We are now beginning to see the emergence of small rays of sunshine with respect to the reopening of businesses across the province. Ontario has permitted the re-opening, as expected, of certain business operations on a limited scale as of May 4th.

There have now emerged signs of a rekindling of business in Ontario. The reopening of workplaces remains conditional upon each business meeting “strict public health measures and [the ability to] operate safely during the COVID-19 outbreak”. The businesses targeted for this right are, generally speaking, seasonal in nature or related to the construction industry.

Specifically they are as follows:

1. Garden centres and nurseries with curbside pickup and delivery only.
2. Lawn care and landscaping.
3. Additional essential construction projects that include shipping and logistics; broadband, telecommunications, and digital infrastructure; any other project that supports the improved delivery of goods and services; municipal projects; colleges and universities; child care centres; schools; and site preparation, excavation, and servicing for institutional, commercial, industrial and residential development. 
4. Automatic and self-serve car washes.
5. Auto dealerships, open by appointment only.

It was also announced by Premier Ford on Friday, May 1 that he was optimistic that other businesses would join the mix in the near future.

Bad Times Ahead

In last week’s post, we reviewed the liability of directors for unpaid wages and similar claims if a company is forced to shutter. A further important aspect of business insolvency is the position of employees’ claims as creditors of the company. Should a company enter bankruptcy, a Trustee will be appointed who becomes the legal representative of the employer. Its duty is to gather all assets, sell them and distribute funds from this sale to creditors in the proper order.

There will be a line up of priority for the claims of creditors. Employees have the first entitlement for unpaid wages, up to $5,000 for each employee. Directors, as noted previously, have personal liability for unpaid wages for as much as 6 months for every employee, and for this reason, generally, wages are paid up to date.

The next party on the list is any secured creditor, typically a bank or a similarly sophisticated investor. The Trustee takes a neutral position and will ensure that the security is legitimate and may choose to challenge the position of a secured party if necessary. If, for example, a small business had given security to a related family member shortly before the insolvency, this will not pass the test for a valid security as there is a “greening period” required for security given to a related party. This, however, is unusual.

At the bottom of the list are the rank and file unsecured trade creditors and, yes, claims of the employees for severance, statutory or common law. Employees are required to submit a “proof of claim” which the Trustee will then assess. This applies to both statutory and common law claims. There is a very short time period in which to appeal this assessment.

These unsecured claims are paid on a pro rata (or proportional) basis, only if there are funds left over, once the secured creditors are paid in full. This does happen occasionally, but not often. If the employee claim is, for example, $100,000 and there is $1 million in total unsecured claims in total, then the claim would be paid at one-tenth of the sum available for distribution.

The critical takeaway from the above is that if there is a chance of insolvency, it is often in the employee’s best interest to take any cash offered, as opposed to suing and then discovering that the cupboard is bare. This requires solid pragmatic advice, however, so it is key to discuss your options with an experienced employment lawyer before committing.

Sale of Business By Trustee

The company assets may be sold as an operating business by the Trustee. A buyer may hire the existing workforce or part of it, however, there are key considerations to keep in mind. Although unlikely, if the buyer offers continued employment without an employment contract, an employee’s work history and seniority will count for common law and statutory purposes should they be terminated down the road. A new buyer can contract out of employment history for common law purposes but not statutory.

Get Advice and Know Your Rights

These are difficult moments for employers and employees alike. Stay up to date. We remain by your side to provide real-time practical insight to the law and your position, whether you are an employer or employee. For advice on employment law issues in light of the pandemic and all employment and labour law matters, contact the offices of Toronto employment lawyers Grosman Gale Fletcher Hopkins LLP. We regularly advise workplace parties on a wide range of legal workplace issues. Contact us online or by phone at 416-364-9599 to schedule a consultation.