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Order denying staff of bankrupt catering company back pay should not have been made: B.C. tribunal

Friday, January 14, 2022 @ 9:16 AM | By Ian Burns

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Employees of a caterer which filed for bankruptcy during the height of the first wave of the COVID-19 pandemic have won the right to seek unpaid wages, despite initially being denied the ability to receive severance pay under British Columbia’s employment standards legislation.

In Molly B. Stevens (Re) 2022 BCEST 1, B.C. Employment Standards Tribunal member Kenneth Thornicroft cancelled an order by the B.C. Ministry of Labour’s employment standards branch, which prevented approximately 80 employees of catering company Culinary Capers from receiving length of service pay under B.C.’s Employment Standards Act (ESA) due to rules that come into play when an “unforeseeable event or circumstance” makes it impossible for an employer to meet its obligations to workers. The appeal of that decision had been filed by Molly Stevens, a former event planner with the company.

Thornicroft wrote the workers should have been considered creditors under the federal Bankruptcy and Insolvency Act (BIA), noting bankruptcy is a federal power which trumps provincial and local laws.

“This tribunal has consistently held … that unpaid wage claims against a bankrupt firm are claims provable in bankruptcy, and secondly that the BIA stay provisions prevent the director of employment from adjudicating unpaid claims against a bankrupt employer,” he wrote. “In my view, the [Ministry] delegate should not have issued a determination in this case.”

Robert Russo, University of British Columbia

Robert Russo, University of British Columbia

The fundamental principle of granting a stay of proceedings the Bankruptcy and Insolvency Act is to ensure that creditors’ claims against a bankrupt are not addressed in a “haphazard and piecemeal fashion” by decision makers like the civil courts and administrative tribunals, Thornicroft wrote.

“[The BIA] mandates a particular adjudicative process for the bankrupt’s creditors who have claims provable in bankruptcy. This process includes a specified scheme of distribution of the bankrupt’s estate amongst different classes of creditors, initial decisions regarding creditors’ claims by the bankruptcy trustee, and review of those decisions by the bankruptcy court,” he wrote. “Following a voluntary assignment into bankruptcy by an employer, the adjudication of its employees’ unpaid wage claims is a matter for the bankruptcy trustee, not the director of employment standards.”

But legal observers noted the decision did not fully clarify the thorny question of what an “unforeseeable event or circumstance” was under the ESA. Robert Russo, who teaches labour and employment law at the University of British Columbia, said he would argue that COVID-19 is an event that could very well qualify as an unforeseen circumstance in certain situations “but the problem here was the bankruptcy.”

“And when Culinary Capers entered into bankruptcy proceedings it triggered a jurisdictional shift, and when that happened there was a stay on other proceedings which included employment issues,” he said. “But the pandemic is one issue that could potentially frustrate contracts, so companies need to be careful when going forward with bankruptcy proceedings because they can’t avail themselves of the exceptions and protections under employment standards legislation.”

Fred Wynne, Tevlin Gleadle Curtis

Fred Wynne, an employment lawyer with Vancouver’s Tevlin Gleadle Curtis, said that issue does not come up very often in the case law.

“It is one of these concepts which are theoretically out there but hasn’t been applied very much, and this decision does that,” he said. “But if you talk with lawyers, they will probably say the decision was decided on the particular facts of the case, so there has to be a very specific fact scenario going forward.”

Wynne said regular financial problems are not viewed as an unforeseeable circumstance but rather a cost of doing business, noting the fact that Culinary Capers entered bankruptcy at the end of May 2020, barely two months into the pandemic.

“That indicates to me they were not in good shape, so how unforeseeable is that? If you are barely skating by and one thing happens, and your business is finished, I don’t know if that is unforeseeable,” he said. “But would that analysis be different under another set of facts? It probably would — if it was a business which was doing great but completely shut down, and they were totally unable to operate and had significant expenses and failed because of that, I could see that a successful use of the criteria.”

A spokesperson for the provincial government said in an e-mail the Ministry of Labour is reviewing the decision and considering next steps.

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