Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 6 - Evidence - Meeting of January 31, 2008
OTTAWA, Thursday, January 31, 2008
The Standing Senate Committee on Banking, Trade and Commerce met this day at 10:45 a.m. to examine and report upon the present state of the domestic and international financial system. Subject: bankruptcy and insolvency
Senator W. David Angus (Chair) in the chair.
[Français]
The Chair: Good morning. My name is Senator David Angus and I am from Montreal, Quebec. With me is the esteemed deputy chair, Senator Goldstein, also from Quebec. To our right is Senator Meighen, who hails from Quebec but represents the great province of Ontario. To his right is Senator Eyton who is also an Ontario-based senator. To my left is Senator Harb, a former distinguished member of the House of Commons who represented a riding in Ottawa. He is an active member of our committee. To his left, from New Brunswick, is one of the newest members of our committee, Senator Ringuette.
We are on television, on CPAC, and also on webcast. I want to make it clear to all our listeners that this set of hearings that we are about to commence is rather extraordinary. I will explain why in a moment.
All of you are welcome. We are dealing with Canada's framework legislation on bankruptcy and insolvency. The legislation has experienced substantial reform in the last five to 10 years and has travelled a rocky road through the Parliamentary system. The outcome is a convoluted set of legislative documents.
Therefore, we feel that the role of this committee is to help bring clarity to this legislation, to serve the thousands of stakeholders in Canada. These stakeholders include not only those who administer, interpret and adjudicate on the legislation but the many citizens, both individual and corporate, who need, from time to time, the protection of our bankruptcy acts for individuals and for restructuring corporations that may need to refinance or restructure.
In the early years of this century, from 2000 to 2003, an in-depth study was carried out throughout the nation by government and private individuals including this committee, which conducted a substantial study and reported back to Parliament in 2003 with some 63 recommendations. At that time, the deputy chair of this committee was not yet a member of the Senate, but he was a distinguished practitioner of bankruptcy and insolvency law. He was retained by this committee for a long period of time and helped us in our deliberations by providing practical input and helping us to formulate recommendations that would enhance the new framework legislation the government had in mind.
Ultimately, he was appointed to the Senate and it is fortuitous that as we commence these special studies, which have been heralded for too long now, Senator Goldstein is here to assist in these deliberations. Of course, he has made it clear that he is here in his capacity and only in his capacity as Senator Goldstein, but it is comforting to know he has this underlying expertise in the subject. When we stray, Senator Goldstein brings us back on track.
During 2004, a piece of legislation came through the parliamentary process that was designed to be the new framework bill. It was called Bill C-55. By the time it reached the House of Commons Standing Committee on Industry, Science and Technology, the committee that would normally deal with the bill, exigencies precluded that committee from doing an in-depth study, but their sense was that this committee would ultimately be able to deal with the bill.
However, by the time it came to us, the then chairman, Senator Grafstein, and I as deputy chairman, felt we were being asked to deal with the bill in one day. We were told by the officials from the three departments involved — the Department of Labour, the Department of Industry and the Department of Human Resources — that there were, at least to their knowledge, some 63 problems with the bill that they wanted to see rectified. Yet, other things in the bill were clearly good and were needed right away. The compromise we worked out with the Minister of Industry of the day, the government and the opposition was that we would pass the bill without doing our customary in-depth study on the condition that it would be passed but not proclaimed into law until such time as we were able to conduct a study at this committee.
It became Chapter 47 in the Statutes of Canada 2005, unproclaimed. It remains in that state. In this new Parliament, the Thirty-ninth Parliament — and we are now in the Second Session of that Parliament — a bill was introduced that is basically Bill C-12. It contained many amendments to the original Bill C-55, and brought the legislation into a more workable state than it was as Chapter 47.
The bill came before us on about December 12. We had knowledge that some 30 witnesses wanted to make representations. There were rumblings of a possible election and various other things. We decided to conduct our study, come hell or high water. We will not finish it before Christmas or in January. In our best judgment as a committee, we decided that we would report it back to the Senate unamended. We attached a set of observations. That point is important.
I refer to the Journals of the Senate and the Hansard of December 13. In case these documents have been lost in the shuffle, and for the benefit of Professor Jacob Ziegel of Toronto, who has written about our hasty — in his view, too- hasty — passage of the bill, I will read several lines of these observations to set the context. We attached to our report of the bill unamended the following:
As was the case with Bill C-55, an Act to establish the Wage Earner Protection Program Act, to amend the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act and to make consequential amendments to other Acts, we are reporting Bill C-12 without having conducted our usual comprehensive study and review. We are doing so in support of stakeholders who have indicated that certain aspects of the bill should be implemented without delay in order to assist those workers —
— this is a specific reference to the wage earners' protection element —
— who have unpaid wages or earned vacation pay.
As the Committee noted in our Seventeenth Report in the Thirty-eighth Parliament, we unanimously support and approve of wage earner protection for the workers of bankrupt employers. In our November 2005 report, we indicated that enhanced protection for these vulnerable creditors was long-overdue. More than two years later, we continue to believe that the need is urgent.
The Minister of Labour appeared before us. We had meetings with the Industry Minister and the Human Resources Minister and officials from those departments, telling us there are already other problems that they can see because this legislation is an organic kind of framework legislation. As things happen in the real world every day, elements of the bill sometimes become less than perfect. There is an ongoing review. This was testified before this committee.
In that spirit, we wrote:
That having been said, we are mindful that some stakeholders have reservations about several provisions of Bill C-12 as well as about certain other aspects of Canada's bankruptcy and insolvency regime. In his appearance before the Committee on 29 November 2007, the Minister of Labour indicated the possibility that, perhaps as early as next year —
— now 2008 —
— further amendments to the regime could occur. Within this context, we intend to continue our work on this important framework legislation, and will be inviting submissions from stakeholders early in 2008.
That we have done.
It is our hope that recommendations made as a consequence of this study will receive serious consideration by the government.
We have received assurances from the government, from bureaucrats and from the political side that the recommendations are being considered.
With that spirit and with that understanding, and even though the bill is no longer before us — it has received Royal Assent — we hope that it and Bill C-55 and Chapter 47 will now be proclaimed at the earliest possible date. We have no problem with that. It is in that spirit that we now commence our study.
[Traduction]
The Wage Earner Protection Program Act and chapter 47 of the Statutes of Canada, 2005, Bill C-12, was a reprint of Bill C-62, which was put forward during the first session of the 39th Parliament, and passed at third reading by the House of Commons on June 14, 2007.
[Français]
That is where we are, ladies and gentlemen. I hope it is in context. I hope that not only the stakeholders are listening and understand this context, but the witnesses as well, whom I will introduce in a moment, and also the officials and government people who have administration of this act. The committee is anxious to hold these hearings and to conduct this in-depth study. At the same time, we are anxious the laws, Bill C-55 from the Thirty-eighth Parliament and Bill C-12 from this Parliament, are proclaimed and come into force immediately.
My colleagues share this view. There seems to be some confusion. That is why I used the word ``extraordinary'' a moment ago. It is important that this information be on the record.
Today we are delighted to have three witnesses at the table. We have from the International Association of Machinists and Aerospace Workers, Louis Erlichman, who is the Canadian Research Director. From the United Steelworkers, we have Shaheen Hirani, Counsel, and Dennis Deveau, Legislative Director.
Before you begin, one other senator has arrived, my friend and our colleague, Senator Massicotte, another senator from Quebec with a strong background in Manitoba. I will introduce another senator who will arrive shortly. I want to say a special word about Senator Fitzpatrick when he arrives.
Louis Erlichman, Canadian Research Director, International Association of Machinists and Aerospace Workers: I am speaking for Canadian vice-president Dave Ritchie who cannot be here. Our union represents over 50,000 workers across Canada in a wide range of industries in the federal and virtually every provincial jurisdiction.
We were asked to appear before this committee to present our views on Bill C-12. We are happy this Senate committee moved quickly to pass Bill C-12 without holding extensive hearings, and that this important legislation has now received Royal Assent.
We are still not clear on the status of the changes arising out of Bill C-12 and the predecessor legislation, and what is still required to bring the new worker protection provisions fully into force. We hope, with your encouragement, whatever is still required on the regulatory and administrative front in terms of proclamation and other things will be done as soon as possible. We appreciate the opportunity to present our views on the next steps in the process of making the bankruptcy and insolvency process fairer for workers.
Over the last several years, unfortunately, we have had considerable experience with shutdowns and layoffs, primarily, but not only, in the manufacturing sector. As an international union, we have been forced to deal with bankruptcy and creditor protection situations both in Canada and the U.S. Unfortunately, there is no indication that the rate of plant shutdowns is slowing. With the continuing high dollar, high energy prices and the likelihood of a U.S. recession, things may well become worse.
Major layoffs and shutdowns impose hardships on persons involved and on their families and communities, particularly small communities where a large employer is involved. We found in recent years that, when new employment is found, it generally has a lower wage and benefit level.
We are profoundly disappointed in the lack of serious response to the manufacturing jobs crisis by governments at all levels. We urgently need a strategy to deal with the catastrophic decline in the manufacturing sector. One of the most important things that can help workers and families affected by shutdowns and bankruptcy is a growing number of good jobs.
Shutdowns, bankruptcies and insolvencies are a regular fact of life for unions. Employers often use the implicit or explicit threat of a shutdown for bargaining leverage, even if their financial situation is far from unhealthy. When an employer becomes insolvent, the process is driven primarily by creditors and company management and places workers in an especially vulnerable position. While workers have the most to lose in a bankruptcy, they are generally denied financial information. Often they are lied to. Workers generally have less flexibility and fewer options than other creditors and investors, yet they have historically been given low priority in the sharing of available assets.
The process is particularly difficult for non-unionized workers who commonly lack the resources to obtain what is legally owed to them. Bill C-12 is an important step towards making the process fairer to workers and their families.
The Wage Earner Protection Program providing higher priority to unpaid wages and pension contributions and the creation of a protection fund is a crucial advance. It is important now to go further. We need to extend the coverage of the Wage Earner Protection Program. It should cover even short service workers, who are amongst the most vulnerable.
The current coverage limit of approximately $3,000 is less than one month's pay at the current average industrial wage. Many employees and companies in financial difficulty are owed considerably more than this, often because they have exercised extraordinary patience in an effort to keep their workplace open. The limit can be raised substantially, perhaps to three months pay at the average industrial wage, which is now approximately $10,000. It then should be indexed to average earnings to retain its real value.
Protection needs to extend to severance and termination pay owed. These payments reflect a commitment, often of many decades, made by workers to their employer, and they deserve the same priority as wages. To omit severance from the program is to penalize most severely the longest serving employees.
It is now recognized that the collective agreement is a key source of protection for vulnerable workers during the bankruptcy process. That collective agreements cannot be amended unilaterally during the Companies Creditors Arrangement Act process provides workers with a small degree of extra leverage in the process. However, the workers still face great pressure to cede or trade off their earned rights.
We know groups are asking for the receivers or the courts to be given authority to abrogate or rewrite collective agreements as part of the reorganization process. We urge you not to move in this direction. Workers have the most to lose when a business closes. With the proliferation of private equity asset strippers and flippers, workers and their unions are often the only parties interested in the long-term viability of the enterprise. Time and again, they have shown themselves willing to do what is necessary to keep their workplaces and communities afloat. We have done this many times. Unfortunately, we are usually not given the opportunity to keep a facility open. We are told they are shutting down and that is it.
The last thing we need is working conditions set by receivers and judges with no understanding and experience in the workplace. We do not need to give employers extra leverage to use the insolvency process to undermine workers and their collective agreements. We have seen how the U.S. system, which allows the courts to abrogate collective agreements in chapter 11 insolvencies, has put workers at a further disadvantage. In Canada, because we have some recourse through our collective agreements, we have been able to sustain our pension plans and negotiate other benefits denied to U.S. workers in the same insolvency situation.
Other things can be done to make the bankruptcy process fairer for vulnerable workers. Priority needs to be extended to the funding of pension wind-up deficits. The loss of earned pension entitlements affects most severely retirees and the most senior workers, who are least able to compensate for the loss of their pension income.
On a related vein, the federal Pension Benefits Standards Act, PBSA, currently does not require a solvent employer to fund a shortfall in a terminated pension plan, which is a requirement in Ontario, Quebec and most other Canadian jurisdictions. This requirement was promised as part of the package of PBSA amendments under Bill S-10, ten years ago now, and was part of the draft regulations released in 2002 but was never enacted. This change requires only an amendment to the regulations through an order-in-council. Neither Liberal nor Conservative governments have acted to change what is much overdue. We urge you to support the change.
A number of other ways in which the security of earned pension benefits can be enhanced, in particular a federal pension benefit guaranteed fund, would protect pensions where an employer is insolvent.
We have gone some distance in improving the protection for workers affected by insolvency. We hope this committee will carry forward the process of improving fairness. Thanks again for the opportunity to present our views. We look forward to questions.
The Chair: Thank you, Mr. Erlichman.
I have noticed this distinguished gentlemen beside Senator Meighen has arrived. As I said earlier, I wanted to introduce another senator. Senator Fitzpatrick is from the Okanagan in British Columbia, and unfortunately, he will reach an age on Monday next that will preclude him from sitting in the Senate any longer.
Today will be his last day as a member of our committee. Senator Fitzpatrick, I simply wanted to highlight that. Second, thank you for the wonderful contribution you have made to the deliberations of the Standing Senate Committee on Banking, Trade and Commerce. You are currently, and have been in this Parliament, a member of our steering committee. Your wisdom, balanced judgment and calm yet understanding approach to thorny issues has stood us all in good stead.
We have travelled as a committee to places not only in Canada but in the U.S, particularly to Washington and New York. Your grasp of how the financial markets work in various systems again has enhanced the work of this committee. We owe you a great debt of gratitude. We will miss you, Senator Fitzpatrick. It is interesting you are here on this last day when the great representatives of our labour movement in Canada are also here. I am sure you will have good questions for them.
Senator Fitzpatrick: Thank you for those kind words. I have enjoyed serving on the Standing Senate Committee of Banking, Trade and Commerce, only for a short time under the chairmanship of Senator Angus. However, I leave with the confidence that this committee will continue to do great things under his leadership, with the assistance of Senator Goldstein. I can assure the witnesses it is a great committee. I may not have many questions to ask today because I have not done my homework, I confess. It is the first time I have come to the committee without doing my homework.
However, the Standing Senate Committee on Banking, Trade and Commerce is a serious and constructive committee. I feel confident under the chairmanship of Senator Angus. All considerations are carefully thought through.
Thank you very much. I will miss the committee, I will miss all of you and I will miss being able to participate.
Dennis Deveau, Legislative Director, United Steelworkers: I am based here in Ottawa, so I deal with you on a daily basis.
I thank the committee for working diligently on Bill C-12 and sending it on quickly. In discussions with various senators, it is clear that the important part of that particular bill to pass quickly was the wage protection section. It is something that the steel workers and I have been working on for a number of years.
Also, we are here today in conjunction with what the Minister of Labour said at the hearing about the committee carrying through with discussing other issues. I will ask Ms. Hirani to present them.
The Chair: Thank you for your kind words. Those provisions regarding wage earner protection are the most important to you. That is not to say there were not other reasons for fast passage. Many other parts of the act were urgently needed, as well. I know you appreciate that.
Shaheen Hirani, Counsel, Steelworkers Legal Department, United Steelworkers: We will talk further about that in my presentation.
As you indicated, The United Steelworkers is an international union. We have over 280,000 members in Canada alone. Our members work in a number of sectors in the Canadian economy and in all parts of the country. Over the past decade, our members have been faced with a growing number of their employers filing for bankruptcy under the Bankruptcy and Insolvency Act or bankruptcy protection under the Companies' Creditors Arrangement Act.
For ease of reference, we will refer to those types of proceedings collectively as insolvencies. As Mr. Erlichman has indicated, insolvencies have a devastating impact on workers and their communities. Unfortunately, with the continuing rise of the Canadian dollar relative to its U.S. counterpart and the continuation of economic difficulties in the United States for the foreseeable future, we can anticipate more insolvencies and more devastation for our members and our communities.
The United Steelworkers has learned through its bitter experiences representing thousands of members who have lost their secure retirements and their statutory and collective agreement, entitlements and living standards in insolvencies. We have learned that Canadian insolvency laws did little to protect our interests, and lives have been shattered in the process.
The difficulty that workers face is that they are uniquely situated and unfairly prejudiced when their employer goes bankrupt or seeks bankruptcy protection. Workers are not typical creditors and the law must recognize that. The United Steelworkers embarked on its ``Workers First'' campaign in 2004 to try to bring about legislative change to address the legal hurdles faced by workers in bankruptcy or insolvency.
Under Canada's bankruptcy legislation, secured creditors like banks and other institutional lenders, are able to protect themselves by taking an interest in the assets of the company that borrows from them. As a result, they are secured creditors. Historically, they always stood first in line to collect their debts. Workers and their entitlements to wages, severance and termination pay, vacation pay and underfunded pension plans were unsecured creditors entitled to receive amounts owing to them only after secured creditors were satisfied. In most bankruptcies, of course, there was rarely any money left over after the debtor's estate was told to satisfy the claims of secured creditors. Workers were left with nothing.
Workers invest years of labour with their employer in an expectation they will enjoy a secure retirement, and that when that employment ends, their employer will pay them what they are owed according to the law. This expectation is reasonable, and one that legislators need to ensure is satisfied.
The idea behind our lobby efforts was that the laws must be changed to protect workers better. We argued that workers are not like banks or other institutional lenders. Workers do not invest dollars in a workplace; they invest their lives. A worker enters into this ``investment'' on completely different terms than the bank. A bank is able to evaluate and assess the risk of the deal and negotiate terms of its investment accordingly. A worker looking for work does not have the opportunity to assess the future risk of their employer going bankrupt when the worker walks in the door looking for a job. For those reasons it is not fair for workers to be treated like any other creditor in a bankruptcy or insolvency.
As a result of our lobby efforts and the support and cooperation of our allies in the House of Commons, the NDP, Bill C-55 was passed on November 5, 2005. Bill C-62 was the successor legislation to Bill C-55 but that bill died on the Order Paper. Its successor, Bill S-47, went through considerable debate, and its further successor, which is before you today as Bill C-12, was given Royal Assent on December 14, 2007.
However, as Senator Angus explained, until the underlying legislation is given Royal Assent and put into effect, all the changes we have lobbied hard for will not take effect. We welcome the opportunity to provide you with comments and submissions on any future amendment to insolvency law.
We come before you to express our deep support for the spirit of Bill C-12 which, taken together with the amendments to the Bankruptcy and Insolvency Act, BIA, and CCAA, moves a considerable distance to resolve our concerns about the position and interests of workers in insolvency cases. We are encouraged by the fact that the law clearly recognizes the special status of workers in the amendments to the BIA and the CCAA. These changes are long overdue and we support their passage without any further delay.
We note that Bill C-12 preserves the amendments to the CCAA and the BIA, which confirm that any collective agreement between the union and the company will remain in force after the commencement of insolvency proceedings. It is appropriate that the collective agreement remain in effect so that freely negotiated obligations to employees continue to be enforceable through this mechanism. We support this position because it clarifies and confirms the state of the law as we have understood it for many years.
However, we also know from our experience before the courts that the status of collective agreements under the BIA and CCAA is constantly threatened by the creditor community. We welcome the amendment that provides for certainty in these situations.
We note that provisions of Bill C-12 permit employers to seek amendments to the collective agreement. A company that has sought the protection of the BIA other or the CCAA may apply for a court order authorizing the company to provide notice to bargain amendments to the collective agreement. Accordingly, companies that are of the view that collective agreement amendments are required for a successful restructuring are able to seek to make changes. However, it is important to note that the status of the collective agreement is protected and recognized in the absence of agreed-upon changes.
We have technical observations to make about some of the language in Bill C-12. We noted that clause 131 of Bill C- 55 which contains proposed section 33(8) of the CCAA, confirms that the collective agreement will remain in force as follows:
For greater certainty, any collective agreement that the company and the bargaining agent have not agreed to revise remains in force, and the court shall not alter its terms.
In the amendments to the BIA set forth in the proposed section 44 of the Bill C-55, the phrase ``and the court shall not alter its terms'' appears to be inadvertently omitted.
The Chair: On that topic, have you had dialogue with the department to determine whether it was inadvertent or intentional? Was it only a printing error?
Mr. Deveau: The department indicated to me that it was intended to deal with both.
The Chair: It was intended to be left in?
Mr. Deveau: You will have to talk to the department yourself.
The Chair: We will, but I want to know what your understanding is.
Mr. Deveau: My understanding is that it was intended to reflect both, yes.
The Chair: Are these words missing in French as well as in English?
Mr. Deveau: Yes.
The Chair: Thank you.
Ms. Hirani: Given that the amendments to the CCAA and the BIA otherwise contain many parallel amendments, the deletion of that clause from the BIA amendments appears to result from a drafting oversight and should be clarified moving forward.
We reiterate our support for the overall purpose and objective of the bill and we support its specific provisions for the benefit of workers. In addition to the provision outlined now, The United Steelworkers supports the creation of a wage earner protection program and the establishment of a ``super priority'' for wages and pension contributions.
Bill C-55 provides for a wage earner protection program by providing for the quick payment of up to $3,000 workers upon bankruptcy. The program applies to workers who are owed wages earned during the six months preceding a bankruptcy or receivership. The definition of wages includes salaries, commissions, compensation for services rendered and vacation pay, but it does not include severance and termination pay. The United Steelworkers supports this provision because it provides speedy payment of monies owing to workers in insolvency and agrees with the technical amendments regarding wage earner protection that are made by Bill C-12.
However, we wish to express our concern about the one serious shortcoming in the legislation. In our experience, the most significant amount owing to workers on insolvency is severance and termination pay, not wages. There is no logical reason for the law to protect some of the employer's obligations towards its employees upon termination but not all of its obligations. The legislation would be fairer to workers if severance and termination pay were included in the amounts payable under the wage earner protection program.
A few examples of insolvencies that we have been dealing with recently may shed light on the scope of the problem that workers face. For example, in Lindsay, Ontario, in the past year, the lives of approximately 30 workers were shattered by their employer's insolvency. Lindsay Electronics was assigned into bankruptcy and the employees were terminated without severance or termination pay. The total amount owed to employees in that insolvency is approximately $600,000. The average employee in this case is owed approximately $20,000 in severance pay, as a result of seniority, money that they will likely never see, despite their decades-long commitment to their employer.
Another stunning example came from northwest Toronto, Ontario. Over 1,000 workers in Ontario Store Fixtures, a manufacturer of store fixtures, were terminated, again without any notice and without termination or severance pay. In that case, approximately $12 million to $14 million was owing to workers. After much hard work on behalf of the union, we managed to obtain 20 cents on the dollar for only a fragment of the workers involved in that insolvency. Unfortunately, this example is not even the norm. In most cases, employees recoup nothing from their bankrupt employer.
These examples are a few of the many cases where insolvency of the employer results in a devastating impact on the economic lives of our members.
Along with the wage earner protection program, Bill C-55 provides for a ``super priority'' by creating a charge in favour of workers for salaries, wages, commissions or compensation owed for services rendered during the six months before a bankruptcy, up to a maximum of $2,000. The United Steelworkers supports the establishment of such a super priority.
Finally, The United Steelworkers endorses and supports the amendments to the BIA in Bill C-55 that create a charge over the assets of the debtor to secure certain pension contributions, and parallel pensions in the BIA and CCAA that require a proposal or plan under either statute to provide for the payment of certain pension contributions. The protection of a pension entitlement is an essential component of a fair bankruptcy system.
In conclusion, we supported the passage of Bill C-55 and its speedy proclamation. We regret that Bill C-55, which was passed nearly two years ago, has not taken effect earlier, but we do not oppose any of the changes that are imposed by Bill C-12 to the wage earner protection program, the super priority for wages and the protection of pension contributions. We encourage the committee to ensure that the intention of protecting the integrity of collective agreements is reflected in a balanced way in the legislation.
The changes made to Canada's bankruptcy and insolvency laws are long overdue and we urge that the final laws that allow the changes to take place be proclaimed without delay. Thank you for your time.
The Chair: Thank you very much. We will open the discussion to senators' questions.
Senator Meighen: Ms. Hirani, I wonder if I could start with clarification of a couple of things you said. Did I understand you correctly to say that in the second example you gave of an industry shutdown, that through the hard work of The United Steelworkers, you were able to obtain 20 cents on the dollar for a fragment of the workers?
Ms. Hirani: That is right.
Senator Meighen: How do you obtain it for some and not for all? Who receives it and who does not?
Ms. Hirani: I do not know the details of that particular case because I was not involved in it, but there were different departments and different classifications of workers who were entitled to certain rights under the collective agreement. We were able to achieve things for those workers but not, for example, the salaried workers, who were not part of the union.
Senator Meighen: They were not entitled to become an unsecured creditor for the balance owing them. Is that what you are saying?
Ms. Hirani: No, I am saying that they were unsecured creditors, and as the system exists today, they would continue to be unsecured creditors. However, at the end of the day, there was no money to pay them their entire entitlement. What we were able to achieve was a settlement for those particular workers for 20 cents on the dollar, so they received a fraction of what they were entitled to.
Senator Meighen: I understand it is a fraction, but I am still not clear whether it was a segment of all the workers who received the settlement; that only some workers received 20 cents and some received nothing.
Ms. Hirani: Yes, that is right. Non-union people would receive nothing.
Senator Meighen: Near the end of your presentation, you urged the committee to ensure the protection of the collective agreement; that it should be protected in a balanced way. Is that wording any different from the wording in the bill itself that you referred to earlier, when we discussed whether the phrase was advertently or inadvertently dropped? Is this comment an editorial one or is it something different from what is in the bill?
Ms. Hirani: No, I was referring to that particular exemption.
Senator Meighen: Assuming that is straightened out, are you satisfied with what is in the bill in terms of protection of the collective agreement?
Ms. Hirani: Yes.
Senator Meighen: I will now turn to termination of severance pay. The wage earner protection act is estimated to cost the federal government — and therefore taxpayers — $35 million, in a normal state, and maybe up to $50 million if the economy turns, unfortunately, for the worse.
Do you have any idea, Mr. Erlichman or Ms. Hirani, as to how much more it might cost if we were to include severance and termination pay?
Mr. Erlichman: The short answer for me is no. You could try to put together an analysis, but it will depend on economic conditions and bankruptcies. There is statutory severance in jurisdictions, and then there is negotiated severance. Again, you can do a calculation. My suspicion is that it may well cost more.
Senator Meighen: Ms. Hirani said it is often a greater sum than the salary owing.
Mr. Erlichman: We may have a skewed view. For the most part, people in unionized workplaces have been receiving their wages and so on, but they are not receiving severance. I think what concentrates managers' minds is that directors are personally liable for wages and vacation pay, so that money tends to be paid.
I suspect — and it is difficult for us to know — that in non-union, smaller operations, people just shut up shop. People come there one day and the door is shut and they cannot even find the people who closed down.
The Chair: There is no directors' liability or directors and officers, DNO, insurance?
Mr. Erlichman: They may not even be able to find them. I suspect that is what happens in terms of wage and vacation pay for those operations that are non-unionized. It may well be that more is paid out on severance and termination pay than on the unpaid wages.
Senator Eyton: I have a supplementary question. You expressed satisfaction and you believe a variety of items were protected and you are happy with those items. Those items were salaries, which are clearly understood by contract; commissions, which, again, are probably easily calculable; compensation for services rendered, which I guess is an uncertain amount but it could be calculated; and vacation pay, which, again, is clearly understood.
I would have thought severance and termination pay was not so nicely defined. Am I wrong? I would have thought that termination and severance pay is a matter for negotiation and settlement, but with no sum certain. By its nature, I think it is different from salaries or commissions, which are more easily calculated in a sum certain.
Mr. Erlichman: There is a statutory severance and termination pay requirement, depending on jurisdiction.
Senator Eyton: Are you saying that they are as certain in their calculation as the other items?
Ms. Hirani: It is not difficult to calculate. If you have a list of what a worker's wages were, it is as easy to determine what wages were as to determine seniority and the level of severance payable by multiplying the number of weeks or years of service by those wages. The amount is a calculation.
Senator Eyton: Give me a typical example.
Ms. Hirani: In most collective agreements, for example, we like to be able to negotiate better than the minimum standards. The minimum standard for severance is one week per year of service. Under certain conditions, we would like to see a week and a half or two weeks per year of service. For example, if a worker had 20 years of service with a workplace, they would receive 40 weeks of severance pay. To calculate the amount, we multiply their wage times the number of weeks.
Senator Eyton: That is why that amount may be as substantial as all the others put together.
Ms. Hirani: That is right.
Senator Meighen: Other colleagues want to ask questions, so I will sneak two questions in.
First, Mr. Erlichman or Ms. Hirani, you did not mention Registered Retirement Savings Plans, RRSPs, or Registered Education Savings Plans, RESPs. I remember reference to those items during our 2003 study, but I confess I do not recall what the status is with respect to those two plans in terms of feasibility.
Mr. Erlichman: I am not clear enough on the legislation. You are talking about money that has been deducted but has not been transmitted to the agency?
Senator Meighen: Yes.
Mr. Erlichman: I am not clear about that item. There is coverage for pension contributions, either deducted or owing and not paid. I believe they have priority under this legislation. However, I do not know whether the situation is the same for RRSP and RESP deductions. Obviously, the situation should be the same. Money deducted from people's pay cheques should have super priority if they are covered by the plan.
Senator Meighen: I know that many people are involved in both types of plans; I wondered what the situation was.
Finally, what view do you take — if you take one — on the importance or necessity of mandatory counselling prior to a debtor making a proposal or prior to discharge of a debtor from bankruptcy?
Mr. Erlichman: Mandatory counselling: Frankly, in many situations we are presented with a fait accompli, as a union. The workers say that someone somewhere has decided — in some cases it is local and in some cases it is someone on another continent — that this facility is shutting down. Perhaps, they are placing it in receivership; or maybe they are not.
Senator Meighen: You have workers — and employers have other employees in the same situation — who get into trouble and overspend on their credit card and that sort of thing.
Mr. Erlichman: Are you are talking about individual bankruptcies?
Senator Meighen: Yes, would you view that to be paternalistic, helpful or not particularly important?
Mr. Erlichman: I do not think we have an official position on that issue, frankly. It is a personal matter.
Senator Meighen: The act deals with personal bankruptcies. There have been suggestions that prior to discharge or prior to making a proposal, there should be mandatory counselling. Do you have a view on that?
Mr. Erlichman: Frankly, never.
Ms. Hirani: I have personal views but I could not speak on behalf of the union which I represent. I will leave it at that.
Senator Massicotte: Thank you for coming today. I want to have a debate on your position, which I am sympathetic to. I want to play the devil's advocate to obtain more information. Your position is that collective agreements should not be amended and that a judge does not have the right to amend a collective agreement where a company is under financial duress or facing bankruptcy.
I appreciate the arguments. We have all been employees of corporations and we all want to be paid. I can understand the arguments when you say that the bankers, especially those who have a first charge on the assets, are probably more informed than the employees, and so on. However, if you look at bankruptcies, the significant loss is usually suffered by the contractors; that is, the people who provide the services, goods or labour. They are usually not that well informed and blindly do so. They usually lose all their money whereas the bankers, who are knowledgeable about the firm, may lose some money but that argument is valid.
Compare with me, if you wish, the knowledge of the employee who works in the firm and that of the contractor. Often, the employee smells that something is not right, especially when pension contributions are not made. The bells start ringing, indicating that something is wrong with the company because, obviously, contributions are not being made. This whole debate about bankruptcy is always around fairness and equity. That is all we debate, namely, which stakeholders receive priority? You will not be surprised that every stakeholder believes his or her argument is better and stronger and he or she should have priority to the others. We have a problem whereby we try to deduce what is fair.
I can appreciate the earlier argument about the American experience, where there are judges, liquidators or receivers making decisions and probably messing up issues. However, sometimes the interests of all parties relates to the fact that a solution is found where the negotiating positions of the parties are fair; that is, where everyone has a common interest to find a solution and let the company survive to continue employment. If the judge has no right at all to look at your agreement and amend it, or cannot motivate you to negotiate the agreement, that probably hampers other stakeholders' interests because you lessen the right to continue.
Debate that issue for me. How do you compare your rights? Why would the judge not have a right to terminate the amending contract, yet the judge has the right to terminate all supply contracts, even leases, and so on. Do not compare it to the bankers, who have privileged knowledge; compare it to your contractors, which number usually thousands for every company.
Ms. Hirani: There are a number of different responses. Collective agreements are contracts that are negotiated between workers and employers. Collective agreements have a special status not like any contract because they involve the livelihood of the labour force that is involved in creating the product that the company is selling. We are creating the resources, the revenue for the company itself. For that reason alone, it deserves a special status.
Second, with collective agreements, unions never take the position that the employer should be driven into bankruptcy if given a choice. Unions have always negotiated concessions, when necessary, to keep the employer afloat. It is in their best interest to do so to keep the employment of their workers ongoing. I do not think you would find a situation in which a union refuses to negotiate or to bargain to keep the enterprise afloat. That is simply never the case. Of all the creditors of the employer, probably the union and the workers have the most at stake in terms of viability and ongoing continuation of that enterprise. I think there is a better incentive for unions to negotiate. I do not think that has to be taken on by the courts. Unions do that all the time, voluntarily. They do not need to be directed, to be enforced by the courts.
Senator Massicotte: Let me go further with the argument. You have a monopoly. You are the provider of services, of labour, and it is a monopoly. The contractor also signed a contract with the employer; the contractor has a monopoly. The contractor has a right at any point to terminate the contract and seek another contract, so the contractor is not as important to the firm, for good or bad reasons. The concern I have is that you have a monopoly. I can appreciate the special treatment; that is the livelihood of people.
Where I am having the debate is why not allow a third party? If you have a monopoly, I am sure you do not want the company to fail, but you have a significant leveraging negotiating position. Without calling somebody else — call a judge. The judge is not an expert, does not know the firm well. While not allowing anyone else to have purview or review of the contract or even force or motivate you to strike a deal, negotiation may not be fair. You may win big, but there are probably thousands of people, contractors, who lose big because of your strong negotiating position. Would it not be fair to give that judge some power to say, in this circumstance, sorry, you are not being fair with all the stakeholders? Obviously, you are saying no, but you can appreciate the argument.
Mr. Erlichman: It seems to me there are solutions in search of a problem. We were at Air Canada. In 18 months in CCAA, all the unions went through two successive rounds, taking significant concessions. If Air Canada management had their way, there would have been more than two rounds, and it was not enforced by the judge. More often than not, we are the people who — when we hear a plant down will be shut down — in various instances we go to the company and say what can we do? They say, forget it; the decision has been made.
You will not find examples where people shut down the plant, end their jobs and in some cases, destroy their community. Forget about bankruptcy, CCAA or anything else. Both our unions have been involved in situations in the mine in Flin Flon. The employer, Hudson Bay Mining and Smelting, is a well-to-do mining company doing well and having signed agreements with everyone, they came back and said they needed a 15-year deal or they would not promise to keep things going. They put on an incredible amount of pressure. It was turned down two or three times. Finally, there was enough pressure on everyone in the community that they accepted. All the unions were forced to accept a 15-year, no-strike deal.
That was without even going to CCAA or anything like that. I appreciate what you are saying about balance here. Our sense is that, as the workers and union, we have little clout otherwise.
Senator Massicotte: You are saying there is no problem; historically, it has worked so far. However, I understand that in the current legislation, before this amendment, predominantly dictated by the Ontario legislature, it was not clear whether the judge had the right to review the collective agreement. It was a grey zone. Obviously, that is why you asked for this amendment. That is probably why you have this amendment.
That grey zone was perhaps beneficial to everyone in terms of negotiating a deal, because if a stakeholder is not fair and not appropriate in their interests, maybe the judge will use this grey zone to execute something.
Mr. Erlichman: Frankly, if Judge Farley had tried to impose something in the Air Canada and CCAA proceedings, the whole thing would have fallen apart, and I think he realized that. He was sensible enough not to do it, because the unions would have appealed it through the courts and everything else.
The Chair: You already had the Justice Winkler touch.
Mr. Erlichman: That is another touch, yes.
Senator Fitzpatrick: My questions are to both Mr. Erlichman and Ms. Hirani. They have to do with pension contributions. First, Ms. Hirani, I think you said you represent some 280,000 workers. I am not sure how many workers Mr. Erlichman represents.
I am trying to quantify these pension plan contributions. These pension plans are private; obviously, not the government program. Also, surely there must be conditions to these pension programs regarding the contributions and the security required, as well as transparency in these pension plans.
Can you comment on what kind of impact the private pension plans have on your union, both in terms of quantity and also the problems with respect to not understanding the quantification, the amount of funds required or what is being done with the pension contributions through some form of transparency that unions should have.
Ms. Hirani: What Mr. Erlichman referred to in his presentation was the problem of underfunded pensions and pension liabilities in the Pension Benefits Standards Act, PBSA. I think our concern would be that employers can take pension holidays, not contribute and have severely underfunded pension plans. Then, when a bankruptcy or insolvency occurs, these pension liabilities are not secured and there is a huge liability. What happens to workers' retirements at that point?
There are some provisions, for example, in the province of Ontario for some pension benefits from the pension benefit workers' fund, but other than that there is not a lot of security for those pensions. Therefore, I think the problem lies in allowing employers to continue to underfund pensions and not have them solvent.
Senator Fitzpatrick: Is that from the employer's side?
Ms. Hirani: That is right.
Senator Fitzpatrick: What is the liability for the contribution that the employees make? What happens to that part of the fund?
Mr. Erlichman: This legislation protects that part of the fund, the contributions currently there. However, if you have a defined benefit pension plan that terminates and there is a shortfall, in the federal jurisdiction, whether or not the employer is solvent, the employer is not liable to make up the shortfall.
Therefore, if Air Canada, for example, in CCAA, or even outside of it, had been able to terminate their pension plans — which we did not let them do — in 2003, their various registered pension plans were about $1.5 billion underfunded. In other words, their pensioners' beneficiaries and so on would have been down $1.5 billion in terms of pension benefits.
In Ontario and Quebec, if the company was solvent, at least they would have been required to make up that $1.5 billion. In the federal jurisdiction, the companies are not required even to make that up. First, we are arguing that obviously the Pension Benefits Standards Act regulation should be amended so at least they are responsible if they are solvent.
If they are insolvent we want to be recognized in the Bankruptcy and Insolvency Act legislation so there is some kind of priority for this pension plan.
Again, it is the same sort of thing where the people hit the most are the people who have invested the most time and everything else, and are not in a position to make it up. If workers are ready to retire and their pension is cut in half, or cut substantially, what do they do?
Senator Fitzpatrick: Obviously, that situation is a problem, but is the employee's contribution usually safe?
Mr. Erlichman: It depends on the situation, the funding of the plan. We went through a situation in the early part of this decade where, between low long-term interest rates and markets decreasing, many plans were significantly underfunded on a wind-up basis. The situation is somewhat better now.
It depends on the plan. Some plans are not a problem, and for others, it is a serious problem. We are asking that plans be taken into account in bankruptcy legislation.
Senator Ringuette: My understanding is that in the last 18 months we have lost about 130,000 jobs related to the forestry sector. Some of these losses would have been due to insolvency and some would have been for consolidation purposes. If losses are not for insolvency, what recourse can you take?
For instance, if an American company owns an operation in Bathurst, New Brunswick, and decides to close down, the employees cannot access Bill C-12 because the legislation deals only with insolvency, not plant closure. The company is a foreign-owned entity. What kind of recourse do you have for the workers in that kind of situation?
Ms. Hirani: Are you talking about unpaid severance?
Senator Ringuette: Yes, unpaid salary, because Bill C-12 deals only with insolvency. It does not deal with closure per se.
Ms. Hirani: Dealing with closures is a problem for non-unionized workers generally, and it is becoming more and more of a problem.
Senator Ringuette: I know that bigger operations are unionized. What is your role? How can you attack that issue from a union perspective?
Mr. Erlichman: We try to negotiate enhancements either in terms of pension, severance or retraining and those kinds of things. We try initially to keep the place open, obviously, but then we try to negotiate enhancements and so on. We have been successful in some cases. It is not as good as keeping the job.
Senator Ringuette: Even though there is no longer an entity operating in Canada?
Mr. Erlichman: We have been able to negotiate substantial improvements in terms of severance, pension upgrades and so on. Sometimes we have leverage and they want to keep the plant open for a period of time. A variety of things happen. We do that.
Ms. Hirani: As Mr. Erlichman said, a union can negotiate and bargain in a variety of ways with an employer that is planning a shut down, ranging from enhancements under the collective agreement to a closure agreement. There are a number of ways in which to negotiate that kind of closure to assist workers.
Senator Ringuette: That is as long as the company is on Canadian soil. If it is no longer on Canadian soil, you have no recourse. There is no operation. The collective agreement is also no longer in operation.
Ms. Hirani: There are a number of legal recourses.
Senator Ringuette: The employees are left to carry the burden.
My other question is in regards to the issue of severance and termination pay that you highlighted this morning. I can see a scenario where an employer looks at the company's debt portfolio and says, ``Oops. It may be four or five months before I close. Maybe I can give a pink slip to my older employees.'' Has that happened? It must have happened, if you raise the issue that severance and termination pay under the Bankruptcy and Insolvency Act is not there. There is no way to compensate, and it is not a wage per se.
Ms. Hirani: I am sure employers use all kinds of tactics to avoid paying workers their legal entitlements. As far as what kinds of things workers can do, one of the most important things is to have a collective agreement that you can try to enforce. The second is what we are here today to talk about, which is ensuring that bankruptcy protection gives severance and termination pay greater priority in a bankruptcy.
Senator Ringuette: You gave two examples, one of which was 1,000 workers in Toronto. Were they unionized?
Ms. Hirani: Yes, most of them were.
Senator Ringuette: Yet, the employees that were entitled to severance and termination pay did not receive it, and they were unionized. You are talking about at least 1,000 employees.
Ms. Hirani: Right.
Senator Ringuette: If you raise this issue about severance and termination pay, you must have gathered statistics through the years to give rise to some importance for us to look at severance and termination pay in the Bankruptcy and Insolvency Act.
Mr. Erlichman: Frankly, I am not sure that we actually accumulated these things. We tend to deal with them on the fly. When we negotiate a good deal, we try to make people aware of it, and when we are not able to negotiate so good a deal, maybe we do not make people as aware of it as we might. It is an interesting question in terms of whether this information is collected anywhere. We negotiate close-down agreements and so on, but to speak for my organization, we do not have a set of statistics.
Ms. Hirani: I am sure such data can be found, and I can undertake to provide that information to you.
Senator Ringuette: I appreciate that, because I would like to see something substantive in regards to the issue that you have raised this morning.
Ms. Hirani: You are looking for a number of how much money is owed to employees?
Senator Ringuette: Also, I am looking for how many employees are affected by this issue.
Ms. Hirani: I can do that.
The Chair: If you can send that information to the clerk, then we will distribute it to members. It would be helpful. Thank you.
Senator Goldstein, do you want to wait until we hear from all the witnesses this morning, or do you want to deal with this group?
Senator Goldstein: I have three minutes to deal with this group. Perhaps I can do so now.
The Chair: If you can do it in three minutes, we might have an application for the Order of Canada. One thing you will want on the record is that you refer to yourselves as the steelworkers, but I read something different, Ms. Hirani, in your letter. Do you want to read that into the record? People will think, are there really 280,000 steelworkers in Canada?
Ms. Hirani: There are. I will read the entire legal name of our union, which has been changed recently. It is the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union. It is a mouthful. We are the United Steelworkers.
The Chair: And the others are comfortable with that?
Ms. Hirani: Yes.
Senator Goldstein: Thank you for coming and for your enlightening presentations. I have one observation, and then as many questions as I can fit into 60 seconds.
I found it interesting, Ms. Hirani, that you ascribe the existence of the workers compensation scheme to your friends, the NDP. I think the record should show that Bill C-55 was introduced by a Liberal government, and Bill C-12 was introduced by a Conservative government. Both bills had unanimous consent and unanimous support of all the parties, except another one of your friends, the Bloc Québécois, which was true to its name and blocked Bill C-12 for a while. That having been said, if you want to give the NDP credit, it has precious few things for which to take credit, so we are perfectly happy for you to give the party credit.
On to more serious matters, I want to come back in the 60 seconds I have left to a set of observations that were made by Senator Massicotte. Every contract, including landlords, is subject now to revision in a restructuring except union contracts. This committee recommended in 2003 that, under some circumstances, collective agreements be subject to revision as well. The circumstances that were suggested were the following: If, in the opinion of a court, not the opinion of the employer, a collective agreement was such that if it were not renegotiated, the plan of restructuring would not succeed, then and only then, and under only those circumstances, could it be renegotiated under the supervision of a judge. Given that caveat, are you still opposed to a scheme or legislation that would provide for a re-negotiation of contract under those circumstances? Bear in mind that the United States legislation allows for re-negotiation of contracts and there has not been any adverse consequences to labour, as far as I am aware from the literature I have read.
Mr. Erlichman: You are talking about re-negotiation. We are and will continue to be open to negotiation. In fact, nothing stops a judge from saying, ``Go back.'' Our concern is about imposition.
I am looking for the example where the union's unwillingness to negotiate and make amendments to the collective agreement is what brought the company down. I have not seen an example of that. I do not see the reason to give a judge the extraordinary power to say, ``This is the thing that will kill the company'' when it has not happened.
Ms. Hirani: The short answer is no. I do not think that is necessary at all. I do not think that collective agreements need to be trampled on by judges. I think a company's restructuring does not need to take place on the backs of the workers. It must take place with other parties. If a judge needs to intervene, I do not think that intervention must happen in the collective agreement, which is a freely negotiated contract.
I want to refer back to your comment about the NDP. It was the private members bill, Bill C-281, by the Honourable Pat Martin that first brought this issue to the agenda. I take offence to the fact that it was a Liberal and Conservative agenda. It was the NDP, with the assistance of the steelworkers, that brought this issue to the forefront. They have done a great deal to support and assist the workers in this movement.
Senator Goldstein: It is true that the Honourable Pat Martin brought that legislation in as a private members bill, after we said, ``Do it.'' That was after this committee had already approved an insurance scheme for workers.
However, as I said, if you want the NDP to take the credit, that is fine.
Ms. Hirani: Thank you.
The Chair: I think that question wraps up this particular panel's view. You have said and made the points you wanted to make. I thank all of you. I thought your materials were excellent and your written brief was fine. We will treat discussion of political parties as obiter dictum because we try to be objective and non-partisan in this committee.
Next, we have a panel of learned and esteemed members of the Canadian Labour Congress. We have Ken Georgetti, President; and Joel Davison Harden, National Representative (Research). From the Canadian Auto Workers Union, we have Lewis Gottheil, Director, Legal Department; and Paul Forder, Director, Government Relations.
Thank you for coming. I think you understand the convoluted nature of how this legislation has unfolded. It is as frustrating to us on the committee and to Parliamentarians, generally, as it is to you. We, in this committee, have taken extraordinary measures to accelerate the process. However, it is what it is.
Two bills now have been through the process and they have had Royal Assent. They need only proclamation. It may have been done, but our message to government is to have them proclaimed. These hearings are designed to fine-tune those bills. We will come up with a further report to be complementary to the government's own review of this framework legislation.
Ken Georgetti, President, Canadian Labour Congress: The bills were proclaimed on December 14 and we are waiting only for the Canada Gazette to sign off.
The Chair: Did they receive proclamation as well?
Mr. Georgetti: We are told they did but that they are not in the Canada Gazette yet.
We expect some time is required to set up the process. Even this week, I received two calls and emails from workers who have found themselves in that situation and were wondering if there was any protection.
I will start by saying on behalf of the 3.2 million members of the Canadian Labour Congress, thank you for the opportunity to offer our perspective on Bill C-12 and the measures we think will introduce more fairness into bankruptcy law.
I congratulate and thank this committee for helping to ensure the passage of Bill C-12 before Parliament broke this winter. The sooner it is proclaimed, the better. Credit goes to you for your courage to push this legislation through.
Labour groups and bankruptcy professionals urged you to pass this legislation and to consider measures to improve it later. Bill C-12 was the third effort in two years calling for more fairness in bankruptcy law, and you wisely saw this third effort could be scuttled by an imminent federal election and chose action over further delays. That action took courage and our congress, together with all our members and workers in Canada, salute you for that.
A tiny few have whined about Bill C-12 not being perfect. In my 10 years around this place in Ottawa, I would say that perfect legislation is about as likely as no-load RRSPs or light cigarettes; it does not exist.
Your choice to pass this bill was the right one. Your further decision to hold hearings was also important. Our brief sets out three policy recommendations for your attention.
First, it suggests a change to the new Wage Earner Protection Program, WEPP. We think your committee should recommend eliminating this three-month job tenure requirement for the Wage Earner Protection Program. When Davison Harden conducted some research for us, we were surprised to learn that 7 per cent of Canadian workers have less than three months' job tenure at any time. We think tenure should not matter at all.
When it comes to recovering lost wages and benefits, I do not know how tenure relates to the fact someone is owed money. We believe workers with short job tenure need the protection most. For that reason, this form of job discrimination should be eliminated from the Wage Earner Protection Program.
We also think severance pay should be covered by the Wage Earner Protection Program, and coverage should be increased beyond its current limit of $2,000 or $3,000. Workers deserve to receive 100 per cent of their losses for the three-month period that the WEPP covers prior to bankruptcy. Let us face it; it is their money. They earned it, they worked for it and they clearly need government help to recover it. They are vulnerable if they do not receive it.
Our brief does not deal only with changes to the WEPP. It applauds the rejection in Bill C-12 of the U.S. model for corporate bankruptcy, where agreements often are gutted by bankruptcy trustees and judges. It also asks for your support for a policy to promote good jobs and pension security.
Some might say these issues are beyond your mandate. We could not disagree more with that limited thinking. Promoting good jobs and pension security will take the burden off bankruptcy law and the Wage Earner Protection Program. Your support for these measures is crucial to helping working families and bringing our economy back on track.
This point is not only true empirically. I do not want the human beings, the Canadian citizens impacted by corporate bankruptcy, to be lost in a pile of dense research. For that reason, in the time I have left, I want to talk to you about Ray Bekaris.
His story was captured in a CBC documentary that aired on November 15, 2004. Ray and his wife, Marilyn, live in Hamilton, Ontario. For 27 years, Ray worked at Cold Metal Products, a company that rolled steel for clients like the Royal Canadian Mint and other major metal manufacturers.
The work was hard and dirty, 12-hour shifts, but Ray was told when he was a young man that the payoff would be decent wages for life and a good pension on retirement. In 2003, Cold Metal Products went bankrupt. All of a sudden, 200 well-paying jobs disappeared.
Soon after the plant closed, Ray and his co-workers suffered another critical blow. They found out their pension was only half funded, and their pension benefits would be slashed through the corporate bankruptcy proceedings. Many long service workers like Ray, expecting pensions of about $2,000 per month — $24,000 a year — received half that amount. As a result, they were forced to find work elsewhere at reduced wages. After 27 years of hard work, Ray, at the age of 61, was forced to go back to working 12-hour shifts, this time making egg cartons at a different factory.
Sadly, his story is not unique. We lost over 300,000 family-supporting, manufacturing and resource sector jobs since 2002, where workers who were able to support their family on their wages found themselves barely able to support themselves on their new salaries. In most cases, workers and retirees have faced reduced pension and health benefits because of employer underfunding. Sometimes these benefits have been lost entirely.
After the company executives and deep-pocketed creditors picked the carcass of these bankrupt employers, there was not enough left to fulfill the lost wages and pension benefits for the employees. When banks and deep-pocketed lenders say they bear all the risk in corporate bankruptcy, I want you to remember Ray and Marilyn Bekaris. Think about the risk they face and the consequences they were required to bear themselves.
I would like you to support a national pension benefits guarantee fund to help people like Ray and Marilyn and the thousands of people in their situation. We would like you to support an active labour market policy that can help them retire in dignity, offer good jobs to their children and grandchildren and give those families the support and respect they deserve as Canadians.
I want you to think about what it is like to need critical medical care and have benefits cut off from you and your family. That situation happens in this country every day, sadly. I want you to think about the impact of today's manufacturing crisis on those Canadian communities. There is pain and suffering in this country from coast to coast. Not only do workers lose their jobs, but in these one-industry towns, they lose their principal asset, their homes, which have no value. Nobody wants to live there anymore because there are no jobs.
Unless you are swayed by these so-called believers, the free marketers — those who say that government should not interfere in the economy — I remind you about what happened last August during the bankers' crisis. On August 16 and 17 of last year, the Bank of Canada spent over $720 million of our money to bail out these people who were up to their eyeballs in that stuff called asset-backed commercial paper.
Despite predictions that the U.S. subprime mortgage crisis would not happen, it made its impact here at home and we are still feeling it. We have since let 10 banks, led by Priddy Crawford, create their own escape hatch after making bad gambles with other people's money. Even governments have written down huge amounts and lost assets. That money could have been used to secure pensions and benefits. It could have built bridges and hospitals or trained workers with new skills.
Last summer, there was a rapid response to a bankers' crisis. Now it is time to see the same commitment for working families. There is a crisis out there. We are losing our economic security and our middle class because people are not paying attention to our economy. The next time you hear someone say that it cannot happen, tell them this: If it is good enough for the bankers, it is good enough for Canadian citizens who have worked for wages too.
Thank you for inviting us here today. Once again, I congratulate you for ensuring Bill C-12 was passed. You did the right thing. Now we must build on Bill C-12's positive step forward. That requires some technical changes, but also some far-sighted reforms. We need that kind of vision for Ottawa for the 21st century and I encourage you to embrace it.
Lewis Gottheil, Director, Legal Department, Canadian Auto Workers Union (CAW-Canada): We also thank you for inviting us and giving us this opportunity to make submissions. CAW, as we mentioned in our brief, represents 260,000 workers across Canada in every province and territory, and in almost every sector in the private economy. Not all of the 260,000 are auto workers. We wish it were so but, unfortunately, that is not the case. We represent workers in a broad range of sectors.
The Chair: For the information of our viewers, the CLC is a kind of umbrella organization with a few million members.
Mr. Georgetti: We have 3.2 million members among 68 affiliated unions.
The Chair: Would your members be among that total and likewise the steelworkers, machinists and aerospace workers?
Mr. Georgetti: Yes.
The Chair: We note that 50,000 members from the International Association of Machinists and Aerospace Workers, IAMAW, and 280,000 from the United Steelworkers come to you.
Mr. Gottheil: We make six basic points in our brief and in my remarks, I will reiterate the six key points.
First, Bill C-12 is a good start on the path to legislative reform in the area of insolvency law, but more progress must be made for unionized and non-unionized employees in Canada. Second, the Wage Earner Protection Program should be improved by expanding the definition of ``wages'' to include severance pay and termination pay. Third, the $3,000 ceiling on unpaid wage claims under the Wage Earner Protection Program should be revised upward. I suggest, as a proposition for review and discussion, that whatever dollar figure might be identified in the future, it may be wise to put that figure in the regulations so it can be revised upward from time to time without necessarily returning to Parliament to do so. Clearly, the $3,000 limit, in our view, is insufficient.
Fourth, the workers' super priority regarding their claim for wages, as against certain assets of the bankrupt company, should likewise cover termination pay and severance pay. In a manner similar to the Wage Earner Protection Program, the Bankruptcy and Insolvency Act should mandate the creation of a national pension benefit insurance program, which would contribute to and address pension funding deficiencies upon insolvency or bankruptcy.
It is our view that a common thread underlines and underpins these points. It bears identifying and repeating. We submit that workers who are employed and then terminated by an insolvent employer have an increased personal, human vulnerability because of the failure of the business or service at their workplace — more so, I dare say, than bankers, corporate landlords, other institutional suppliers or lenders. For employees, loss of employment generally means they have no other way of supporting themselves and their families until they are able to find other work. Frequently, that other work is at a lower level of pay and a lower level of benefits. Workers start out with no seniority and generally with inferior working conditions, all of these conditions compared to the jobs they previously occupied. For retirees and those close to retirement, the vulnerability I speak of is amplified because, at that stage, it is much tougher to find alternative employment.
Institutional lenders and other corporations generally carry a more diverse range of loans and have a more diverse range of clientele. A default pertaining to one client in a particular lending relationship should not have a material impact on the bank or institutional lenders' prospects in the mid to long term.
Moreover, in the course of a banking or lending relationship between a lender and an employer, the lender has the means to analyze the risks associated with the loan in question, whereas workers begin employment in a shop or a workplace and put in anywhere from 5 to 15 years perhaps. At 15 years, it is inconceivable to say that a worker can sit down and analyze the prospects of continued employment in the same way that a lender can analyze the prospects of a loan and make adjustments to the conditions of the loan before making the commitment to it. A worker has made the commitment in terms of sweat, effort and dedication to the employer. A worker does not have the option of spreading out the risk or engaging in a diverse range of relationships. At best, a worker might have a second part-time job, which is difficult if the worker has a family to look after.
The employment relationship is a dependent one in that the worker and the employer do not have an equal relationship because the employee is dependent upon the employer. This unequal power relationship has been recognized many times in the courts and elsewhere, and it has a true meaning. Even with a union in a workplace that can bargain a collective agreement, the employer retains a plenary set of prerogatives and rights that includes the right to set what products will be produced, where they will be engineered and produced, how they will be sold, how they will be marketed et cetera. These key factors demonstrate that the worker is in a position of vulnerability.
The realization of that principle underpins our view that there must be improvements in the area of the Wage Earner Protection Program, the super-priority and pension security.
I will digress for a moment to say that, as Mr. Georgetti mentioned a moment ago, I cannot think of a better time to address urgent improvements. We say there is a crisis in manufacturing in this country; and it is a true crisis. We might not see it in downtown Toronto if we work in one of the high towers but in mid to small workplaces across this country and in Toronto, there is a true crisis in manufacturing due to the high value of the Canadian dollar and other factors.
Only last week, our union was involved in a terrible situation in Kitchener with a company called Ledco. Sixty employees worked in the shop where some had as much as 35 to 40 years of seniority. On Wednesday, January 24, 2008, the employer locked them out. Our union filed an application for an illegal lockout with the Ontario Labour Relations Board, OLRB. I say ``lockout'' because the employer said to the workers individually in a captive audience meeting that if they did not agree to certain changes, Ledco would shut its doors. The application for illegal lockout was made to the OLRB on January 24. Three hours later, the employer made an assignment in bankruptcy without notice to the union.
In a flash, the workers, some of them with 35 to 40 years of seniority, learned that they were out of work. They have not been paid the three days of wages owing due to how the pay period fell. There was no severance and no termination pay. They are out of work in Kitchener and literally alone. Something is fundamentally wrong with a situation where people can put in 35 years of their lives and then in a moment, see their working future so harmed.
Someone with five years might find another job. It is unlikely they can find the kind of job in the manufacturing sector that would compare to the job they had at Ledco, where they were paid between $20 and $25 per hour. For someone with 30 years of experience, it will be difficult to find active employment. The moment is now because the crisis is upon us now, and we encourage the committee to move forward.
I wish to make a couple of specific points about severance and termination pay. I underline that severance pay is an earned entitlement. It is something workers earn day by day as they do the job. In certain circumstances, when they are terminated, the pay is provided to them not a as gratuity nor as a bonus, but in recognition of the contribution they made. When they leave that job they lose those benefits associated with seniority and service. They start back at zero in a junior position without the related benefits, so severance pay is there to recognize that loss.
Other jurisdictions in Europe, for example, recognize severance and termination pay as part of the wages to be protected and remedied upon insolvency. For example, on page 9 of our brief, we make reference to France, which has a wage guarantee insurance program established in 1973. The program covers compensation in lieu of notice or what we call termination pay.
The International Labour Organization, ILO, has the Protection of Workers' Claims (Employer's Insolvency) Convention. It states that workers' severance pay should be accorded privileged status upon insolvency. On page 10 of our brief, we refer to other jurisdictions in Europe that are moving in the same vein to recognize severance and termination pay.
In Canada, we are debating the issue. I trust we are moving on the issue, but we are not there yet. That is why we ask you to cast an eye to other jurisdictions similar to ours so that we may see our way forward to recognizing the workers' right to protection for severance and termination pay. These industrial jurisdictions are in the competitive world economy and have relationships with banks and institutional lenders, as we do.
On pages 11 to 14 of our brief, we deal with the issue of pension fund deficiencies or pension income security. It is generally recognized that pension benefits are seen as deferred compensation; they are benefits earned in the present, but paid in the future.
I mentioned earlier and it bears repeating, there can be no more vulnerable person than a retired worker or one close to retirement who, due to age or health, finds it difficult to find another source of employment income.
They have fulfilled their end of the bargain and then as the bargain provides, they wait down the road for their payback. If an employer, due to insolvency, is unable to fulfill that bargain, then I suggest, Canadian society as a whole, must step in and address the trust, if you will, that has been broken.
It can be done through taxation in ways that focus upon the appropriate community or segment of the economy that pays the tax to support that fund. In Ontario, we have experience with a Pension Benefits Guarantee Fund in our Pension Benefits Act. It provides that certain limited benefits defined up to three years before insolvency will be protected. Funding will be provided for the benefits that were defined to be available.
This idea is implemented in Canada now. It is something in which Canadians across the country should participate and, with the necessary cooperation with provincial authorities, it is something we owe to retirees in Canada.
The Chair: Thank you for two excellent presentations.
Senator Ringuette: I appreciate the tables that you provided at the end of your brief on page 12 with regard to the three-month tenure. The numbers speak for themselves.
When the officials were before this committee, they said that the three-month tenure was in the bill to eliminate the possibility that an employer might hire family members and so forth in the last few months of the company's operations to provide entitlement to the provisions of Bill C-12. However, looking at the numbers you provide, your comments are well justified.
The other issue is pensions. I think the federal government is in a position to have measures, not within the Bankruptcy and Insolvency Act, but within the Canada Revenue Agency Act to have severe penalties when an employer — a corporation — files their income tax. If the employer provision is not within the income tax act or their fiscal statement, it is not provided.
This situation causes not only heartache and financial distress for employees, it also costs the federal and provincial governments money in regard to additional income they must provide and a loss in taxes. In regard to your comments about the pension situation, have you looked into this option?
Mr. Gottheil: We have not, in terms of any amendments to statutes such as the Canada Revenue Agency Act. If I understand you correctly, you suggest that if an employer fails to meet the proper funding requirements from time to time —
Senator Ringuette: On a yearly basis.
Mr. Gottheil: Yes, or in a timely way, that we use a statute like the Canada Revenue Agency Act to penalize that employer to ensure a deterrent and perhaps as well to generate funds.
No, we have not gone there for this reason: Generally speaking, oversight and regulation of pensions for most workplaces in Canada is under provincial jurisdiction. For example, in Ontario, the Pension Benefits Act has a number of rules about funding, et cetera.
The point we make in our brief, as you have correctly pointed out, is that there should be at least two avenues of approach here. First, there must be strict and aggressive regulatory oversight. However, we realize that regulatory oversight is generally in the hands of the province. We must make sure that actuarial reports are submitted on time. We must ensure if there is a sense of pending insolvency or difficulty with an employer, that if the rules say every three years for actuarial reports, it should be every year. There must be increased vigilance.
Our point is as follows. When, regrettably, the situation tips into insolvency, the federal law steps in. We think under the federal law pertaining to insolvency, Parliament would have the jurisdiction to say, ``When there is a bankruptcy, we now have established a broadly-based pension benefit guarantee fund that, in the case of insolvency, will ensure certain minimums at least are respected, if not all the benefits of the retirees. We owe that guarantee to Canadian workers and retirees, whether in Newfoundland and Labrador, Southern Ontario, Alberta or wherever.''
We have the model in Ontario and we can expand that. We have had terrible situations, for instance, in Amherstburg, Ontario, with a company called General Chemical. The workers lost about one-third of the pension benefits they thought they would have. We appreciate that General Chemical became insolvent but do we not owe the workers who contributed to the prosperity of that company and community something better in their retirement years?
Paul Forder, Director, Government Relations, Canadian Auto Workers Union (CAW-Canada): I would like to add to that. It is important where the provinces do not have adequate funding, such as maybe New Brunswick. In Nackawic, New Brunswick, almost 25 per cent of the population was put out of work when they went bankrupt to themselves in an offshore company. The same occurred with General Chemical. An offshore, United States-based company went bankrupt to itself. Those workers not only lost 35 per cent of their pension, as Mr. Gottheil alluded to, they lost their entire benefit package.
Imagine this: You are sitting at home and you receive a call. Heaven help us if this ever happens to us but as the baby boomers age, it will happen more often. Regardless, you receive a call from the nursing home to pick up your wife because you no longer have benefit coverage. The company notified them your benefits have been cancelled. You go to fill a heart medicine prescription but cannot because you do not have any coverage. You now must pay $300 a month in one case, and $500 a month in another for this same medication. When you expected to be retired safely after having worked 30 or 40 years, to have no benefits is absolutely devastating. That situation is heartless and cruel.
The leadership you are showing here is commendable. This issue is something that should cross all party lines. We should find the political will to ensure that no Canadian who has ever worked this hard for so long should ever again need to suffer the indignity of losing benefits and entitlements. The question is a different one, but if you are thinking about these issues, you may want to talk to Harry Arthurs and his Expert Commission on Pensions who have heard a host of these stories.
Finally, at Slater Steel, a man lost not only 35 per cent of his pension and all benefits but he had a stroke. He came before the commission and said, ``It now costs me $7,000 a year for my medication.'' Some of those 700 victims have sold their homes to sustain themselves with the reduced pension with no benefits. What you are doing here is commendable and we salute you for doing it.
We can deal with all kinds of other cases at an appropriate time to help you understand in a more in-depth way how serious this crisis is across all provinces. If you create a national pension and benefits guarantee act, funded adequately, you will set a good precedent for all people to have better, greater security as they look to the future. Most baby boomers are heading into retirement now, so it is more important than ever that this issue be looked at seriously and addressed legislatively.
Senator Ringuette: You mentioned Nackawic. I am from New Brunswick and I did not want to mention Nackawic in my questions to our previous witness. We were dealing with an American entity that did not declare insolvency. They closed shop. No one had any recourse; the pension plan was gone, the salaries were gone and the benefits were gone.
I would like to receive any kind of draft legislation that you might have in regards to this pension issue. We are going into a less positive economic situation and the most vulnerable of our society need to be protected.
The Chair: Perhaps senators might bring this topic out in their questioning. These examples involve money. I ask myself, ``Where does this money come from?''
Senator Meighen: That is the thrust of my question.
First, since I am from Ontario, I should know the answer, but Mr. Gottheil, you say there is a protection in Ontario for under-funded pensions. Is it self-funding? Is it like the travel industry when the members go under and people are stranded, et cetera?
Mr. Gottheil: My understanding, and I can verify this information, is that certain fees are paid upon registration or upon administration of the plan that would go into the fund. However, I also underline that it is underwritten, if you will, by the consolidated General Revenue Fund of the province.
Senator Meighen: If it is not enough to fulfill the loss?
Mr. Gottheil: The government has generally advised that if there is an entitlement that the statute provides, and the plan requires funding, that the government will step in. If the fund is broke, the government will step in and ensure that the statute is respected. There have been serious situations, for example, in the steel industry. My friends from The United Steelworkers can share more direct experience of the problems associated with major steel employers. Regardless, governments of all stripes should say, ``We will respect that funding.''
Senator Meighen: The concept is not new. We have had some experience with it. Perhaps between the researcher from the Library of Parliament and you, we could place the information before the committee so we know exactly what the situation is in Ontario.
I am not being critical but you have indicated a number of improvements you want to see to the Wage Earner Protection Program Act. All of these improvements, not surprisingly, would cost more money, whether it is an inclusion of termination and severance pay, the raising of $3,000 ceiling in due course or the other items you raised.
Today, under the Wage Earner Protection Program Act as it has been passed, the estimated cost is between $35 million and $50 million a year.
Regarding that cost, I have a two-part question: Do you have any idea how much more it would cost if the suggestions you made were implemented? Do you want to see that money provided out of general federal revenues for the Wage Earner Protection Program Act, as is the case today? If not, or in addition, do you have any suggestion as to where the money might come from if it is not to come exclusively from federal general revenues? Perhaps it should come at least in part from a user pay scheme, a co-insurance scheme or whatever.
I worry about the money coming out of the hide of the individual taxpayer and the solvent employer. This point is an exaggeration, but in some ways we are penalizing those who do what they are supposed to do: Pay their taxes. I realize in the case of a laid-off worker, it is not their fault so they should not bear the brunt of the cost. However, do you have suggestions as to how to deal with this cost factor?
Mr. Georgetti: As I understand it, regarding the money that will be paid under this act, the government would stand in line and attempt to recover some of the money they paid out in advance.
Senator Meighen: Yes, they hope to have a limited super priority. The estimate is that they might receive 50 per cent.
Mr. Georgetti: Then, instead of costing $30 million, it will cost $15 million. I do not mean to trivialize that cost, but $15 million to a government with this budget is not a lot of money.
Second, we would have no opposition if the government saw fit, as it should, to insist that these companies pay into a bankruptcy fund themselves and fund their own insurance, which the government would administer for them on behalf of the people. I have no difficulty at all with that approach.
We must arrive at the point of looking at it as an expenditure by itself, where if you do not pay it, another form of government somewhere must pay it if these workers have no other source of income. We have done polling; again, I am prepared to share the results with you. I do not have the exact numbers, but an astonishingly high number of Canadians feel they are only two paycheques away from poverty. That response means our savings rate is not high.
If people in the workforce lose that money, either the provincial or municipal government, or some other funded aid must support these people anyway. I think it is money well spent to give people at least the paycheques they deserve so they can seek other employment.
Severance and a pension guarantee fund may raise some eyebrows if we talked about the magnitude of that cost without proper legislation on funding, but in terms of a severance and wage replacement fund, with the kind of money the government spends on other programs, I think it would be miniscule.
Mr. Gottheil: I will add a couple of points. We are talking money and I want to get down to brass tacks.
Again, using Ontario as an example, Ontario in the mid-1990s had a wage protection fund with a payout limit of $5,000. Moreover, as we say at page 7 of our brief, the idea of a wage protection fund has been kicking around for about 30 years. Going back to 1975, the proposed ceiling at that time was $2,000.
That proposal was 30 years ago. We have been debating it and talking about it and now it is 2008. Clearly, we should be in a position to provide greater protection for workers. I will leave it there and listen to the next question.
Joel Davison Harden, National Representative (Research), Canadian Labour Congress: I will add a small research note, given that you raised the issue of data you would like to see for different models. Other jurisdictions have pension benefit guarantee funds that scale the employer contributions by virtue of their credit worthiness. In Sweden, for instance, an enterprise that has a good record of pension contributions pays very little into a fund relative to a firm that consistently has deficiencies in their pension plan. I think, respecting our colleagues on the other side of the table, you raised a fair point earlier. Why should we penalize companies and individuals who observe their end of the agreement? We should enter into this idea of a plan that was like a seat belt one would use for pensions. However, it is important that the seat belt for pensions be sensitive to firms that do well, as well as firms we need to look at. That plan is one policy avenue for you.
Senator Ringuette: I want to comment in regard to the $55 million a year maximum with the Wage Earner Protection Program. We must also bear in mind that the money that goes to the employees from this fund does not come out of Employment Insurance. It comes out of general revenues. There are major savings to the Employment Insurance system there.
Mr. Forder: Regarding the co-pay that Senator Meighen referred to, when you ask workers who have been victims to think about co-pay, I do not think that request is realistic. If you look at what we have done, the legislature, through the goodwill of politicians, can bring about appropriate changes.
In Ontario, we used to have a duty-to-bargain adjustment when there were bankruptcies and massive closings. The government that succeeded the Bob Rae government in 1995 eliminated it, so now the employer can say, I do not have to worry about workers. It is irresponsible, in our view.
Whenever we negotiated adjustment, we received matching funds from the government. It was a partnership effort; people were concerned about ensuring that someone being thrown on the street was cared for. That is where we think you must be.
We need to find a way to ensure that all employers — there are many responsible ones, but some are less responsible — have an obligation to bargain adjustment when these things occur. You have a lot of power and influence to examine these questions.
If you want to look at co-pay — this is important — we should look at expanding the CPP from 25 per cent of the average industrial wage up to 50 per cent over time. That expansion will take a lot of heat off and that can be co-paid. Workers will not mind because they will have a pension at the end of the line — a guarantee that if they go from New Brunswick to Vancouver or from Toronto to Newfoundland, they will have a pension at the end of the line. That guarantee is something you also could think about in the future in your deliberations.
Senator Meighen: I hate to sound trite but life is not without risks for everyone and life is not always fair. Perhaps the worker, as you said, Mr. Forder, is the most direct victim of a closure, but there are other victims too. There are the suppliers to the company; there are the principals of the company, perhaps, who tried their best but in the face of changing conditions over which they had no control, were not able to stay afloat. That is enough editorial comment.
Mr. Gottheil or Mr.Georgetti mentioned the fact of the three-month limit and the number of workers who have been in the workforce only for three months or less.
The Chair: Seven per cent.
Senator Meighen: I also see that almost 47 per cent of the workers are between 15 and 24. It is not surprising that someone who is 16 years old does not have 15 years of experience in the workforce. I am not terribly surprised by that and I am not sure that someone who has been there only for three months is entitled to the same protection as someone who has been there for three years. It does not offend me as much as it seems to offend some of the witnesses today that there is a limit. Whether it is four months or two months, there should be some limit rather than applying across the board.
Mr. Georgetti: If I wanted to be equally trite, I could say the same thing about bank loans that are only three months old, if the debtor goes bankrupt. You need to put yourself in the position where you have an obligation, or your employer has an obligation, to pay you, whether you are a bank or an employee. I do not see any difference between owing money and owing wages. Both should be treated the same way.
When you take out a bank loan, you owe it that day and from thereon. If you take a worker's labour, you owe them money for their wages. We do not see a difference. If you owe people wages and you have an insurance fund to pay them the wages they are owed, what does their tenure matter?
I hear the argument, which I am sure can be dealt with through a little forensic investigation on whom they hired in the last three months. If they happen to be all family members, there will be a pattern. However, when 7 per cent of the workforce, in this legislation that seeks to protect people's wages, will be excluded simply because of tenure, I think it is unfair. If workers are owed the wages they should be paid them and the fund should be set up to do that — whether it is a day, a year or 15 years.
Senator Meighen: How do you answer the concern about the family members?
Mr. Georgetti: You would expect that when applications are made, whoever is administering this program could have a simple look at who has been hired in the last three months. If there is a big bulge in hiring, one would investigate. However, I do not think you should wipe out the 7 per cent that we know are there because of job movement or whatever, for the sake of maybe a few employers trying to cheat the system.
Senator Goldstein: I have one quick point. The act now provides that people who do not deal at arm's length with the corporation or its directors suffer adverse consequences in terms of their claims generally. I think it would be relatively easy to apply that concept to wages and satisfy Senator Ringuette's concern.
I will not have another chance to speak today so I have one further question. Mr. Harden, the figures that you have given us are from 2002 and 2005. Do you have more up-to-date figures?
Mr. Harden: I am in the process of gathering that information and will furnish it to the committee. It is the labour force survey that is published annually.
The policy assumption in this data so far, in this literature, is that this problem is a younger workers' one. I direct senators' attention to the fact that as we climb the age ladder, it is not an insignificant number of workers in their 30s and 40s who have similar job tenure problems. This situation was enlightening for us as well.
Senator Massicotte: I will go into more detail on your recommendations on the pension obligations and go through the mechanics to ensure that I understand it well.
I presume that the deficit you wish someone to guarantee, obviously not the employer because the employer either does not have sufficient funds or will not be around, does not occur because the employer did not make the contributions. Rather, something went wrong with the assumption when they determined the level of contribution by the employer and employee, either because of a market meltdown or some other reason. I presume that a large part of the debt relates to that situation. Am I correct?
Mr. Georgetti: It could be underfunded not necessarily by any malfeasance but rather by a formula in the system, or an allowance or accommodation that was made.
Senator Massicotte: It likely did not happen because the monthly contribution was not made. In such a case the employee would know.
Mr. Georgetti: You will find it more frequent in bankruptcy situations because prior to bankruptcy there is a move to curtail or to change pension assumptions.
Senator Massicotte: That can take place over several months but not for a year or more, given that annual reports would catch it.
Mr. Gottheil: It depends on the jurisdiction if the obligation is to file an actuarial report every three years. The report is filed; the actuary certifies how much they need to amortize over this period of time to fund the plan. The workers and the union, if there is a union, do not necessarily have access to the proof that the cheque has been paid to the trustee of the fund. There could be a two-year period when the employer skips and puts the funds into general operations instead of the pension fund. Take a two-year period of inferior funding and mix it with interest rate changes and add —
Senator Massicotte: The lack of funding, from what I read in the articles, is less than 10 per cent of the underfunded pension liabilities in Canada. It is a small part of the problem. The big problem is incorrect assumptions or something else that went wrong.
My understanding is that this situation is prevalent in our community and many people are losing. A bankruptcy occurs and the owner has probably lost every nickel. In the pension world, this is not clear. I understand that when there is a deficit, the employer has reasonable discretion, under normal circumstances, not only to increase the employer contribution but also to increase the contribution by employees. The discretion is there to say that everyone pays more to make up the deficit. Is that accurate?
Mr. Gottheil: With respect, I do not think so, certainly not in a defined benefit plan. In a defined benefit plan, the employer tells the bargaining agent and the workers that when the workers retire, there will be X number of dollars per month —
Senator Massicotte: I am talking about the deficit.
Mr. Gottheil: I am describing the plan. There will be X number of dollars per month per year of service. The worker receives that amount upon retirement. In that context, the plan is designed in such a way that the employer must fund it in its entirety based on actuarial advice. If the contract is written that way, the employer does not have the discretion to go to the workers and ask them to pay more. To a certain degree, this situation is a question of risk. The workers have bargained a specific rate and have given up other things they could receive in current wages and other compensation to be assured of receiving that rate.
Senator Massicotte: I have been in a situation where that was not the case. Is that the case when there is a union agreement? Obviously, in that case, two parties negotiate. What is the situation for professional employees and other firms?
Mr. Gottheil: Where there is a defined benefit plan, there is no discretion to go elsewhere to find the money. By law, the employer, based on advice, must fund appropriate monies at appropriate times so that employees, as they retire, receive their defined benefit. A defined contribution plan is a whole other dynamic.
Senator Massicotte: How long does the employer have to make up for a deficit? I think it has changed recently.
Mr. Harden: It could be an insolvency basis versus an annual basis.
Mr. Georgetti: It can be up to five years. It depends on the solvency examination. Perhaps your question is: Can both sides make extra contributions to fund the liability? The answer is yes, but after bankruptcy, they cannot do that.
Senator Massicotte: I am trying to determine what is fair. What amount do you freeze? Let us buy your argument that there should be some protection. The question is, protection for what amount? If the employers have a right to take five years, if the whole amount was not due and if the employees had some level of responsibility for underfunded amounts, then how do they arrive at the amount?
Mr. Gottheil: In Ontario, as I recall, a certain date is specified to look at the benefits — X number of years or months — before insolvency. There is a maximum in terms of the benefit that will be guaranteed, such as $1,000, $1,500 or more. As I recall, the maximum today is $1000. The actuaries and others sit down at the table and determine that the benefits guaranteed are XYZ as of three years ago and if it is more than $1000 per month, it is not guaranteed. Everyone then calculates that a certain dollar amount must be placed in the pot to ensure the determined level of benefits is available to be paid out. In essence, we suggest that model as an appropriate one. We can talk about whether the level of guarantee — $1,000 or $1,500 — is appropriate, and we can talk about when to date the benefits. We have that model for all Canadians.
Senator Massicotte: As a matter of interest, you say that the responsibility for any shortfall belongs to the employer. What if there is a surplus in the fund? Who does the money belong to?
Mr. Gottheil: The plan documentation will give you the answer with respect to that scenario. In most cases, when the employer sets up the plan, they have specified in the documentation that they hold the money in trust for members of the plan. When the trust document makes that statement, then the surplus goes to the workers.
Senator Massicotte: What happens when it does not make that statement?
Mr. Gottheil: If the employer reserves the right to take the money back, or if the document says something different, the money can be reverted back to the employer. Each plan and each trust document must be looked at.
Mr. Georgetti: We have been in long discussions with actuaries and others, in the context of the Harry Arthurs report. When we talk about issues surrounding a pension benefit guarantee fund and surplus, the argument as to who owns the surplus would go away. If there were a pension guarantee fund, there would be little argument on surplus accrual and ownership because we are secure that we have the pension guarantee. The owner of the surplus depends on the nature of the trust document.
Senator Eyton: Can you give me the trend lines on defined benefit and defined contribution plans? Where is labour's position with respect to those different approaches?
Mr. Georgetti: I think 85 per cent of all registered pension plans are negotiated by our affiliates. As a policy, we strive to encourage the expansion. In terms of your question, we can give you the graph. The trend is that defined pension plans are decreasing and defined contribution plans are increasing.
Senator Eyton: I was thinking about that situation in terms of Senator Massicotte's questions. You are appropriately worried about underfunding, but part of the underfunding must come about because the employer, if not in a position to claim the surplus, will try to underfund. The approach of labour is to say, ``We understand that. We want these benefits to be intact so if you happen to overfund it, and there is a surplus, it can be yours.'' Does that approach represent your attitude?
Mr. Georgetti: Let me put it this way: When we were under an enormous amount of pressure when the economy turned down, a lot of times we went to the bargaining table and agreed that the employer could pull back on their funding of the pension plan, based on the actuarial assumptions and valuations at the time when they were in surplus, to use what normally would be pension contributions for other purposes, including keeping the company going. You might remember that a couple of years ago, everyone said the bottom would fall out of the pension market because the valuations were in the trough. As we come back up, most of those plans are back, and solvent.
Our attitude is this: If an employer could absolutely guarantee the benefit, I know for a fact we would not have much argument with regards to a surplus. They would be able to fund the plan, carry a bit of surplus and own it. However, they cannot guarantee that benefit. When they run into problems, if they go bankrupt at the wrong time of the cycle, we lose the benefits. As a result, we need those protections.
Mr. Gottheil: To a certain degree, surplus is a red herring. Our view is that the monies that go into the pension trust fund represent dollars forsaken or bargained for at the bargaining table. They go into the fund representing compensation that is not paid out in a cheque every week but held in a fund. It is the employees' money. At the time, people bargain the cost of the plan knowing that situation, and whatever happens to the fund thereafter is a function of various factors. The core proposition is that the money belongs to the workers.
Senator Eyton: As long as you subscribe to that point of view, then you are bound to have underfunding.
Mr. Gottheil: I do not see why. If the regulations are clear as to how to fund deficit over time and if there is a regulatory oversight, I presume employers will obey the law.
Senator Eyton: That standard will be the minimum. The attitude will be to avoid overfunding.
Mr. Gottheil: There is no problem, necessarily, with avoiding overfunding because that means more money is on the table for wages today. No one has a problem with that situation.
The Chair: Thank you.
Senator Goldstein: You have been clear in your presentations, and they have been useful. We appreciate your coming and the effort you have made to explain this situation to us. Thank you.
The Chair: I, too, want to thank you and I appreciate the comments you made about the committee's work earlier. I hope you see that we are listening and we will be thorough in our conduct of this study.
The committee adjourned.