Legal News

Proposed insolvency reforms may affect labour contracts

On May 5, 2005, the Federal Government announced plans to introduce a comprehensive insolvency reform package that would, among other things, facilitate the restructuring of financially troubled companies.

The proposed reforms would provide a unionized employer in financial difficulty with the option of seeking a court order authorizing the employer to serve notice to bargain on the union during the term of the collective agreement. The employer could then attempt to negotiate changes that would improve the company’s financial position.

Employers who are insolvent under the Bankruptcy and Insolvency Act, or having proceedings commenced against them under the Companies’ Creditors Arrangement Act, could apply to the court for an order authorizing the company to serve notice to bargain.

The order would be issued only if the company could satisfy the court that:

  • the order is necessary for a restructuring of the company;

  • the company has made legitimate efforts to renegotiate the collective agreement with the union; and

  • the failure to issue the order would lead to irreparable harm to the company.

If the parties agree to changes in the collective agreement, the union would have a claim, as an unsecured creditor, for an amount equal to the value of concessions granted by it with respect to the remaining term of the collective agreement. If parties are unable to agree to changes, the collective agreement would remain in force for the remainder of its term.

The proposed amendments are not currently in force. Bill C-55 passed first reading in the House of Commons on June 3, 2005.