When a big company like Sears Canada goes through tough times, public sympathy is usually with the workers who are losing their benefits, pensions, or severance. But the way the law is currently written means that, for the most part, people with deeper pockets get paid before employees do.
“What we have essentially is a regime that creates a priority of claims in any insolvency situation for who gets paid out,” Mark Rowlinson, a labour lawyer and policy researcher at the United Steelworkers union, told BuzzFeed Canada.
“Workers’ claims, whether that be wages or pension benefits or retiree benefits, don’t come first. What come first are so-called ‘secured’ claims, which are mostly claims of creditors, banks, lenders with secured claims on the business.”
Sears Canada announced earlier this summer that it’s closing dozens of stores across the country and laying off some 2,900 employees who won’t receive severance packages as well as some retiree benefits and pensions. At the same time, the company is paying $7.6 million in bonuses to executives and senior managers.
In response, people have launched an online campaign to boycott Sears Canada, and more than 6,100 people have signed a petition demanding that employees be paid before anyone else. But a relatively simple change to the law could guarantee that workers are at the front of the queue when a company goes through a restructuring.
“It would be the easiest thing in the world,” said James Harnum, a lawyer focused on pension and benefit issues in bankruptcy and restructuring cases, as well as an adjunct professor at Western Law.
There are two main federal laws that deal with this: the Bankruptcy and Insolvency Act and the Companies’ Creditor Arrangement Act. Harnum, who said he is involved in the Sears Canada restructuring and therefore could not comment on the specifics of the case, said there are some protections for workers in the federal legislation. For example, each employee in a company that goes under is guaranteed up to $2,000 in outstanding wages. It’s what’s known as a “super priority,” Harnum said, so it gets paid out before anything else. But severance packages, retirement benefits, and money owed to pension plans are not given the same weight, which is why workers often have to fight in court to win back some of that compensation.
According to Harnum, section 81 of the Bankruptcy and Insolvency Act could be updated to make those super priorities as well. And while borrowing money would likely become more expensive for companies in trouble, he said that extra cost would not grind business to a halt.
“It would not be that difficult to amend the legislation, from a technical standpoint,” he said. “Whether that’s politically possible is a very different question.”
The Ontario NDP has called for a change to federal bankruptcy law to make sure worker compensation is prioritized over other creditors. A similar motion passed the Ontario Provincial Parliament last year with support from the Progressive Conservatives and the governing Liberals.
“Everybody agreed that there is something fundamentally wrong when a company restructures and goes through a bankruptcy process, that employees are the last to be considered when they built the company to a certain degree,” Catherine Fife, the Ontario NDP’s employment critic, told BuzzFeed Canada.
While there are some provincial measures that can help, such as Ontario’s Pension Benefits Guarantee Fund, it’s ultimately a change that has to happen in Ottawa.
In 2009, the federal Liberals vowed that if they came to power they would change the Bankruptcy and Insolvency Act to improve worker protections. Responding to anger from laid-off Nortel workers, then-leader Michael Ignatieff said his party was committed to changing the law “so that you are not left at the back of queue in insolvency and bankruptcy.”
“It’s not right,” he said at a rally on Parliament Hill. “We agree with you.”
Today’s Liberal Party, led by Prime Minister Justin Trudeau, has not indicated whether any such change is actually underway now that they’re in charge.
A spokesperson for Innovation, Science and Economic Development Canada expressed concern for laid-off Sears Canada workers, but did not directly address questions from BuzzFeed Canada about possible changes to the law. A follow-up query to the department went unanswered.
Rowlinson, the United Steelworkers lawyer, said that whether anything changes on this front is “primarily a political choice.”
“Essentially [employees] are losing the compensation they should have been paid while working for that employer,” he said. “And it’s just awfully and completely unfair that they should have those benefits that they negotiated, that they have worked for their entire working lives, disappear when a company becomes distressed.”