One of our country's longest-running commercial retailers — Sears Canada Inc. — has announced that it will seek court approval to liquidate all of the company's remaining assets, leaving a staggeringly large number of Sears employees wondering what they will have to show for the years of service they gave to the company. The answer, for many, is nothing, and considering how many employees have been and will be impacted by these bankruptcy proceedings, one is compelled to ask how it is possible that this has been allowed to happen.
In June of this year, Sears Canada filed for creditor protection under the Companies' Creditors Arrangement Act, which allows failing companies the opportunity to restructure their affairs. Once so protected, Sears Canada was legally permitted to engage in mass layoffs without satisfying any of its obligations to provide severance pay.
At the time that it filed for protection, Sears terminated approximately 2,900 employees and paid them nothing. Under Canadian law, terminated employees are not considered secured creditors (i.e. those who would be first in line to be paid upon termination), and if they receive anything at all, it is likely to be pennies on the dollar of what their true entitlements are.
We are not talking about the corporate executive who can make do without a golden parachute and fall back on substantial savings.
Harsh reality for long-serving employees
Now with this most recent announcement, an additional 11,500 employees will be left without a job and without any severance payments to help them survive through what is projected to be a lengthy period of unemployment. Many Sears Canada employees have been with the company for decades, have an outdated resume and now face unemployment in the context of an unfriendly, highly competitive job market.
We are not talking about the corporate executive who can make do with a golden parachute and fall back on substantial savings. We are talking about the 60-year-old man who has worked in the electronics department since he was 35 years old, or the 45-year-old single mother who took a job in customer service straight out of high school — individuals who, without the veil of bankruptcy "protecting" Sears Canada from paying severance, would be otherwise entitled to two years of severance pay, inclusive of continued enrollment in benefits plans and receipt of pension contributions.
Hardship fund: adding insult to injury
Adding insult to injury was the establishment of the $500,000 "hardship fund," created by Sears Canada to provide some money to the employees who were terminated in the first round of layoffs back in June. While this initially sounds quite generous for a company that has no legal obligation to provide any payments whatsoever, $500,000 spread over all of their terminated employees amounts to just less than $200 per employee.
Those that do apply and qualify for payments under the hardship fund then find that this nominal amount is characterized as income, which would impact their ability to collect employment insurance and may even lead to repayment obligations if they had already been in receipt of EI when awarded the money from the fund.
Although what has transpired here is not technically illegal, there is a deep, pervasive sense of unfairness here.
Further to all of this is the fact that the hardship fund was also funded by pulling money out of the $9.2 million that was earmarked for executive retention bonuses, which would understandably lead many to ask how it is possible that a company under bankruptcy protection can leave almost nine million dollars in the coffers for executive bonuses while paying their long-serving employees less than $200 as severance pay.
Better protection for employees
Although what has transpired here is not technically illegal, there is a deep, pervasive sense of unfairness here. Such a feeling is generally a sign that something went awry, that our laws do not accurately reflect the values that we hold as a society.
So, what can change? Perhaps the CCAA should be amended such that the termination of employees without severance does not present itself as the cheapest and easiest way for a company to "reorganize" its financial affairs. Or terminated employees should be classified as secured creditors such that they are paid out once the company liquidates its assets. Or the directors and officers of these companies should be held personally liable for the unpaid severance of terminated employees in the event that any kind of financial mismanagement can be established as the cause of the insolvency.
There are many possible permutations of a solution to this issue. Unfortunately, none of them will help the roughly 15,000 Sears Canada employees who are being impacted by these proceedings now, but the hope is that we can take our collective sense of unease at what has happened to them, and use that to facilitate enough change such that it never happens to anyone else.
Lia Moody is the managing partner at Samfiru Tumarkin LLP's Vancouver office, focusing on labour and employment law in British Columbia. She has represented both employees and employers with respect to wrongful dismissal, constructive dismissal, sexual harassment, and human rights.
Read more about the Sears Canada story from Samfiru Tumarkin LLP here.
Also on HuffPost: