moved that Bill C-203, an act to amend the Bankruptcy and Insolvency Act (unpaid wages to rank first in priority in distribution) be read the second time and referred to a committee.
Mr. Speaker, I would like to say at the outset what a rare and wonderful thing it is for an opposition backbencher to be given the opportunity to bring forward one of his or her own private member's bills for debate in the House. I think most members would agree that one of the most satisfying aspects of our job is when we can actually shape the course of the debate for at least one hour.
Most private members' bills that are brought forward are very thoughtful and very well researched and seek to address a very important subject brought to the member's attention, usually by people in his riding or across the country.
However, I am very disappointed and I begin the debate with a certain element of sadness. My private member's bill seeks to right an historic wrong but was not deemed to be votable by the ad hoc committee that meets regularly to deal with private members' business. This is a criticism we in the House should observe and it is something that should be rectified. When a private member, no matter what party he or she belongs to, opposition or government, brings forward an important issue on behalf of their constituents we should be giving it a bit more consideration and allow the issue to get to committee stage.
In speaking to Bill C-203, a bill to amend the bankruptcy act, I want to dedicate the effort we made to bring this issue to debate to the workers at the Giant mine in Yellowknife. As members may know, the history of the Giant mine has been a tragic one. It has involved a great deal of labour unrest. Many workers have suffered at the hands of an absentee landlord, namely foreign ownership. Nine people died in an explosion at the mine.
As if the employees and the citizens of Yellowknife have not gone through enough inconvenience, Royal Oak-Giant mine has declared bankruptcy. The workers, after years of working in the mine, have been left with back wages owing to them as well as pension contributions and severance pay. The bill seeks to address those problems. In the event that any enterprise goes insolvent or bankrupt, the current law has workers' wages ranked down on the list of priorities as to who will divide up the assets of the enterprise.
Before I go into the details of the bill, let me say that the employers do not really resist this type of amendment to the act because by the time an enterprise declares bankruptcy the few assets that are left over are of little consequence to the owners of the company. They would not oppose this sort of activity. In the interest of basic fairness we would want to believe they would want the interests of their employees addressed and prioritized in terms of dividing the few assets that are left.
I also want to explain some of the rationale behind putting the interests of the employees ahead of the interests of the other creditors or bankers.
A very special relationship exists between an employer and an employee. It is a contract of sorts or a tacit agreement between the employer and the employee. It is not enshrined in a written document, such as a collective agreement, but it is recognized in law. The relationship is very simple. The employee provides a basic service or a service the employer wants and the employer pays a set wage or a remuneration for the service. That exists and is recognized in common law.
Both parties have certain obligations. The obligation of the employee is to do their duties in a diligent fashion and to be loyal to the employer. There are many cases in common law that the duty of loyalty of the employee to the employer goes beyond the workplace. The employee is not even allowed to trash the employer in his private life. Certainly that relationship is recognized.
The employer has an historic obligation to recognize the debt to the employee for services rendered. One of the reasons common law is usually sympathetic to the employee in situations like this is that there is an historic out of balance in the relationship. The employer holds all the cards while the employee holds very few. The employee is really at the mercy of the whims of the employer, which is where it becomes very much a trust relationship. It actually goes further than that. The trust of the employee for the employer to pay him or her is usually far more serious. If the employer reneges on the obligation to pay the wages, the impact on the employee is much more serious than if the employer had chosen not to pay back the debt to one of the banks or lending institutions.
I would argue that when the lending institutions loan money to a company they know full well the risks that might be involved in that enterprise. They even get compensated for that risk by charging interest on the loan. Usually by the time a company goes bankrupt the loan has been repaid, at least in part. The bank or lending institution will be compensated for at least some of the risk it puts into the venture, either through interest payments or payments to the principle.
The impact on the employee, however, is far more serious. We are talking about a person's day to day income. It may mean the loss of their home. It may mean a huge impact on their family or huge impact on an employee's spending power which influences small businesses in given areas.
In terms of the relative weight of a debt to an employee versus a debt not paid to one of the banks or secured creditors, the impact, I would argue, is far greater, which is why common law has been a little more sympathetic to the employee in that case. However, that sympathy has not been translated into legislation.
Since 1975 my research shows that this issue has been before the House of Commons to be remedied to varying degrees of success four times. There was always a basic recognition that the employees, because of the imbalance in the power relationship, needed the authority of legislation to look after their interests more than the banks needed the legislative authority of parliament to look after theirs.
What should be our primary concern in the House? Whose interests should we be here advocating? What should be primacy in terms of the relative priority of who is more at risk and who deserves our support more? I would argue that it is the people of Canada, the working people of Canada, who sent us here to advocate on their behalf. They are the ones who need representation. I would argue further that chartered banks or lending institutions are far more able to absorb the impact of a debt gone bad than working people. They do not frankly need our help. The people who voted for us need our help.
Bill C-203 results from extensive research on various mechanisms and the instruments we could put in place that would give some relief to employees in a situation like this one. We looked at various models from around the world because Canada is not alone in realizing that employees need more protection through legislation. We looked at a few options.
For instance, Australia put in place a wage guarantee scheme which is a little different from what I would put in place with my bill. It contemplates putting together a pool of funding through the government. Through either general revenue or some payroll tax the government would actually be responsible for the back wages owed to employees.
I am critical of this model, even though it is working quite well in Australia. It is better than nothing, in that at least there is some avenue of recourse and some satisfaction that employees can achieve. However it also raises problems.
During the debate in Australia to put in place its wage scheme the spectre of a moral hazard was raised. If employers knew that there was a fallback position for employees they might be more likely to leave the employees dangling or to fail to clean up whatever mess has been made in terms of back wages prior to the bankruptcy situation. I caution it is probably not the right route to go.
I will speak later to how various boards and task forces in Canada arrived at recommending a wage scheme rather than at what I am recommending in my bill.
Another alternative which comes up now and then is giving a special status to employees, the preferred creditor status. This as well has its shortcomings and shortfalls. I advise it is not the best way to go.
We are recommending giving a super priority to the back wages owed to employees. In the event of a bankruptcy employees would be first in line for any back wages, back contributions to pensions and severance pay. In the event of self-employed people, travelling salesmen for instance, they would be in line for any costs they might have incurred. In other words, any wages or compensation owed to employees should be cleared up first out of the assets remaining in bankrupt companies and the others can get in line to divide whatever is left over.
It is an issue of basic fairness. It is an issue that recognizes the historic imbalance between employers and employees and the imbalance between the ability of employees to recoup any back wages versus the authority of the banks or any other lenders or creditors.
Looking at the history of what the House of Commons has tried to do to deal with this issue over the years, I note the Canada Business Corporations Act looks at the issue of unpaid wages and the liability on corporate directors. At least it was contemplated in that act.
Liability for wages can be assigned to the directors in certain situations. Directors can be sued personally. If an individual employee wants to go after the board of directors, the directors can be liable. There is a section in the act which covers the liability of directors and makes it very rare for employees to be able to sue directors.
Subsection 123(4) exonerates directors from any liability if they were acting in good faith on the information given to them through the financial information of the company. In other words the onus would be on employees to prove that directors were acting in bad faith and were not dealing properly with the information given to them. It is a huge burden to put on employees. If average employees went after a few thousand dollars worth of back wages they would never be successful in this challenge.
We could trace the efforts to amend the bankruptcy law back to Bill C-60 in 1975 when an effort was made to introduce the idea of a super priority status for employees. The Landry committee in 1981 gave it an effort. The Colter advisory committee in 1985 made a series of recommendations to change the Bankruptcy Act for just this reason, to give employees a super status.
The committee recommended that a fund should be established, which is not exactly what I recommend, and believed that it should be paid for by contributions from employers and employees. My argument would be why should employees have to pay some sort of a premium to buy insurance to guarantee that their wages would be paid. That is patently unfair and goes in the wrong direction.
I believe this is an act whose time has come. I am very disappointed that it was not given the votability it deserves. I point to the incidence of bankruptcy in Canada. If I had more time I would go through the details. Last year alone there were 10,500 bankruptcies, leaving a total liability of $2.5 billion. In 1999 there were 10,800 bankruptcies, leaving a liability of $2 billion. The same was true in 1998.
Every year approximately 10,000 companies go out of business and every year employees are left dangling on the hook for back wages, back pension contributions, severance pay and other compensation to which they were entitled. I appeal to members of the House of Commons today to recognize that the wages of workers should stand first in line in terms of priority whenever a company goes bankrupt.