Yahoo Finance Sears Canada ex-employees unlikely to see any money in short term
Lior Samfiru was in the midst of wrapping up severance package negotiations for a client recently dismissed by Sears when they received a letter from the retailer saying the offer was off the table.
“They basically said ‘forget about it and you can feel free to go ahead and sue us,’ ” says the co-founder and partner at Samfiru Tumarkin LLP, an employment law-focused firm in Toronto. “As soon as we got that letter we knew there was only one reason that Sears would take that position and that was because it was about to go under credit protection.”
Samfiru’s intuition was right. A few days later, the company filed for Companies’ Creditors Arrangement Act (CCAA) protection in Ontario Superior Court, announcing the layoffs of 2,900 employees and the closure of 59 stores in a bid to restructure the beleaguered retail brand.
Since then, Samfiru has received calls from over 40 employees following the string of layoffs – including one client who was owed another 20 months of severance pay – wondering what’s next for their pensions, benefits and severance packages.
“The answer, for all of them, unfortunately, is there’s nothing we or anyone can do for you as long as Sears is under this creditor protection,” says Samfiru. “The way the system works is they’re at the back of the line with unsecured creditors… it’s a frustrating situation.”
Earlier this week, Sears sought permission from the Ontario Superior Court to suspend $3.7 million in monthly payments meant to go towards the company’s defined benefit component of their registered retirement plan. Sears is also hoping to pause contributions to both its retirement health and dental benefits plan and its post-retirement life insurance premiums – which cost the company around $800,000 monthly and $245,000 monthly before tax, respectively.
It isn’t sitting well with former employees.
“Because the pension plan was underfunded and Sears had gotten permission from the board not to pay money into the plan, there’s not enough money there for employees that are supposed to get those funds,” he says. “It’s a sad, sad situation all around both for past employees and those that have lost their jobs more recently as well.”
Typically, when CCAA protection kicks in, the courts are going to provide debtors (in this case Sears Canada) with as much “latitude” as possible while the company is trying to restructure, explains Natalie MacDonald, founding partner at Rudner MacDonald LLP, an employment law-focused firm in Toronto.
“The company is attempting to restructure its debts in order to survive bankruptcy,” says MacDonald. “The CCAA requires that a monitor is appointed and that is the entity that will act as the officer in monitoring and reporting on the company’s affairs.”
That monitor becomes the touch point for employees with grievances. But the emphasis for the courts is usually on protecting the employer as they try to fight their way out of debt.
If Sears does declare bankruptcy, then the bankruptcy insolvency act dictates how the debts are paid.
“An unpaid employee then becomes a creditor and (can) apply under the Wage Earner Protection Program (WEPP),” she says, explaining that WEPP establishes reimbursement for eligible employees with unpaid wages, vacation pay, severance and termination pay. But the employee has to file a claim to Service Canada within 56 days of the date of bankruptcy or receivership and the maximum amount is about $3,000.
“The ideal situation is for Sears to get back up on its feet and be able to then start to go through the debt that it has and be able to pay them off and assist its employees that way,” says MacDonald.
Samfiru says the odds are against employees.
“Irrespective of what happens with Sears, they are not going to get their full entitlements and all of this assumes that Sears comes out of it, which is certainly far from being certain,” he says.
But Samfiru hopes this will spark interest in changing the way employees are treated in CCAA situations. His suggestion for legislators: treat employees as secured creditors with respect to the benefits, severance pension, etcetera.
“There is no reason employees should be at the back of the line,” he says pointing to bankruptcy laws as a working example. Another suggestion is to make business owners, executives, and directors liable for severance in cases like these.
“I understand a lot of companies and business owners may find this idea disturbing,” he says. “But you’ve got to believe that somewhere up the food chain when it comes to Sears, someone has money, it’s just that the money that is there is spoken for or is not part of this process and doesn’t have to be paid to employees.”
