Sears employees face no severance, loss of benefits

Sears Canada announced its intention to apply to the Ontario Superior Court of Justice for approval to begin liquidating its remaining 130 stores and assets, potentially as soon as Oct. 19.

The Oct. 10 announcement impacts approximately 12,000 employees, who will join the ranks of the 3,000 others laid off earlier in the year. Liquidation sales are predicted to last 10 to 14 weeks.

Sears Canada — which has been in court-approved creditor protection since June 22 — had received court approval for a sale and investment solicitation process, but, “following exhaustive efforts, no viable transaction for the company to continue as a going concern was received,” according to a news release.

None of the laid-off employees will receive severance pay or extended benefits, which Keith Murray, partner at Mathews Dinsdale & Clark LLP’s Vancouver office, says is a typical outcome when a company goes into receivership or bankruptcy.

The chances of employees getting anything “are very slim — even if they got anything it would be pennies on the dollar.

“Employees are secured creditors for any wages that are owing for time they have actually worked, but for any severance pay, whether its statutory severance pay under employment standards or whether it’s common law notice, they are unsecured creditors,” Murray says.

Being designated unsecured creditors puts them in a difficult situation, he adds, noting they’d “have to stand in line behind the secured creditors.” People will lose their extended benefits whether already retired or not because the company “simply won’t be continuing to fund that obligation.”

The company has already closed 58 stores and laid off almost 3,000 employees. In July, Sears offered $9.2 million in retention bonuses to top managers despite employees receiving nothing. Ursel Phillips Fellows Hopkinson, the law firm representing Sears employees, argued for a hardship fund, and Sears set it up in August.

Murray says the fund, which entitles eligible recipients to amounts up to $1,200 a week for eight weeks, is unusual and it’s not clear to him whether or not it will continue to exist “with the current situation; hopefully, it will.”

Originally, Sears executive chairman Brandon Stranzl said he would donate the fund’s full $500,000. So far, $300,000 has been contributed and 22 people have applied for the fund.

Any money from the hardship fund, however, must be claimed as income, which means any employment insurance benefits former Sears employees are getting are reduced. Ursel Phillips Fellows Hopkinson is reportedly in talks with Service Canada to have the hardship fund money designated as a relief grant, which is exempt from being declared as income.

Eighteen thousand Sears Canada retirees and their beneficiaries are facing a possible reduction in pension payouts due to the retail chain’s insolvency. Murray says the company’s situation “certainly has the prospect of affecting or reducing their pension entitlements.”

Pensioners are fighting in court for payouts, but, “given the receivership or bankruptcy, the company is not going to have the ability to top up the pension,” Murray adds. The Sears Canada Plan is currently underfunded by about $270 million, and Ontario Superior Court Justice Glenn Hainey has ordered that no other creditors in the company’s insolvency are to be paid until the issue is addressed.

Ontario is the only province Murray knows of that offers a Pension Benefits Guarantee Fund, which the Ontario government has reported will help mitigate the shortfall for Sears employees.

Though hesitant to call it a positive point, Murray says what helps the situation a little is the fact that most of the employees at Sears aren’t full-time workers.

“It’s still going to have a significant impact on people . . . but not as great as someone who’s worked there full time for many years.”

Previous motion materials are available on Monitor, FTI Consulting Inc.’s website and will be updated with the new application once it’s been made.