My Employer Went Bankrupt. Am I Entitled to Severance?

Understanding Employee Rights: What Happens When Your Employer Declares Bankruptcy?

The situation can be devastating when your employer declares bankruptcy. The uncertainty regarding your job security and financial stability can be overwhelming. But what about your right to severance pay? This article will help you navigate through such complex situations.


If your employer goes bankrupt, numerous questions can cross your mind. One of the major concerns is whether you’re entitled to severance pay. The circumstances surrounding bankruptcy can be complex, and understanding your rights as an employee is crucial.

Defining Bankruptcy

Bankruptcy is a legal process where a company declares that it can’t pay its debts. It often involves liquidating assets to pay off creditors. When an employer declares bankruptcy, it can have a significant impact on the employees.

Employee Rights During Bankruptcy

When your employer declares bankruptcy, your job security is at risk. However, you still have rights as an employee. One of these rights could be your entitlement to severance pay.

Severance Pay

Severance pay is a form of compensation that an employer provides to an employee who has been laid off, retired voluntarily, or parted ways with the company for other reasons. The main question is, are you entitled to severance pay if your employer goes bankrupt?

Receiving Employment Insurance

If you lose your job due to your employer’s bankruptcy, you can apply for Employment Insurance (EI). However, if you receive severance pay later, it might affect your EI benefits. It is advisable to consult with employment experts to understand how severance pay can influence your EI benefits.

Wage Earner Protection Program

The Wage Earner Protection Program (WEPP) is a federal program that provides compensation to eligible workers for unpaid wages, vacation pay, termination pay, and severance pay. However, these payments are subject to a maximum cap.

Role of Unsecured Creditors

In the case of bankruptcy, employees who are owed severance pay can file a claim as “unsecured creditors.” They are entitled to their pay only after the secured creditors are paid, and if there are any funds left.

Repercussions of Late Severance Pay

If you receive severance pay after you have already started receiving EI benefits, you might have to repay the EI benefits you received. However, it’s important to note that only “earnings” need to be repaid. If your severance pay is classified as “general damages,” you won’t have to repay it.

Legal Options

If you’re facing such a situation, it’s advisable to consult a legal expert. They can guide you about your rights and help you understand the options available to you.


When your employer goes bankrupt, it’s a difficult situation. However, understanding your rights and knowing the available options can be a great help. It’s always advisable to seek legal counsel to make an informed decision.

Please note: The information provided in this article is for informational purposes only and should not be considered legal advice. Always consult with a legal expert before making any decisions.

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