Employees must 'get in line' behind other creditors, says employment lawyer, offering tips for HR
Hudson’s Bay Company (HBC) made headlines recently after it filed for bankruptcy and started liquidating its many stores.
Also making headlines? The fact that roughly 9,300 employees to be laid off in the next few months will not receive severance pay.
Stuart Rudner, managing partner at Rudner Law in Toronto, does not find it surprising.
That’s because in regular mass layoffs, employees are generally given a certain amount of notice, and sometimes, based on the number of people let go over a certain time, additional severance pay — but a bankruptcy filing "changes everything," Rudner says.
If a company files for bankruptcy protection and that protection is granted, their obligations under employment standards laws would not necessarily apply, says Rudner.
He also adds that businesses and companies are saved from employees or other creditors suing them for any owed wages or money.
"Basically, there will be a trustee appointed which would look at all the assets you have and look at all of your liabilities and try to figure out if some or all of the creditors can actually get their money," explains Rudner.
"[Employees] just get into line with all the other creditors, and they're not preferred creditors."
Secured or preferred creditors, such as banks, are first in line to be paid from company sales and assets, while employees tend to be last.
"It's anyone's guess as to whether there will be money left over for the employees at all. And if so, they might just get pennies on the dollar," he shares.
Employees in this situation can also apply to the federal government’s Wage Earner Protection Program (WEPP), which provides wages owed to employees who worked for bankrupt companies.
According to Canada’s Labour Code, group terminations—which can also be considered mass layoffs—can be categorized as when a company lets go 50 employees at once or during a 4-week period.
Employers in this situation are required to normally take steps such as notifying the Ministry of Labour, providing visible notice of layoffs to all employees, paying outstanding wages, and, if employees worked 12 months consecutively, severance pay. In certain situations, employers also may be required to pay in lieu if two weeks' notice is not provided to employees.
It's important to note that group terminations and layoffs are subject to specific rules under provincial legislation.
When companies or business apply for either Companies’ Creditors Arrangement Act (CCAA) or the Bankruptcy and Insolvency Act (BIA)—two federal laws that provide legal frameworks to assist financially struggling businesses to reduce debts and wind down operations—they are protected from these obligations.
While companies undergoing bankruptcy are generally not required to follow standard legal compliance rules during layoffs due to their situation, Rudner says there are still best practices to keep in mind.
“It's always better to be clear and transparent and let people know as soon as possible and also try to be as supportive as possible,” he says.
In HBC’s case, the media attention and misinformation are not ideal. Therefore, Rudner recommends companies and employers be as transparent as they can be.
“You want to avoid having employees wonder what's going to happen,” he explains.
Employers are also not legally required to help employees find any other work, but he says on a “moral and practical basis,” employers or companies providing support is a good practice.
“It's always great if they can provide positive letters of reference, if they can provide outplacement counselling—although, of course, that costs money—or any other support,” Rudner says.
In the past, he says he had a client who went above and helped 20 employees find jobs in competing companies in their industry.
In situations like this, employers or companies helping people find work can be “better than severance or termination pay,” says Rudner.
