Sears Canada said that, as part of court proceedings, it is ’not able to make payments to certain creditors, including severance payments, and wants to cut pension payments and benefits

Sears Canada said that, as part of court proceedings, it is ’not able to make payments to certain creditors, including severance payments, and wants to cut severance and pension payments and benefits to former workers
Photo Credit: Colleen Connors CBC

Employer/employee contracts, when guarantees for workers are not guaranteed after all.

Giant retailer Sears Canada has filed for bankruptcy protection.

In its efforts to restructure,  the firm will close dozens of its stores, and cut its staff by almost 3,000 people. Sears Canada had employed about 17.000 people, some 10, 500 of which were part-time.

While “secured” creditors would be first in line for any payment, recently laid off and retired workers get pushed to the back. They’ve been told there will be no severance payments and benefits will be cut to retirees along with pension payments which are likely to be compromised.

Maurice Mazerolle (PhD) is an Associate Professor in the Human Resources/Organizational Behaviour department in the Ted Rogers School of Business Management and the director of the Centre for Labour Management Relations at Ryerson University in Toronto, Ontario.

Listen
Professor Maurice Mazorolle (PhD)
Professor Maurice Mazorolle (PhD) © Ryerson University

The giant retailer is blaming competition from big box stores, and online sales for its diminishing performance.

announced it was seeking credit protection (bankruptcy protection) on June 22 while it tries to restructure.  The company is closing some 59 of its stores across Canada about one third of its stores, but says it will continue to operate the other stores as it restructures.

Sears Canada has asked the courts for the right to stop severance payments and life insurance, dental and health benefits to retirees, and payments into the pension plan including the “defined benefits” plan which theoretically guarantees a specific monthly payment to former workers.

It will take its case to Ontario Superior Court on July 13.

In April, Sears Canada announced that it lost $321 million in 2016-17.
In April, Sears Canada announced that it lost $321 million in 2016-17. © Darryl Dyck/Canadian Press

The fact that a worker can give decades of support to a company then be cut loose under bankruptcy, is all within the law according to experts, although whether it’s morally acceptable is another issue entirely.

Guaranteed conditions- not guaranteed after all

Professor Mazorolle says what makes the Sears situation interesting is that what people considered a guaranteed contract from the employer, i.e, severance pay, and defined benefits pension payment is shown not to be guaranteed under bankruptcy conditions.

The court will have to decide on a tricky decision. This will be between financial protection to allow the company to continue to operate while it hopefully restructures and gets back to solvency, thereby protecting some jobs, and possibly continuing to pay into the retirement fund, or ordering it to maintain its obligation to pay severance and full pension and benefits and thereby possibly forcing it into bankruptcy with eventually no jobs or payments.

Professor Mazorolle notes that as a company begins to feel a financial squeeze, it will make application to regulators to reduce or temporarily halt its obligatory funding of its pension plans, leaving them underfunded.  In bankruptcy protection this is also inevitably the case.

In the case of Sears Canada, it had not made its full pension contribution, and although it had been ordered to pay extra to top up the funding, that will now cease as will any payments into the fund.

While this case is not unique, the size of Sears and the lay-offs have made the case newsworthy in terms of Canada’s bankruptcy laws.

But as professor Mazorolle notes, Canadians as a whole believe in ‘fair play” and while everything Sears is doing and proposing is entirely legal, cutting payments to laid off and retired workers is seen as not playing fair at all, and even more so when top executive’s pay and benefits would not be affected.

He says it would be relatively easy to modify the laws to give more protection to workers in bankruptcy cases, and would likely be applauded by the public, it would change the investor climate and not be welcomed by investors. He says he doubts any changes will come soon, in spite of the high profile of this case.

Additional information

Tagged with: , , , , , , ,
Posted in Economy, Politics, Society

Do you want to report an error or a typo? Click here!

@*@ Comments

Leave a Reply

Your email address will not be published. Required fields are marked *

 characters available

Note: By submitting your comments, you acknowledge that Radio Canada International has the right to reproduce, broadcast and publicize those comments or any part thereof in any manner whatsoever. Radio Canada International does not endorse any of the views posted. Your comments will be pre-moderated and published if they meet netiquette guidelines.

Netiquette »

When you express your personal opinion in an online forum, you must be as courteous as if you were speaking with someone face-to-face. Insults and personal attacks will not be tolerated. To disagree with an opinion, an idea or an event is one thing, but to show disrespect for other people is quite another. Great minds don’t always think alike—and that’s precisely what makes online dialogue so interesting and valuable.

Netiquette is the set of rules of conduct governing how you should behave when communicating via the Internet. Before you post a message to a blog or forum, it’s important to read and understand these rules. Otherwise, you may be banned from posting.

  1. RCInet.ca’s online forums are not anonymous. Users must register, and give their full name and place of residence, which are displayed alongside each of their comments. RCInet.ca reserves the right not to publish comments if there is any doubt as to the identity of their author.
  2. Assuming the identity of another person with intent to mislead or cause harm is a serious infraction that may result in the offender being banned.
  3. RCInet.ca’s online forums are open to everyone, without regard to age, ethnic origin, religion, gender or sexual orientation.
  4. Comments that are defamatory, hateful, racist, xenophobic, sexist, or that disparage an ethnic origin, religious affiliation or age group will not be published.
  5. In online speak, writing in ALL CAPS is considered yelling, and may be interpreted as aggressive behaviour, which is unpleasant for the people reading. Any message containing one or more words in all caps (except for initialisms and acronyms) will be rejected, as will any message containing one or more words in bold, italic or underlined characters.
  6. Use of vulgar, obscene or objectionable language is prohibited. Forums are public places and your comments could offend some users. People who use inappropriate language will be banned.
  7. Mutual respect is essential among users. Insulting, threatening or harassing another user is prohibited. You can express your disagreement with an idea without attacking anyone.
  8. Exchanging arguments and opposing views is a key component of healthy debate, but it should not turn into a dialogue or private discussion between two users who address each other without regard for the other participants. Messages of this type will not be posted.
  9. Radio Canada International publishes contents in five languages. The language used in the forums has to be the same as the contents we publish. The usage of other languages, with the exception of some words, is forbidden. Messages that are off-topic will not be published.
  10. Making repetitive posts disrupts the flow of discussions and will not be tolerated.
  11. Adding images or any other type of file to comments is forbidden. Including hyperlinks to other websites is allowed, as long as they comply with netiquette. Radio Canada International  is in no way responsible for the content of such sites, however.
  12. Copying and pasting text written by someone else, even if you credit the author, is unacceptable if that text makes up the majority of your comment.
  13. Posting any type of advertising or call to action, in any form, to Radio Canada International  forums is prohibited.
  14. All comments and other types of content are moderated before publication. Radio Canada International  reserves the right to refuse any comment for publication.
  15. Radio Canada International  reserves the right to close a forum at any time, without notice.
  16. Radio Canada International  reserves the right to amend this code of conduct (netiquette) at any time, without notice.
  17. By participating in its online forums, you allow Radio Canada International to publish your comments on the web for an indefinite time. This also implies that these messages will be indexed by Internet search engines.
  18. Radio Canada International has no obligation to remove your messages from the web if one day you request it. We invite you to carefully consider your comments and the consequences of their posting.

*

3 comments on “Employer/employee contracts, when guarantees for workers are not guaranteed after all.
  1. Nora Peach says:

    The laws should be modified by the government of Canada as soon as possible to protect workers in bankruptcy cases.

  2. Rene Albert says:

    Our Canadian government’s prime responsibility is to protect its citizens! And it fails badly in almost every respect…especially those working for corporations.

    In the case of Sears, its going under because of lousy management. Everyone knows that! As a result they are taking it out of the employees benefits and pensions.

    And what do the Liberals do to protect the employees? Nothing of course. They can’t bend over enough to the demands of Wall Street lobbyists. Its high time to make the necessary changes to the Canadian Commercial Corporation Act to protect employees.

    If not, lets vote the damn Liberals out next election, and anyone else elected afterwards until they make the enecessary changes…

  3. Ira S says:

    Good article. It will indeed be interesting to see how the Court decides. My guess is that Sears Canada won’t have to pay sev or term and those claims will be claims in the ultimate Plan of Arrangement.

    I am not so sure that the Court will be comfortable trampling on the pension rights. Sears won’t have to make up any plan shortfall, but whatever the Plan can pay will be accounted for on the Plan wind-up.

    Stay times for more!