How to Protect Your Job When Employer Faces Financial Trouble

Every year in Canada, a portion of job losses come with an added complication: the employer itself shuts down. When a business winds down — whether the owners choose to close it or financial pressures force liquidation — employees face extra hurdles beyond finding new work. They must navigate bankruptcy or creditor-protection processes to recover pay, collect important records for taxes and benefits, and identify who can provide references or documentation for future employment.

“It’s absolutely a bit more complex,” says Sunira Chaudhri, founding lawyer at Workly Law in Toronto. When an employer disappears, routine systems and contacts that workers rely on may no longer be available. That makes proactive preparation essential for anyone whose workplace is closing.

Gather your employment documents now

The moment it becomes clear your employer is winding down, start collecting every relevant employment document: records of employment, T4s, pay stubs, written contracts, commission statements, bonus descriptions, vacation balances and any correspondence about pay or termination. Neena Gupta, a partner at Gowling WLG in Waterloo, Ont., warns that access to payroll systems and internal portals can be cut off abruptly.

Having clear documentation helps you determine exactly what your employer owes. With records in hand, you or a legal advisor can compare what’s been offered in a severance or exit package against your statutory and contractual entitlements under provincial employment laws, any collective agreement and your employment contract.

Don’t sign a release or accept a severance package until you understand how it measures up to what you may be owed. Chaudhri notes that initial offers are often negotiable: “Usually, the first offer is one that can be improved upon. They’re hoping you take that deal and that’s why it’s important to do your due diligence.”

How an employment lawyer can help

An employment lawyer can assess whether you have grounds to negotiate for a better package and explain realistic outcomes given the company’s financial state. If your employer has filed for creditor protection or bankruptcy, immediate lawsuits are usually stayed while the court process proceeds, which can limit options in the short term.

When companies enter formal insolvency processes, a court-appointed trustee or monitor will manage claims by creditors and employees. A lawyer, your union or the trustee can guide you through the claims process and help you present documentation to increase the chance of recovering outstanding pay. Keep in mind that if a business runs out of funds, recovery of all amounts owed is not guaranteed.

Because legal remedies can be delayed or limited during insolvency, labour experts recommend pursuing all available administrative and government supports in parallel with any legal action.

Government programs and practical supports

In Canada, the primary income program for those recently unemployed is employment insurance (EI). EI provides temporary financial assistance to eligible workers who have lost their jobs through no fault of their own and who meet minimum insurable-hours and other criteria. While receiving EI, claimants must generally show they are actively seeking work.

For employees owed wages, vacation pay or severance by an employer that has gone bankrupt or entered formal restructuring under federal law, the federal Wage Earner Protection Program (WEPP) can provide compensation to eligible workers. The program pays capped amounts for unpaid wages and certain other entitlements; the amount available may change year to year, and in the referenced period it provided up to $8,844.22.

Most benefit and compensation programs require you to apply after your last day of work, so be prepared to act promptly. File EI claims, WEPP applications or bankruptcy claims according to posted deadlines and supply the documentation requested by trustees and government agencies.

Practical steps to protect yourself

• Collect and securely store employment records: paystubs, T4s, records of employment, written contracts, commission and bonus documentation, and emails about your pay or termination.
• Document who your supervisors and coworkers were and keep their contact details. If HR systems vanish, former colleagues or supervisors can provide informal references and verify your role and performance.
• Speak with a lawyer or union representative before signing severance agreements or releases. Compare any offer to statutory entitlements and contractual obligations.
• If your employer files for bankruptcy or creditor protection, contact the court-appointed trustee or monitor to register a claim and learn the process for recovering unpaid amounts.
• Apply promptly for employment insurance and any federal or provincial wage-protection programs you may qualify for.

Further reading on employment and careers

• New grads aren’t getting the mentorship they need at work—here’s how to find it
• Why you should upgrade your skills—even if you’re established in your career
• The future of remote work jobs in Canada
• Canada’s unemployment rate—plus the rate by province and city