If an employer goes bankrupt things can get complicated.  The first thing that you must recognize is whether or not you had a fixed-term contract.  A fixed-term contract is one where you and your employer both agree at the time of your hiring that you will be paid a certain amount upon termination without cause.  Normal executive contracts will contain a maximum period of notice of 24 months or some other parachute clause.  A bankruptcy of an employer doesn’t normally alter the amount owing to a wrongful dismissal employee.  It does not terminate a severance that was validly entered into by the bankrupt employer.

Normally upon the bankruptcy of an employer, employees do become entitled to common law or statutory payments in lieu of notice from the bankrupt employer.  What is important however is that claims are typically determined under the Bankruptcy and Insolvency Act and because of this, an employee usually is not able to start a wrongful dismissal action against the bankrupt employer outside of the Bankruptcy and Insolvency Act.  Conversely, if the Trustee that became the legal employer of the bankrupt’s employees, than that Trustee may become liable for reasonable notice payments or statutory termination payments, only from the date of its appointment.

The bankruptcy of an employer is not an easy thing to figure out with respect to severance.  The long and the short is that an employer’s bankruptcy causes the employment contract between the employer and the employee to come to an end.  You are still entitled to common law statutory notice and severance payments.  Trustees and Receivers appointed under the Bankruptcy and Insolvency Act are not normally liable for obligations of payment in lieu of notice of the debtor employer for claims arising before their appointment.  What is important to remember is that Trustees and Receivers can become liable to employees if they continue the employee’s employment after the bankruptcy.  Employees must seek their remedy with respect to severance from the termination as a result of the bankruptcy under the terms of the Bankruptcy and Insolvency Act. Normally, an employee cannot commence or maintain an action for wrongful dismissal against a bankrupt employer; however the amount of damages an employee is entitled to is not altered as a result of a bankruptcy.  Claims for common law, under statutory law, payment in lieu of notice or severance payments would be claims that are provable in bankruptcy under the Bankruptcy and Insolvency Act and employees are classified as ordinary unsecured creditors most of the time.

This is not legal advice and it does not pertain to any specific situation. All facts are different and must be approached with a different legal perspective. If you have any questions with respect to bankruptcy and termination of your employees, please do not hesitate to contact Haber & Associates.  We are Hamilton Employment Lawyers that would be pleased to assist you in properly dealing with your matters.