III. Interplay with Ontario’s Commerical Law Framework

III. Interplay with Ontario’s Commerical Law Framework2017-03-03T18:35:03+00:00

 

A.   Statutory Wage Protections

Ontario’s original Woodman’s Lien for Wages Act provided a lien only to logging employees but the Act was amended early on to extend this protection to logging contractors as well.[119] It made sense in the early 20th century to extend protection to both employees and contractors since they were similarly engaged in physical labour and neither had effective means of recovering money owed to them.[120] In contrast, mill employees have never been covered by the Act, even before the introduction of other statutory wage protections.[121]  Some commentators have suggested that this is because mill employees are in a better position to assess the financial health of the company before investing their labour.[122]

Today, virtually all loggers are independent contractors rather than employees. However, the Act continues to apply to logging employees and, in this respect, it arguably impacts the balance of interests reflected in modern statutory wage protections.[123] Since 1969, Ontario has had an administrative regime for recovering unpaid wages and this is currently contained in the Employment Standards Act, 2000 (ESA).[124] In certain circumstances, the ESA also provides for employees to recover wages against directors of an employer corporation.[125]

Legislation also protects employees by prioritizing their claims for unpaid wages in relation to other creditors. Under the ESA, an employee’s claim for unpaid wages has priority over other unsecured claims up to a maximum of $10,000.[126] In a bankruptcy or receivership, this priority scheme is replaced by that set out in the Bankruptcy and Insolvency Act (BIA).[127] Under subsections 81.3 and 81.4 of the BIA, claims for unpaid wages rank are given a high priority but they are limited to wages earned in the 6 months prior to the bankruptcy and are capped at $2,000.[128]

Most recently, the federal government has introduced the Wage Earners Protection Program Act (WEPPA) which allows employees affected by a bankruptcy or receivership to apply directly to government for compensation in relation to unpaid wages up to a maximum of approximately $3,500.[129] The government is then subrogated to the employee’s claim for unpaid wages under the BIA.

There is a strong argument to be made that, in the face of these modern wage protections, this field is well occupied and there is no longer reason to single out logging employees for additional industry-specific protection through a lien regime.[130] Nor is it fair to do so. There is no cap on the amount that can be liened under the Act so that logging employees can potentially recover more than the $10,000 maximum recovery allowed by the ESA or the approximately $3,500 recoverable under WEPPA.

And yet if logging employees are no longer to have a lien remedy, it is questionable whether logging contractors should continue to have this remedy. The “labour” contemplated by the 1891 Act was physical labour. In the pre-mechanized industry, it was logical to include contractors within the scope of the Act since early contractors were, in fact, labourers. Today, however, labour represents only 20 to 30 per cent of the typical harvesting contract price, with the remainder reflecting profit and equipment costs, and it is somewhat incongruous for modern contractors to continue to enjoy these statutory rights. At best, the Act is poorly coordinated with Ontario’s other statutory wage protections.


B.   The Personal Property Security Act

The Act came into force long before the advent of a personal property security regime in Ontario. Although a number of security devices such as chattel mortgages and conditional sales contracts existed in 1891, there was no central mechanism for ordering these interests. The result was a fragmented and confusing legal regime which complicated commercial relationships within the business community.[131] The addition of one more security device protecting a special interest group, this time loggers, did not have a significant impact on the commercial scene.

This changed in 1976 with the introduction of the Personal Property Security Act (PPSA) and the adoption of a central registry and first-to-register priority scheme.[132] Under the PPSA, creditors extending relatively large amounts of credit may protect themselves by negotiating a security agreement which provides them with a security interest in the debtor’s personal property.[133] The creditor may then perfect the security interest by registering a financing statement in the Personal Property Security Registry (PPSR or the Registry). A financing statement provides notice of a potential security interest in collateral but does not constitute proof of that interest. Once perfected through registration, a security interest is easily discoverable by searching the PPSR. The relative priority of security interests is generally determined by the order of registration regardless of actual notice of the security interest. Therefore, a registered security interest (or one perfected through possession) is assured priority over subsequent interests.[134] This centralized scheme provides the predictability necessary for commercial parties to manage their credit risk.

Liens arising by statute or rule of law are excluded from the scope of the PPSA.[135] Therefore, the PPSA has no direct impact on forestry worker liens created under the Act and, in fact, the PPSA confirms the super-priority that the Act accords to forestry worker liens.[136] However, the Act is inconsistent with the spirit of the PPSA insofar as it does not provide for third parties to have notice of prior security interests existing in collateral. According to Professor Cuming,

Canadian law reflects a long-standing commitment to the principle that some form of public registration should be a precondition to the effectiveness of a non-possessory security interest against third parties.[137]

It was this concern for third party creditors that led to the integration of repair and storage liens into the PPSR in 1989.[138] Although forestry worker liens must be registered in the local Superior Court office, there is no central registry providing third parties with a reliable means of locating prior liens against the wood. This leaves third parties in doubt of the value of their security interest.

The Act also undermines the PPSA’s first-to-register rule by providing loggers with a super-priority interest that benefits them at the expense of creditors secured under the PPSA as well as unsecured creditors.[139]  And the Act provides that a lien is effective against a subsequent third party purchaser of the logs.[140] This is out of keeping with the PPSA principle that third party buyers in the ordinary course should be able to take collateral free from previously perfected security interests.[141]

Forestry worker liens are not the only statutory lien left out of the PPSR. Liens, and other non-consensual security interests such as deemed statutory trusts, are popular legislative tools for securing payments that are deemed to be of particular public interest.[142] There are numerous Crown liens securing public monies owing including, for example, a lien over the stumpage fees owing under Ontario’s forest licencing regime.[143] For the most part, these liens are also independent of the PPSA system and third party creditors do not have the benefit of the PPSR. However, the philosophy driving modern secured transactions reform has been to harmonize, where appropriate, disparate forms of security with the principles underlying the PPSA regime in order to promote certainty and predictability in the marketplace.[144] As will be seen below, other reform projects to modernize statutory lien law have recognized the value of integrating liens with the PPSA where possible.[145] 

 

C.   Bankruptcy and Insolvency

In modern times, FWLWA is most likely to be invoked in cases of insolvency and in this context it is subject to federal bankruptcy and insolvency law.[146] Most provincial statutory liens are effective under the BIA and forestry worker liens should be no different.[147] This is because the BIA defines “secured creditor” to include a statutory lienholder.[148] As such, a lien claimant has a prior claim to the secured property exempting it from the distribution scheme in section 136.[149] Construction liens and repair liens are effective under the BIA on the same reasoning.[150]

In certain circumstances, federal law will override the super-priority of forestry worker liens under the Act. For example, in a case involving a conflict between woodworker lien claims and claims under the Income Tax Act and Excise Tax Act, the British Columbia Court of Appeal held that woodworker liens were subordinate to the federal claims.[151] Nevertheless, FWLWA continues to fit within the modern federal bankruptcy and insolvency regime for most purposes.

A broader issue is whether the policies underlying these two statutory regimes are compatible. The BIA creates two classes of preferred creditors that are loosely analogous to logging contractors:  unpaid suppliers of goods and suppliers of agricultural products or products from the sea.[152] As with logging contractors under the Act, the BIA provides that these creditors rank ahead of the distribution scheme in section 136. However, unlike the Act, the BIA limits the scope of these claims. Unpaid suppliers of goods may repossess goods delivered within 30 days before bankruptcy and only if they remain in identifiable form. Unpaid farmers, fishermen and aquaculturists have security over the assets of the bankrupt in respect of goods supplied within 15 days before bankruptcy.

Agricultural producers, in particular, bear some similarities to loggers and the rationale for protecting agricultural producers under the BIA is similar to the rationale for extending lien protection to loggers. In both cases, suppliers produce a good that is not easily identifiable and is quickly processed and sold. In both cases, a supplier’s receivables from a single bankrupt company may represent a large proportion of annual income.[153] Now that the BIA has become a vehicle for providing statutory protection to these classes of trade creditors in addition to unpaid wage earners, there is an issue as to how this regime corresponds to the distinct and more generous lien regime for loggers under the provincial FWLWA.

 

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