Sears Canada: Severance pay and ‘Sears Act’

Sears Canada Severance: Lior Samfiru Urges Parliament to Create “Sears Act”

Employment Lawyer Lior Samfiru, of Samfiru Tumarkin LLP, has issued a letter to MPs throughout Canada, urging Parliament to create a ‘Sears Act‘ to recognize employee rights during bankruptcy proceedings, so that the debacle that Sears Canada employees experienced can be avoided when the next large-scale business closes its doors for good.

Read and download Lior’s letter HERE, and please mail or email it to your local MP.

Samfiru discussed the Sears Act during interviews on Global News Radio 640 Toronto, 680 and 1130 News, and Global News Radio 980 CKNW in Vancouver.

Sears Canada Liquidating Stores, Eliminating 12,000 Jobs

On Friday, Oct. 13 Sears Canada was given permission by an Ontario judge to liquidate its 130 remaining stores. Around 12,000 employees are out of a job, following the 3,000 or so terminated in June. Liquidation began Oct. 19 in order to take advantage of the December holiday season, though many shoppers have reported that current discounts are underwhelming.

Remaining Executives Will Still Receive Cash Bonuses

Sears Canada will provide a final $2.6 million in retention bonuses to dozens of managers and executives who have chosen to remain with the company in its final months of operation. Originally, the bonuses were to be paid only if the company found a way to survive bankruptcy, however court approval was given on Oct. 18th to continue paying retention bonuses to key staff. More than 16,000 employees have lost or will soon lose their jobs, and will not receive severance pay. Employee pensions will also be reduced.

‘Hardship Fund’ Falls Short

In response to a growing public outcry and social media firestorm, Sears Canada Inc. created a $500,000 ‘hardship fund’ for the 3,000 or so former employees who were terminated in June 2017 without severance. The money for the fund was to be pulled from the $9.2-million retention bonuses earmarked for executives and other employees who choose to remain with the company during restructuring.

The hardship fund is now facing a $200,000 shortfall, due to the fact that a Sears Canada executive has had second thoughts about making the donation from their retention bonus. According to CBC News, court documents indicate that the executive in question is Sears Canada executive chairman Brandon Stranzl. It is understood that Stranzl in fact contributed $300,000 from his retention bonus to create the first portion of the hardship fund.

The $500,000 fund represents less than $200 per terminated employee, and falls well below the amount of severance pay each employee was likely entitled to had bankruptcy not been a factor.

Former employees must first be approved before accessing any amounts. Those who have been approved could see as much as eight weeks of wages, up to a maximum weekly amount of $1,200, to be paid via monthly instalments. The body overseeing the fund will have the authority to provide up to $2,500 in additional support in response to medical and other emergencies.

It is important to put in context what a laid off employee would have received, had Sears Canada followed normal termination procedures. Many of the employees could have received as much as 2 years pay. Instead, we are likely looking at a few hundred dollars, per employee. For an employee that has lost out on $100,000 in severance, receiving a cheque for a few hundred dollars will be no consolation. It appears that this may be nothing more than a PR move, to improve Sears’ image.

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Federal Government Responds To Our Legislative Recommendations

Following the initial news concerning Sears Canada, Samfiru Tumarkin LLP sent correspondence to Navdeep Bains, Minister of Innovation, Science and Economic Development Canada, urging the federal government to change legislation that governs bankruptcy proceedings across the country. As noted below, we recommended that either employees be made secured creditors with respect to severance and pension entitlements, or officers and directors of a company be held personally liable for employees’ severance entitlements.

The Ministry responded on July 21 with the following:

“As the Sears Canada Inc. (SCI) proceedings are now before the courts, it would not be appropriate to comment on specific aspects of the case. Please be assured that the Government of Canada understands the importance of economic security, and also acknowledges the difficult circumstances that SCI employees, retirees and their families may face as a result of the insolvency.

As Minister of ISED, Minister Bains’ mandate includes responsibility for some of Canada’s marketplace framework legislation. Framework laws like the CBCA, BIA and CCAA are intended to enhance the efficiency and competitiveness of the Canadian marketplace, provide clarity for businesses and their stakeholders, foster competition, support innovation, and attract investment, creating the market conditions that will contribute to prosperity and jobs for Canadians.

The CCAA court has appointed legal counsel to protect that interests of SCI employees and retirees at company expense in the proceedings. The court has also authorized a transition period whereby SCI will continue its pension and post-retirement benefit plans and special payments to its pension plan until October 1, 2017. These payments are intended to contribute to the financial sustainability of the pension fund. I would also note that the court has approved a sales and marketing process for SCI’s assets with the objective of maximizing returns to all creditors and stakeholders, including SCI employees and retirees, and of preserving employment.“

Former Sears Canada Employees Confirm Severance, Benefits, Pensions Cut

Since Sears Canada filed for creditor protection in June, Samfiru Tumarkin LLP has been contacted by frustrated past and present employees.

Those employees who had previously accepted severance terms from the retailer in the form of salary continuance (when severance pay is provided over a course of months rather than in one lump sum) have informed Samfiru Tumarkin LLP that Sears has stopped paying the agreed upon severance.

Letters from Sears Canada have been issued to former employees, informing them that as of June 22nd 2017, in association with the Companies’ Creditors Arrangement Act proceedings, Sears Canada has ceased paying severance. Participation in the company’s group benefits and pension plans have also been halted. These former employees are being encouraged by the retailer to make arrangements to replace their benefit coverage as they deem fit.

One individual, who had worked for Sears Canada for 35 years and was owed another 20 months’ severance pay, received the same letter. In a live phone call to the Employment Law Show on Global News Radio 640 Toronto, he told Employment Lawyer Lior Samfiru that retirees stand to lose not only their health and dental benefits, but also specific pension amounts as well. On July 6th, Sears Canada filed a motion with the Ontario Superior Court of Justice, seeking permission to enact those cuts.

LISTEN – CBC Metro Morning: Legislation Needs to Change

Terrible Scenario Can Be Avoided in the Future

Due to the fact that Sears Canada is under creditor protection, employees cannot take legal action against Sears to recover their losses. Bankruptcy laws protect a struggling company and allow it to favour its secured creditors (banks) over employees. This terrible scenario can only be avoided by changes in legislation in one of two ways:

1. Making employees secured creditors with respect to their severance and pension entitlements. This will ensure that employees are at the “front of the line” when a company is in bankruptcy proceedings.
2. Making officers and directors of a company personally liable for employees’ severance entitlements. Currently, officers and directors are only personally liable for unpaid wages of employees, but not for severance. If they were made personally liable, it is very likely that the Sears scenario would have had a different outcome.

The company is closing 59 locations and cutting 2,900 jobs as part of its plan to restructure. Stores being shuttered include 20 full-line location, 15 Sears Home stores, 10 Sears Outlet stores, and 14 Sears Hometown stores.

According to a statement released by the company, growth in same store sales in the last two quarters indicates that their “new brand positioning is starting to resonate with consumers.”

How Does Creditor Protection Affect Severance?

Unfortunately, once court protection is granted, and as long as it exists, no Sears Canada employee can pursue their termination entitlements.

Employees are now solely dependent on what Sears Canada decides to do in terms of severance.

There is virtually no chance that outgoing employees will receive anywhere near what they are actually owed! This is especially true for long service employees. Employment lawyer Lior Samfiru told The Globe and Mail that former employees might receive as little as one week of salary for every year of service, to a maximum of eight weeks.

Creditor protection is almost certain to affect former employees who successfully negotiated severance pay months ago, depending upon the final agreement. Those employees who obtained severance in the form of salary continuance from Sears Canada now stand the risk of losing the remaining balance that they are owed. If the company breaches those contracts and refuses to honour the rest of the agreements, there is no recourse for those now left empty-handed. Lump sum payments, on the other hand, will not be disrupted by creditor protection. We advise you to consider this fact in future negotiations where the employer’s longevity is in serious doubt.

Severance Under Normal Circumstances

Being terminated from your employment (whether you’ve been there for 1 month or 30 years) is downright scary. On top of the shock and disappointment of losing your job, you are then handed an intimidating stack of paperwork which purports to set out your entitlements and, sometimes more importantly, limit your rights.

No matter how quickly the company has requested your acceptance of the proposed terms, or how fair the proposed terms appear to be, it is always a good idea to have your severance offer reviewed by an employment lawyer.

For an indication of what you full severance entitlements might be, use our Severance Pay Calculator.