people who may have worked a lifetime for a company and paid their taxes and made their pension contributions. They deserve better.”

Martin’s bill had an hour of debate before the Christmas break and he expects the second hour of debate sometime in February when the House resumes sitting. But there are powerful forces pushing and pulling on both sides of the bill.

Unions love it, and have pushed hard for it. The Steelworkers launched a campaign called “Workers First” to get the law changed. Banks, however, are vehemently opposed to the bill, said Martin, and some suppliers are also wary of a change in the law that could leave them with nothing.

But Martin said banks and other creditors are a bit off the mark in the criticism of the legislation, because there is often quite a bit left over once the employees receive their share.

“The research that we’ve done is that if employees rank first, it doesn’t mean that (others) won’t get anything,” said Martin. “There’s just less to divvy up amongst the other creditors, where in the inverse there is nothing left (for employees) every time.”

Plus creditors often call in loans when the writing is on the wall, and have already mitigated some of their risk. Employees have no such leverage.

Employers haven’t expressed a lot of opposition, said Martin. Many would just as soon see any assets left over go to employees who helped build the company rather than to banks. But there has been some criticism from employers fearing lenders will become very tight-fisted if they aren’t at the top of the food chain in case of a bankruptcy, he said. That could make venture capital hard to come by for some organizations.

10,000 bankruptcies a year

There is no shortage of bankruptcies in Canada, said Martin, with about 10,000 every year — or about 200 every week. Most are quite small, and go unnoticed. But there have been a number of high-profile ones where pensions were put at risk.

A mill in Nackawick, N.B., closed suddenly on Sept. 14, 2004, and declared bankruptcy the next day. Workers under the age of 55 won’t collect anything from the pension plan, regardless of the number of years they’ve been on the job. The mill has about $100 million in assets, and it would take $35 million to take care of employees.

A chemical plant in Amherstburg, Ont., declared bankruptcy in January this year, throwing 106 people out of work and putting a question mark besides the pensions for hundreds of others.

Could the bill pass?

Martin is a bit guarded in his confidence, but says the bill has a good shot of making it into law. Fellow members of the NDP are behind the bill, and the Bloc Quebecois seems to be supporting it. He estimates about two-thirds of Liberals are behind the bill, which would give him a total of 170 votes. It takes 155 for it to pass.

It will be interesting to watch what happens in Ottawa when debate on this bill opens again and comes to a vote. If it passes the vote expected this February, it will be sent to committee for further study.

In addition to his role as editor for the supplements to Canadian HR Reporter, Todd Humber is the editor of Canadian Employment Law Today, a bi-weekly newsletter that reports on employment law from a business perspective. For information contact (800) 387-5164 or visit

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