Termination payments upon bankruptcy: Who’s liable?

Directors and officers are on the hook for regular earned salary but severance payments may be harder for employees to get
By Belinda Bain
|Canadian Employment Law Today|Last Updated: 10/07/2009

An unfortunate reality in tough economic times is that numerous job losses and corporate bankruptcies are not uncommon. When a corporation declares bankruptcy leaving employees out of a job, it raises the question of whether directors and officers of the corporation can be held personally liable in connection with severance or termination payments owing to the company’s employees. The answer to that question is not black and white, but instead turns on the nature of the payments owing to the employees.

There are three main categories of payments owing to terminated employees, each of which will receive different treatment in respect of director liability upon bankruptcy. The categories are: all pre-termination compensation and benefits and source deductions/payroll taxes, including employment insurance premiums, Canada Pension Plan payments, income tax, employer health tax and workers' compensation premiums; the termination package itself; and accrued vacation.