Quebec Pay Equity Payments

December 12, 2006

On June 20, 2006, the government of Quebec announced that it had reached an agreement on pay equity compensation for provincial employees working in the predominately female-dominated areas of education, health and social services. The settlement will total an estimated $737 million in salary increases and retroactive pay corrections and affect an estimated 326,000 employees.

The question has been raised in the past at the federal level concerning the status of pay equity compensation payments for bankrupts who receive them. In 2000, after OSB discussions with Treasury Board, Revenue Canada, the trustee association, the Department of Justice and others regarding the correct treatment of federal pay equity payments in the bankruptcy context, the OSB took a position that was based upon the timing of the period for which the payment was being made, i.e. if the period covered by the compensation was prior to or after the date of bankruptcy. The agreement at that time had been that section 67 would apply if the period covered by the payment preceded the bankruptcy, and if the period covered was after filing, the payment would be treated as income for the purposes of section 68. The question is, is this reasoning still valid for the Quebec pay equity payments that will be paid in the near future?

The intervening years have brought us some further clarification in the form of an Ontario Court of Appeal decision that states that section 68 of the BIA comprises a complete code for the treatment of income and there is nothing to suggest that it applies only to the period between the filing of the bankruptcy and the debtor's discharge date. In the Landry (Re) decision of September 6, 2000 (50 O.R. (3d) 1) the Court of Appeal concluded that it is clear from the Supreme Court decisions in Wallace and Marzetti that section 68 only applies because of the nature of the property in question, regardless of the timing of the acquisition of the property or the fact that a payment is made in a lump sum.

The practical result of this decision is that there will no longer be a need to attempt to attribute a lump sum payment to the pre- or post-bankruptcy time period and treat the respective portions of the payment differently. The lump sum should be dealt with solely under section 68. The decision of Registrar Hill in Laybolt (Re) [2001] N.S.J. No. 285 provides some practical guidance for the application of this approach:

"First, the trustee should only embark on the exercise where the amounts in question are "income," and not apply the exercise where the amount received had traditionally for whatever reason not been so characterized.

Second, I see no reason why, absent the considerations outlined below, income "earned" prior to bankruptcy but received after that date should not be payable in its entirety to the estate under section 68. Usually that income will have been earned at a time when the bankrupt was incurring or had existing obligations to his or her creditors. Those obligations would normally have been met from income earned and I see no reason why an intervening assignment in bankruptcy should result in a windfall to a bankrupt at the expense of the bankrupt's creditors.

Third, the bankrupt's personal and family situation should be considered, and the bankrupt should be able to retain a sufficient proportion of the income to bring his or her income during the entire course of the bankruptcy up to the amount the trustee would normally allow the bankrupt to retain if the income was available on a periodic basis applying section 68(3)(a) or 68(4)(a).

Fourth, there may be "special" considerations which might convince the trustee or the court that a departure from these principles is called for. This will likely be very much the exception rather than the rule and I think it unnecessary here to attempt to elaborate."

This approach is consistent with the proposed amendments to the BIA in Bill C-55 which deal specifically with the treatment of pay equity payments, be they federal, provincial or other. The Bill, which received Royal Assent on November 25, 2005 but which has yet to come into force, contains the following text:

"Total income" for the purposes of the definition "surplus income"

(a) includes, despite paragraphs 67(1)(b) and (b.1), all of a bankrupt's revenues from whatever nature or source that are received by the bankrupt between the date of the bankruptcy and the date of the bankrupt's discharge, including any amounts received as damages for wrongful dismissal, as a pay equity settlement or under any Act of Parliament or Act of the legislature of a province that relates to worker's or workmen's compensation; but

(b) does not include any amounts received by the bankrupt between the date of the bankruptcy and the date of the bankrupt's discharge, as a gift, a legacy or an inheritance or as any other windfall.