WEPP relief available in RVO context, Commercial List finds for the first time in Ontario

In 1001270243 Ontario Inc. (formerly Synaptive Medical Inc.), 2026 ONSC 3967, the Ontario Superior Court of Justice (Commercial List) ruled that terminated employees can access Wage Earner Protection Program (WEPP) payments in appropriate circumstances following a reverse vesting order (RVO) transaction. This is the first decision in Ontario addressing this issue.

What you need to know

• WEPP is available in an RVO context. Terminated employees can access payments under the WEPP in appropriate circumstances where their employer sells its business as a going concern under an RVO transaction in a CCAA proceeding.
• Alignment with the Québec courts. The Court took a substance-over-form approach to this issue that aligns with the approach taken to date in Québec (for example, in the Just for Laughs and Valeo Pharma matters); however, the Québec Court of Appeal is expected to release a decision on this issue soon, so the law in that jurisdiction could evolve in short order.
• This decision provides certainty. Prior to this decision, it was unclear whether employers, by using RVO transactions to address their challenges in an insolvency proceeding, were categorically cutting their employees out from WEPP eligibility. This decision confirms that this is not the case.

The details

Corporate insolvencies cause financial hardship for a wide range of stakeholders, terminated employees being chief among them. Indeed, hardship for terminated employees led Parliament to enact the Wage Earner Protection Program, which facilitates payments for unpaid wages and similar amounts in qualifying insolvency proceedings. However, the emergence of reverse vesting orders—which did not exist when the WEPP was established—led to an important question: can terminated employees access WEPP after an RVO transaction?

Background

Synaptive Medical Inc., a developer of advanced neurosurgery tools, obtained protection under the Companies’ Creditors Arrangement Act (CCAA) in March 2025, and emerged as a going concern after an RVO transaction for its shares closed in June 2025. As part of that RVO transaction, all the employment agreements and employment-related claims of Synaptive’s terminated employees were channeled into a “ResidualCo” entity, which was added to the proceeding as a CCAA applicant. ResidualCo was subsequently bankrupted in September 2025.

In connection with its RVO transaction, Synaptive sought a declaration that either it or ResidualCo met the criteria required for terminated employees to receive WEPP payments under the WEPP’s governing legislation, the Wage Earners Protection Program Act (the WEPP Act). Those criteria include either of the following: (i) the “former employer” of the terminated employee is bankrupt; or (ii) the “former employer” is “the former employer all of whose employees in Canada have been terminated other than any retained to wind down its business operations”.

The key question for this determination was whether ResidualCo—by virtue of the terminated employees’ employment contracts and claims vesting to it under the RVO—qualified as the “former employer” of Synaptive’s terminated employees for these purposes.

Employment and Social Development Canada (ESDC)—the federal government body responsible for administering the WEPP—opposed this declaration. Among other reasons, it argued that the Minister of Labour, and not the Court, had exclusive jurisdiction to determine whether ResidualCo (or Synaptive) was the “former employer” for these purposes and, in any event, that ResidualCo did not meet the criteria because the terminated employees did not actually render services to it.

The Court’s decision

The Court ultimately found that ResidualCo met both criteria.

The Court took a purposive view of the WEPP Act in coming to its decision. The WEPP Act is remedial legislation designed “to provide for payments to individuals in respect of wages owed to them by employers who are insolvent”. Through this lens, the Court found that the WEPP Act’s key objective is to fill the gap left by the absence of a solvent employer who can pay wages owing to terminated employees. This reasoning mirrored the approach taken by the Québec court in Just for Laughs¹and Valeo Pharma².

With these objectives in mind, the Court found that it would be contrary to the object of the WEPP Act to deny compensation to a terminated employee simply because the “true” former employer transferred its liability to a third party ResidualCo. In other words, the fact that ResidualCo became the former employer by operation of the vesting mechanics of an RVO, rather than a direct employer-employee relationship, was irrelevant to the question of whether it met the WEPP Act criteria.

Finally, the Court dismissed ESDC’s argument that the Minister of Labour had exclusive jurisdiction to determine whether an entity is a “former employer” for purposes of the WEPP Act. While the Minister must evaluate each employee’s claims and determine whether those claims meet the WEPP Act’s criteria for payment, the Court still retains the jurisdiction to determine which entity constitutes the “former employer” for purposes of those criteria.

Implications

The Court’s decision confirms that RVO transactions are not barriers to WEPP relief in Ontario—a finding that provides much-needed certainty to insolvency practitioners. We expect that this development will ultimately reduce the risk associated with employing RVOs now that one of their biggest legal uncertainties—whether they necessarily result in worse outcomes for terminated employees—has been addressed.