Our Observations

In short, the proposed amendments would generally shift the debate regarding employee eligibility for WEPP post-RVO from which entity is the former employer to whether that entity has permanently ended its business operations and meets the wind-down criteria prescribed by the Regulations. The amendments' practical effect will depend largely on how those criteria are applied in light of the new purpose clause, but they are likely to result in narrower WEPP access in RVOs where the business continues.

Several points warrant attention:

Future of the ResidualCo route. The ResidualCo-based approach accepted in the Valeo and Synaptive cases may no longer be available. Eligibility would instead turn on whether the continuing RVO entity meets the wind-down criteria. Although the Bill does not amend those criteria directly, the new purpose clause would cut against the reasoning in Just for Laughs and similar cases, which rested on the view that WEPPA does not require the employer to be liquidating its business. The Bill expressly excludes businesses that continue under a change of ownership or legal form. That route therefore appears considerably curtailed for RVO entities that continue operating, and it remains exposed to regulatory change and to the Minister’s position that wages are no longer owed by the continuing RVO entity. Parties should anticipate these arguments when planning timelines, budgets and RVO orders.
Deal structure. Where the business will continue, satisfying the wind-down criteria is likely to be difficult. Parties should weigh early on whether an RVO remains the preferred structure compared with a traditional asset sale and, if an RVO proceeds, whether the transaction can be organized so that employees’ actual employer is the entity left behind and wound down, which may now be the main path to WEPP in an RVO. Parties should also consider seeking the WEPP determination in the approval and vesting order itself and how any shortfall in employee claims will be addressed.
Multiple filings and corporate groups. Because the “former employer” definition refers to the “most recent” CCAA proceedings, a second filing may shorten the six-month look-back, and the focus on the entity “for which” work was performed may raise questions where payroll is handled by a separate group entity.
Transition. It remains to be seen how the amendment will apply to proceedings already under way, which is relevant for businesses with RVO transactions in progress.

Bill C-39 May Narrow WEPPA Access in Reverse Vesting Orders