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Employment & Labour

Gap in Canada's employee laws stings Sears' workers: Rudner

A gap in Canada’s employee protection laws is evident in Sears Canada’s denial of severance pay to 2,900 laid off workers while it seeks creditor protection, says Toronto employment lawyer Stuart Rudner.

“It’s one of those unfortunate cases where employees are not getting what they are entitled to, and they really have no remedy,” says Rudner, co-founding partner with Rudner MacDonald LLP. “Employees should have additional protection.”

On June 22, Sears Canada announced it is seeking court protection from its creditors, as well as planning to lay off 17 per cent of its 17,000 employees and closing 59 locations as a result of years of dwindling sales, Global News reports.

Normally, if employees are let go when a company is closing or eliminating their positions, they are entitled to notice or severance pay, Rudner tells AdvocateDaily.com.

Under Ontario’s Employment Standards Act, they could be entitled to up to 34 weeks of termination and severance payouts. Under common law, they could also qualify for additional severance money, he explains.

“But if the company files such a court action, the employees just join the line-up with other creditors and have no additional protection at all,” Rudner says.

“It’s really unfair to employees, especially someone who has been with the company for a long time,” he says.

The law provides more employee protection if a firm simply decides to lay off workers without seeking court protection, making its directors liable for their wage provisions, he says.

Reforming employment laws to make company directors liable for workers’ termination or severance pay when a firm seeks creditor protection would provide additional security to those employees who would otherwise receive little or no compensation, Rudner says. So would giving those who were laid off the status of secured creditors, he adds.

But a mass denial of severance pay to laid-off workers as seen in the Sears Canada case is relatively rare in this country, he says.

When Target Corp. sought bankruptcy protection for its Canadian subsidiary in 2015, the company set up a $70 million reserve fund to make sure severance was paid to its 17,500 laid-off employees, Rudner notes.

The fund was to be kept completely separate from the restructuring process, the Globe and Mail reports

Sears Canada also indicated it intends to stop payments to a plan that provides retirees with health benefits, although it has reached a compromise that could allow the payments to continue up to the end of September, according to Canadian Press.

Although such retirement health benefits are quite rare, their curtailment would be “really unfortunate” for people who have worked for Sears for decades and counted on having them, Rudner says. “Now all of a sudden, virtually overnight, they’re gone.”

Rudner notes the vast majority of severance offers are deficient in one way or another. He and his team can help them get what they are entitled to. However, before employees embark on a full-scale legal battle, they should always conduct a cost-benefit analysis and then determine the best strategy, which is what he always does with his clients. 

“Part of our discussion is that — even if you are entitled to more — we need to make sure that the company will be able to pay you if we get the order we are seeking,” Rudner says.

It sometimes happens that an employee will spend a great deal of money fighting for severance and finally win an order that is not worth the paper it’s written on because the company has filed for creditor protection, Rudner says.


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